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Coronavirus Hurts Digital Ads Less Than Expected

The pandemic has pushed businesses to more rapidly start and complete their digital transformation.

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We have increased our estimates for Alphabet (GOOG)/(GOOGL), Facebook (FB), Pinterest (PINS), Snap (SNAP), and Twitter (TWTR) as the coronavirus-related hit to digital advertising looks softer than we initially anticipated. We think advertisers will continue to allocate more of their ad dollars toward direct-response campaigns after the pandemic. The main beneficiary of what may become a lasting change is likely to be Facebook. Investments by Pinterest and Snap to enhance their direct-response offerings will probably partially offset the impact of lower spending on broad-based campaigns. The same could be true of Twitter, but to a lesser extent. At Google, we expect search to attract more advertisers, given the overall decline in ad prices. Plus, assuming no significant lockdowns by the second half of 2021, we expect Google and Snap to more effectively monetize their map apps. The adjustments to our projections lift our fair value estimates for Alphabet 9% to $1,520, Facebook 14% to $245, Pinterest 4% to $27, Snap 6% to $18, and Twitter 7% to $32.

Digital ad spending in the second half of this year is likely to be higher than in the same period of 2019. According to a survey of advertisers conducted by the Interactive Advertising Bureau in mid-June, more ad buyers said they plan to increase ad spending on social media and paid search than to not change or decrease their spending during the next six months compared with last year. The survey also showed that the increase will probably come at the expense of traditional advertising spending. The survey indicates that advertisers may increase their social media and paid search spending by at least 25% and 20%, respectively, from the second half of 2019. Earlier this month, eMarketer published its latest estimates for 2020 digital ad spending, which it now believes will increase 2% year over year, well above our initial projection in March of a 5%-10% decline.

Ali Mogharabi does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.