Facebook CEO Mark Zuckerberg speaks during the F8 Facebook Developers Conference in San Jose, California on April 30, 2019.
Justin Sullivan | Getty Images
Although tech giants have proved relatively weak due to the impact of the epidemic on the advertising industry, it still staggers: Facebook saw its slowest revenue growth ever since the 2012 IPO and Google saw its first revenue decline in company history Registered.
But analysts said the amount of revenue coming from direct-response versus brand advertising, exposure to areas such as travel, and Google’s sheer size made Facebook’s advertising business a factor like a leg up on Google during the second quarter.
In notes to investors on Thursday and Friday, analysts explained why Facebook is better than Google. He has a say here.
Brand Advertising vs. Direct Response
While direct-response advertising refers to placements that encourage more immediate action, such as downloading an app or clicking a link, brand advertising is a long-term game. They focus more on those characteristics, such as what a brand stands for or how the consumer makes it feel. During the epidemic, direct-response advertising has been strong, but spending on brand campaigns has been negatively affected.
Morgan Stanley analysts said Friday that Facebook’s increase in advertising revenue reflects how Facebook is growing and leveraging “direct direct response” [and] E-commerce advertising environment. “(During last quarter’s earnings call, Facebook’s chief financial officer Dave Weiner said the company did not give a specific number on how direct its advertising business is, but said that the category would push his business forward Increases. “
“FB’s DR-heavy advertising business and push capabilities continue to complement the hard hit vertical (eg, travel) with increasing hits (eg gaming, app installs, ecommerce). [helping] “It maintains growth so far during challenging periods,” Bernstein analysts said in an investor note on Friday.
This is a different story on Google’s YouTube, where Bernstein analysts estimated that 80% of its revenue came from brand advertising. Bernstein analysts predict that, given the weakness in brand advertising, YouTube will face “strong headwinds in the coming quarters”.
Evercore analysts said on Friday, “We have consistently heard about the direct response in the digital advertising ecosystem and the continuing trends between brands and what we have heard about the brand, that YouTube is probably a little overpriced brand.” “This makes the shape of recovery in the YT near-term difficult.”
Areas like travel and search
According to Bernstein analysts, analysts caused the search to fall behind in this quarter, in which Google “indexed the hard-hit vertical”, like Journey.
“Search revenue was down -10% Y / Y to $ 21.3B, as it continued under pressure from declining revenue from some major verticals such as Travel and Auto, which together accounted for ~ 20% of search revenue, “Bernstein analysts said. “However, the quest for recovery appears to be on a steady path – management pointed to a steady improvement throughout the quarter, with flat Y / Y ending in June and a slight improvement in July.”
Google relies on travel as a major revenue driver, and the region has worsened due to the epidemic. For example, Expedia Group said earlier this year that it was one of Google’s largest advertisers. The company later said it would drastically reduce its advertising spend this year.
Morgan Stanley analysts said Google’s exposure to travel advertising is three to four times the size of Facebook.
“… the trajectory of recovery through the balance of the year is very much dependent on the return of demand for travel advertising,” Evercore analysts wrote.
Analysts at Morgan Stanley and Evercore agreed that this is the largest size of Google’s business driving a slow advertising recovery. Google’s advertising revenue is nearly twice the size of Facebook.
Evercore analysts said that for years they argued that search advertising was far more defensible than “social” advertising, and that the last two quarters “went a long way in finishing that thesis.” In other words, Facebook was better for the epidemic than Google, at least in terms of generating advertising revenue.
“At the risk of simplifying things, GOOGL’s market cap is about 50% larger than ~ FB tonight,” he wrote. “In 2Q, FB delivered operating income of $ 6bn on revenue growth of 0% to GOOGL’s $ 6.4bn at 10%. Receivable, of course, is the nuance to consider, And yes, the nature of the current macro is unusual to say. ” At least, but if ever there has been a straight forward argument for appreciating the market cap that sounds great. ”