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Two great American companies are bouncing back.
Just released corporate earnings show stronger-than-expected results. And the outlook appears to be better than expected.
Alphabet (NASDAQ: GOOG) and Facebook (NASDAQ: FB) shares jumped this week. And those gains may continue in the coming weeks.
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Both of these American companies get most of their revenues from advertising.
There’s been lots of concern that the two online advertising giants might take a big hit.
Google and Facebook depend on millions of small businesses. And with most local businesses closed due to state orders, these companies simply aren’t advertising.
Additionally, huge portions of the economy will continue to suffer for months. Airlines, cruises lines, car rental companies and hotels have zero reason to run advertisements on these platforms.
Yet both Amercan companies reported earnings this week. And the results sent shares higher.
So, let’s take a look at what we’re hearing from the two biggest online advertising players.
Alphabet Expects Only a 9% Drop in Advertising
Revenues for the last three months increased 13% versus 17% growth one year ago. January and February were strong, yet the company reported a slowdown in March.
The company now expects a 9% drop in advertising during the second quarter of the year. While a decline in advertising is bad – it wasn’t as bad as expected.
Meanwhile, Alphabet reported a 52% increase in advertising on YouTube. Plus, its cloud computing business grew by 52%.
Alphabet also plans to continue its stock buyback program. The company is armed with $117 billion in cash – that’s about 13% of the company’s overall market value.
Facebook Says Revenue is Stabilized
Facebook just reported earnings. And the stock is up over 10%.
Quarterly revenues were up 18%. Like Google, Facebook saw advertising drop in March. Yet the company also says that it’s seeing the business stabilize in April.
Facebook also reported growth in users in the U.S., Europe and globally. The number of active daily users is up 11%, indicating that more people are using Facebook during the outbreak.
Results for both companies will be down during the current quarter that ends in June.
Advertising spending will decline across the board in 2020. However, when businesses begin spending more on advertising, they’ll turn to the most effective mediums.
Online advertising is very attractive because it is relatively inexpensive, scalable and trackable. And I’d expect online advertising will continue to steal market share from print, radio and television in the wake of this pandemic.
Looking forward to late 2020, Alphabet and Facebook advertising business should rebound to pre-outbreak levels.
That suggests that both of these stocks could be trading at new all-time highs within 12 months.
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Yours in Health & Wealth,
Ian Wyatt