Google's advertising business slowed in March as the pandemic kicked in globally. The second quarter, which ends in June, could be worse, and travel advertisers doing everything they can to conserve cash will be one of the reasons.
A sharp falloff in travel advertising was undoubtably a significant contributor to the “significant slowdown” that Google’s ad revenue experienced in March, and factors into the “difficult” second quarter that Google envisions for its advertising business.
In its first quarter earnings call Tuesday, Alphabet CEO Sundar Pichai said that although some Google advertisers are thinking about shifting ad budgets into new opportunities such as virtual car showrooming, “there are large sectors of the economy, which are affected, things like travel, and our large partners and customers are impacted. And so we clearly see the impact of that.”
Although Alphabet subsidiary Google’s advertising revenue increased 10.38 percent year over year in the first quarter to $33.76 billion, the company stated “in March we experienced a significant slowdown in ad revenues. We are sharpening our focus on executing more efficiently, while continuing to invest in our long-term opportunities.”
In the earnings call, Pichai was glum about advertising revenue expectations for the second quarter.
“As of today, we anticipate that the second quarter will be a difficult one for our advertising business,” he said. “As we move beyond the crisis, and the global economy normalizes, this should be reflected in our advertising revenues, but it would be premature to comment on timing, given all the variables here.”
Skift Research estimated that Google took in $7.2 billion in revenue from travel advertisers globally in the 12 months that ended September 30, 2019. Some $5.8 billion of that total came from Booking Holdings and Expedia Group, Skift Research estimated.
Phocuswire reported that Expedia Group and Booking Holdings spent some $11 billion on marketing in 2019. However, performance advertising through Google is a large component of their overall spend.
Google Employee Travel
One of the steps Google is taking in response to the coronavirus crisis is to clamp down on employee travel.
“We are also recalibrating the focus and pace of our investments in areas like data centers and machines and nonbusiness essential, marketing and travel,” Pinchai said.
Skift was assured that the travel reference was to employee travel, and not to reducing investments in Google’s travel business.
Google has gained a strong and increasing foothold in travel metasearch, or comparative shopping, with flights, hotels, vacation rentals, and travel packages, as well as a nascent tours and activities business.
Travel is an important advertising vertical for Google, and will be a contributor to the softness in its second quarter advertising revenue.
Expedia Group chairman Barry Diller has stated that the company will likely spend about $1 billion on advertising in 2020, a roughly 80 percent or greater decline from 2019 levels.
In a financial filing in late March, another major Google travel advertiser, Booking Holdings, which spends around the same amount on Google as does Expedia Group, pledged to “dramatically reducing marketing spend worldwide.”
Google will lose a few billion dollars from tight-spending travel advertisers in the second quarter — if not longer.
Photo credit: Pictured is a Google office. The company forecasts a difficult second quarter for its advertising business. Associated Press