Google’s ad sales are expected to drop this year for the first time since going public in 2004, after a pullback by advertisers because of the coronavirus pandemic.
Google’s ad revenue this year will drop 5.3% to $39.6 billion, down from $41.8 billion in 2019, according to research firm eMarketer. And while Google’s ad total is still expected to exceed those of rivals Amazon and Facebook, the company’s share of the U.S. digital ad market will drop to 29.4% from 31.6% last year.
“This is a big deal,” said Nicole Perrin, eMarketer principal analyst. “We know there’s been a significant impact associated with the outbreak.”
The news comes as hotels and airlines, some of Google’s largest advertisers, struggle as people stay home due to the pandemic. Although travel has picked up in recent weeks, many travel-related companies are slashing their prices—a strategy that is intended to bring back customers but hurts profits.
While Google’s ad revenue is expected to decline, ad sales for Amazon and Facebook are expected to rise, though at slower rates than pre-pandemic predictions. Google Search, which is responsible for most of Google’s ad revenue, has a higher exposure to travel than Amazon and Facebook does, according to eMarketer. Google has also suffered from a slowdown in e-commerce ads, with Amazon reportedly pulling its ads from Google Search earlier this year. Although Google’s ad decline is expected to be temporary, some negative effects will last well after the pandemic, Perrin said.
Travel “won’t come back quite the same as it was [pre-pandemic],” she said. “They’re [advertisers] rethinking their former strategies.”
Google declined to comment for this story. But in April, Alphabet told analysts that its ad sales have declined during the pandemic. During its first-quarter earnings call with investors, Alphabet chief financial officer Ruth Porat warned about a “difficult quarter ahead” after shelter-in-place orders caused an “abrupt drop” in ad sales. By the end of March, revenues had declined by “a mid-teens percentage” compared to the same period a year earlier, she said.
Google had reported a 13% rise in in first-quarter ad revenue, which totaled $41.2 billion, beating analysts’ expectations. But the company suggested the worst was yet to come, and, according to eMarketer’s predictions, the hit will be “significant.”
If so, it would represent the first time that Google has seen a drop in annual ads revenue since its initial public offering in 2004. Even during the Great Recession, the company managed to grow, though more slowly. “They had a smaller share of the ads market, so it had room to grow,” Perrin said.
Meanwhile, Amazon, which isn’t as exposed to travel, is expected to see a 23.5% rise in digital ad revenue, ending the year with $12.8 billion, according to eMarketer. Facebook, whose ad sales are being helped by fast-growing Instagram, is expected to see a rise of 4.9% in annual ad revenue, totaling $31.4 billion.
The three companies’ share of the U.S. digital ad market, estimated to be worth $134.7 billion at the end of 2020, is expected to grow by .2 percentage points, representing the smallest gain in a decade.
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