COVID-19’s Impact on Facebook and Social Media Advertising

The fast-changing developments surrounding the COVID-19 pandemic seem ideally suited for social media’s unparalleled ability to offer mass instantaneous communication. For insights into how the pandemic is affecting the social media business, GLG recently talked with the current CEO of a major digital advertising firm, who wishes to remain anonymous. Edited comments follow.

Given that things are changing as we speak, give us a quick idea of how social media spending is being affected.

In January and February, spending for Facebook was ahead of budget. In March, all the dollars allocated toward sports have been pushed off, and travel, hospitality, and big-ticket retail were hit badly. While some advertisers continue to spend, they’re generally preparing for Q2. Campaigns that hadn’t yet launched are being postponed, and more branding-focused campaigns are being scrutinized, even though experience has shown that companies spending on M&A, R&D, and branding during downturns emerge stronger on the other side. The difference in this COVID-driven downturn is that everyone is being affected and stressed; no one’s winning. That said, total spending is down only perhaps 10% to 15%. Q2 though, we currently think is going to be down year over year. Not down on growth, down year on year. And whatever they did last year, they will do less this year.

Are declines in the hardest-hit verticals being offset by those seeing increases?

There’s some offsetting, but the reaction is occurring on a company-by-company basis. Leaders of some organizations, even in the hardest-hit industries, want to stay prominent and continue to promote their brands. Others are running for cover. The difference comes down to whether an organization is headed by a true leader who rallies people in the face of fear, or it’s run by committee where fear and uncertainty prevail. Overall, though, the increases aren’t making up for the decreases.

Let’s dive into Facebook. How has it performed thus far and how do you think the pandemic will affect its performance?

In January and February, it was ahead of the anticipated 20% to 30% year-on-year same-store sales growth; in fact, it was in the upper 30, low 40 percentages. We think it’ll come in slightly under our original growth forecast in March, representing a considerable deceleration. I think the 10% to 20% range is much more likely than either above 20% or zero to 10% for March.

How has return on advertising spend (ROAS) trended for Facebook through this period?

We’re not seeing considerable declines in ROAS yet. Again, certain categories have dried up, but those companies are leaving on still have achieved some hoped-for goals.

How has Instagram performed?

Instagram has been a powerhouse, assuming the role of being the gold standard for advertising. It’s an interest-influence platform that people go to for discovery as much as anything else. They don’t have a specific purpose when they go there, but when they get there, utility value increases resulting from the ad experience. There are very few other instances where that’s the case. Google can point to how paid search listings often are clicked on more than national search listings due to their real estate and the quality of their creative message; that combination and the volume of advertisers helps bridge the gap between content and intent. That’s what’s happening with Instagram, where people are finding products they didn’t know existed and finding information they would have had to seek elsewhere. And so, the stronger the advertising gets, the greater the utility, which makes ROAS incredibly strong and lends itself to a phenomenal shopping experience.

The last recession gave rise to Facebook and gave power to Google. The recession before that gave rise to Google and power to digital. That’s not correlation – it’s causation, and it’s due to the precision, flexibility, and accountability those platforms offer. So as we come out of this crisis, people are likely to pump money into digital platforms that have proven successful, like Facebook and Instagram.

With Instagram, is there any sign of an increase in direct-to-consumer brands, given that so many people are staying home?

We don’t get usage data, but there is every indication that people are spending more time on those apps. The question is whether brands are willing to eat up some of the additional available inventory. Maybe, but you wonder about the inventory they would eat up. Not many companies want to be positioned next to COVID-19 content, no matter the price. They don’t want to seem insensitive or build their brands on the back of a difficult situation.

Who is best positioned to emerge on top once the pandemic ends? I imagine it’s Facebook, but what about the other platforms?

Facebook’s strength is that it’s global and diversified in its advertisers. It attracts brand dollars, direct-response dollars, and everything in between. If a sector or market gets hit, Facebook won’t be hit as hard.

It also benefits from problems in other media. Television, for instance, is facing an existential crisis. With its upfront presentations canceled, networks are going directly into negotiations for next season. But chief financial officers are unwilling to lock up commitments a year in advance without knowing what’s taking place. I see television networks being forced to move – maybe faster than it’d like – to the buying model of Google, Facebook, and Amazon, which may be good in the long run but spells real short-term problems. And where is that money going? A lot will likely go to Facebook.

Specific and less diversified platforms may get pummeled in the short term but bounce back quicker. Consider Snap and Twitter, which are at high-risk going into next quarter. Twitter has a specific value proposition: real-time marketing, video branding, heavily reliant on outside events to make advertising opportunities deliver on their promise. As those events dry up, Twitter gets hurt considerably. When events come back, Twitter could bounce back quickly, but it’s never really gotten a foothold in direct response.

Snap is narrowly focused on the younger demographic. When parents are squeezed during tough times, they don’t have money to give to their kids, so advertising dries up. But they could bounce back quickly once things return to normal.

Then there’s Pinterest, which is in the middle. Some of its key categories, such as travel and hospitality, are among the hardest hit. Yet some where it does best – consumer packaged goods, recipes, arts and crafts – are among the most engaged categories right now because people are home. It may be a case where some of the positives make up for the negatives, and Pinterest is more direct response-oriented, so it might hold on. But it’s also aspirational in nature, and people tend to curb their aspirations during difficult times.

This article is adapted from the GLG teleconference “COVID-19 – Impact on Facebook and Social Media Advertising.” If you would like access to this teleconference or would like to speak with this CEO or any of our more than 700,000 experts, contact us.

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