Coronavirus Takes Search Budgets On Roller Coaster As Analysts Remodel Ad Revenue

The World Health Organization on Wednesday officially declared coronavirus a pandemic, as analysts begin to rethink and remodel advertising and sales forecasts for companies like Alphabet, Google's parent, based on the evolving situation worldwide.

Loop Capital Markets Analyst Rob Sanderson expects Google will experience a 15% year-on-year decline in travel ad revenue in the first quarter of 2020, and a 20% decline in the second quarter as a result of the coronavirus outbreak.

“We anticipate demand in some verticals to decline such as travel," said Jonathan Kagan, vice president of search at Cogniscient Media, adding: "we’ve actually seen other verticals increase budgets.”  As an example, he says, "the healthcare peak season is typically January 1, to mid-February, but we have not seen a drop in demand. In some scenarios, we’ve actually seen it increase.”

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Janel Laravie, founder and CEO at Chacka Marketing, sees the most notable impact in the B2B space. “It seems like business buyers are stalling,” she said. “Everyone is in caution mode. If it was a NASCAR race they would be raising the caution flag.”

Events such as trade shows and conventions continue to take the brunt of the cuts, according to Laravie. One source at a company producing events for a variety of industries told her boss she is open to take a leave of absence. He originally took it as a joke, she said, but it looks like that may materialize.

Most marketers know travel will continue to be impacted by the budget cuts. Needham Analyst Laura Martin sees lower spending on travel, retail, packages consumer goods and entertainment. Travel is the sixth-largest online ad category at about $20 billion of online ad spending during 2019, Martin wrote in a research note. 

"Travel also is the most search-heavy ad vertical at approximately 54% of total digital ads spent on search vs. 42% for all industries combined," she wrote. "Travel represented approximately 11% of total search ad spending in 2019 (ie, $11B). Owing to COVID-19, we lower our March Q travel search ads estimate by $1B at a 75% gross profit margin. For June, we lower our travel search ads estimate by $3B at a 75% gross profit margin."

Last week, Martin lowered the firm's travel estimates for June for search ads by $3 billion at a 75% gross profit margin. The firm still retains its Buy rating on Google for the second quarter because the assumption is consumer spending on travel by that time will be back to normal, she wrote. 

“Travel represents 9% of digital ad spend and in the past day alone, three of my clients have shared they’ve seen spending cut to near zero from brands in travel [and] hospitality,” Kunai Gupta, CEO at Polar, a digital media technology provider for publishers and agencies, wrote in a blog post. “Publishers who over-index on spend from the travel category will be hit harder, as well as agency teams operating on an undisclosed or [percentage] of media spend (versus those operating on an [full time equivalent] model).”

Gupta estimates that Travel, Retail, Entertainment and Sporting Events will see a reduction of more than 20% in total ad spend for the balance of 2020. 

Today the Entertainment Software Association canceled the Electronic Entertainment Expo (E3) on its 25th anniversary. Scheduled to take place this June in Los Angeles, the event draws about 65,000 people from all over the world.

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