Facebook usage soars, but online advertising plunges

Facebook Inc.

Facebook -1.36%

said usage of its products was skyrocketing due to the coronavirus pandemic, but warned that increased activity would not shield the company from the online advertising pullback rocking Silicon Valley and Madison Avenue.

In one post on tuesday afternoon, Facebook said the total number of messages on the platform’s services increased by 50% in countries hard hit by the virus, with video messaging more than doubling. In Italy, which has implemented some of the strictest restrictions on public life of any country outside of China, group video calls have increased by more than 1000% compared to last month and the use of all Facebook applications grew by 70%.

Facebook also owns Instagram as well as the popular messaging service WhatsApp.

The company said the increased usage would not protect it from expected declines in digital advertising across the world.

“We don’t monetize many of the services where we’re seeing increased engagement, and we’ve seen a weakening in our ad business in countries taking aggressive action to reduce the spread of COVID-19,” wrote Alex Schultz, vice president. President of Facebook. president of analytics, and Jay Parikh, vice president of engineering.

The company did not provide official earnings guidance, but executives said “our business is being affected like so many others around the world.”

Facebook detailed the steps the company is taking to increase capacity and reduce the strain that increased video call and call traffic is placing on the communications structure. The announcement is in line with others by ad-based technology platforms and low financial target media.

Twitter Inc.

said on Monday that its financial performance would be lower this quarter due to the pandemic.

Google parent alphabet Inc.

is also in a perilous situation. Alphabet makes almost all of its money from online advertising in areas such as search, maps and video, and its biggest clients seem sure to walk away. In an early warning sign, travel conglomerate Booking Holdings Inc. – one of the world’s biggest online advertisers – said on Monday it would “significantly” cut its marketing costs.

Google has also pinned down its future by leveraging more advertising related to “real-world” queries, such as detailed direction searches, and as a paid middleman for people looking to find local businesses like plumbers. However, many consumers are now confined to their homes.

Alphabet gives no indication of future earnings and a spokesperson did not respond to a request for comment.

“Marketers are cutting spending across the board,” RBC Capital Markets analysts wrote Monday. “You want another data point? Type “Las Vegas Hotels” into your Google search bar. We see 0 paid ads. I don’t remember ever seeing that.

As companies begin to cut ad spend due to the coronavirus pandemic and growing economic uncertainty, digital and local media companies are more vulnerable to such short-term cuts, ad buyers said.

Unlike national TV ads, which are often purchased months in advance and are harder to cancel, most digital ad buys can be canceled within days, according to buyers and industry analysts.

“If you’re Marriott, you can’t cut your TV budget,” said Laura Martin, senior analyst for Needham & Company. “Where you can cut right away is digital.”

US airlines are considering shutting down passenger flights in the country, the White House is discussing easing social distancing measures and China is planning to lift the mass quarantine on Wuhan. The WSJ’s Jason Bellini has the latest on the coronavirus pandemic. Photo: Nick Oxford/Reuters

Indeed, The New York Times was among the first companies to warn that the virus was causing ads to slow. The company cut its first-quarter ad revenue forecast in early March, citing a slowdown in international and domestic ad bookings due to uncertainty and anxiety over the virus.

Another problem facing publishers and digital media companies, such as Facebook and Twitter, is that some advertisers are trying to avoid news content that has become even more negative amid the spread of the coronavirus.

Many businesses are “wary of news outlets and social media sites because there’s so much negative content out there right now,” one ad marketer said.

Brands have been burned repeatedly in recent years when their ads appeared alongside inappropriate or offensive content, including fabricated information or racist content.

The most risky digital advertising categories include commodities for Facebook: travel, entertainment, retail and consumer packaged goods account for 45% of mobile advertising, Ms. Martin said, and broadly align with Facebook revenue.

Under normal circumstances, the increased time that locked-in Facebook and Instagram users spend on the platform would allow the company to profit from selling more ad inventory. But the increased usage the company has seen is associated with a decline in ad demand, which means auction prices for Facebook ads would likely fall unless the company chooses to restrict supply.

With fewer advertisers competing for the attention of Facebook users, every impression would be worth less across the board, unless the company chose to reduce the number of ads served.

It’s unclear how Facebook would deal with its increased supply and reduced demand, Ms Martin said, given the choice between selling more advertising at lower rates or trying to maintain prices but run fewer ads in the marketplace. together.

Facebook’s stock is down 28% since the start of the year, slightly more than the Nasdaq index but slightly less than the S&P 500.

Reductions in advertiser demand could also affect content creators who have built audiences on the platform. Klear, which provides analytics for Instagram influencer marketing, said on Tuesday that the number of Instagram stories posted and engagement per post both increased sharply over the past week. However, Klear found that the number of sponsored posts tagged with #ad dropped by 25%.

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Write to Jeff Horwitz at [email protected] and Suzanne Vranica at [email protected]

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