It was the best of quarters,
it was the worst of quarters. That is the preliminary assessment of the ad industry’s second-quarter results by the equity research team at Pivotal Research Group, indicating that the ad
industry is split along two distinct economic paths: a performance-based marketplace that has essentially rebounded and a brand-based one that continues to languish amid the pandemic and macroeconomic
downturn.
“Second quarter 2020 and the current state of business continues to be about two different advertising cohorts: direct response and brand,” Pivotal analyst
Michael Levine writes in a report sent to investors this morning.
Levine notes that a panel of ad executives it uses to track advertising demand “skews heavily towards brand
vs. direct response, so we would keep that in mind.”
Even so, the equity researcher’s tracking shows a pronounced improvement in ad demand throughout the second quarter,
with net ad spending changes (the difference between those decreasing vs. increasing their ad budgets) going from negative 53% in April, to negative 51% in May and negative 12% in June (see
chart).
Levine adds that Pivotal’s analysis of direct response-based advertisers shows “that prices have rebounded in the majority of cases to pre-Covid levels, and spend
remains robust with eCommerce and gaming advertisers, the pressure on ROAS is increasing.
“This is a scrappy cohort, heavily metrics-driven and are nimble in capturing pricing
dislocations. They often don’t use agencies, so qualitative is the only way we can get color.”
While Levine doesn’t indicate the same level of visibility for demand
from brand advertisers, he notes “the linearity of the quarter is encouraging,” but points out red flags related to the social media advertising boycotts and the impact of
“protests/civil unrest.”
Looking forward to the third quarter, Levine noted that Pivotal’s “brand-centric” tracking shows “43% of respondents
indicating that they are pausing, with 41% of the total indicating a pause beyond August.
“We found it surprising that 62% of respondents indicated that they could formulate a
media plan that ‘buys around’ Facebook. There was no subsequent “pile-on” that happened following the July 4th holiday, so perhaps this will become less of an issue than
feared.”