Analysts Short Facebook Ad Outlook, Say It's A Leading Indicator For Others

“Yesterday after the [stock market] close, Facebook published a blog post saying: ‘Despite an increase in engagement on some platforms, in places hit hardest by the virus’,” Wall Street analyst Laura Martin begins her note to investors this morning, underscoring a paradox that many media industry suppliers are facing in the wake of society’s social-distancing response to the COVID-19 outbreak: an increasing supply of consumer advertising impressions vs. questionable demand from many advertisers uncertain about their own budget plans.

“Facebook is seeing a weakening in its ads business in countries taking actions to reduce the spread of the COVID-19,” explains Martin, who covers the advertising and media sectors for Needham & Co., and who along with GroupM Insights Global President Brian Wieser will be a featured speaker during an Advertising Research Foundation “virtual” Town Hall midday Thursday on the impact of the COVID-19 pandemic on the ad industry.

“We had already lowered our full-year 2020 Facebook estimates, Martin continues,” adding that Needham & Co. is now lowering its full-year 2021 estimates for Facebook, as well.

“Facebook data points help answer a key question facing many ad-driven businesses during COVID-19,” she says, implying that Facebook’s dilemma may well be a leading early indicator for the rest of Madison Avenue’s supply chain:

“That is, whether added engagement (time spent viewing) will be offset by a sharp advertising demand downdraft from large categories of digital advertising such as travel (6% to 8% of advertising volume), entertainment (5%), small offline retailers and consumer products companies.”

Martin’s sentiment is something being echoed on both the supply and demand sides of the advertising world, as many media outlets -- national and local TV outlets, websites, streaming services, and yes, even old line news media outlets -- are experiencing a bonanza of consumer usage amid uncertain and quite possibly unstable advertising demand.

Couple that with the displacement of long-established budgets for the industry’s franchise media inventory -- NCAA’s March Madness, most professional sports, and now the 2020 Tokyo Olympic Games -- and the results has been a more uncertain ad budgeting plan than most buyers and sellers have seen, at least since 9/11.

Network TV advertising sources tell MediaPost prices have been dropping steadily, even before news of the Olympics’ postponement to 2021 was official.

While media isn’t exactly the same kind of commodity as those traded in financial markets, it generally still adheres to commodity pricing principles in which an oversupply of inventory leads to a decline in prices unless there is a corresponding rise in demand to offset it.

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