Facebook and Google’s stabilizing ad revenue isn’t a sign of recovery for the broader ad ecosystem

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After precipitous declines in March, Facebook reported that ad revenue showed “signs of stability” in the first few weeks of April, with ad revenue essentially flat year-over-year (YoY). While stability is certainly better than the massive drop it experienced, it still isn’t growth — and Q2 poses even more challenges for the company, especially given the expected state of the global economy.

Facebook notably declined to make any official forecasts, due to the uncertainty of how the crisis will pan out. Google similarly reported cautiously optimistic numbers in its earnings — though there was no growth, its revenue likewise didn’t decline in April.

The less-bleak outlook of the duopoly shouldn’t be taken as a sign that recovery for the broader ad ecosystem is on the horizon. Rather, the relative strength of Facebook and Google together — which together already made up more than half of US ad spend in 2019, per eMarketer estimates as of March 2020 — is only likely to increase amid the pandemic, as advertisers look to the two at the expense of their smaller competitors.

“Google and Facebook are more likely to be at the top of any given marketer’s digital media plan than their competitors, which will mean ad spending on these platforms is at less risk in times of budget constraints,” according to eMarketer principal analyst Nicole Perrin. “All the same things that made these ad sellers attractive to begin with will continue to serve them well in the downturn: massive reach, the ability to microtarget at scale, and easy self-serve buying systems. That will add up to more consolidation in the digital ad market whenever the economy and ad spending do rebound.”

And when a broader recovery does come, the duopoly will likely be the first to feel its effects, for a few key reasons:

• Global user bases. Recovery in other parts of the world will help the companies’ earnings level out, even as US and Europe ad spend continues to falter. For example, Facebook ad spend in East Asia is beginning to rebound, up 12.7% in late April since the beginning of March, according to a Socialbakers source to Adweek.
• Cost incentives. With demand for ads low but traffic soaring, CPMs are currently at rock bottom, giving advertisers additional incentive to return to the giants first before branching out to different platforms. Facebook’s CPM is currently the lowest it’s ever been in the US, Adweek reported, and YouTubers have reported similar drops — and advertisers that return to the platforms earlier can take advantage of the temporarily low costs and high reach.
• Perceived reliability. During the last recession, digital advertising remained steadier than most other ad formats, as advertisers perceived it as more flexible, reliable, and measurable. That perception has likely only strengthened since then, meaning Facebook and Google are likely to be seen as among the safest options for advertisers looking to cautiously resume spending while the economy recovers.

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