DIGITAL-AD DOWNTURN MAY COMPLICATE LIFE FOR GOOGLE, FACEBOOK

Demand for digital advertising is shriveling after a decade of explosive growth amid the pandemic-fueled downturn. That could complicate things for Google and Facebook, who for the first time may have to contend with revenues that are actually shrinking.

With consumers mostly at home and unemployment soaring, advertisers are slashing promotional spending — in some cases, all the way to zero. For Google and Facebook, who together account for 70% of the U.S. market for digital ads, that so far has translated into tighter restraints on spending without the layoffs, pay cuts and furloughs that publishers and other industries have already imposed.

Google CEO Sundar Pichai has already told employees the company will curtail its hiring for the rest of the year and is considering deep cuts in its own marketing budget through 2020, according to internal communications obtained by CNBC that Google confirmed.

Facebook warned last month that its business was already being squeezed by the advertising downturn, although it didn’t provide details. In countries hard-hit by the pandemic, it said messaging traffic was up 50% while voice and video calling had doubled, but added that it doesn’t make money on many of those services and that ad business had “weakened” in those regions.

So far, however, it’s not clear how badly the tech giants might be hit. Some of the early clues are expected this week when Google’s corporate parent, Alphabet, and Facebook report their first-quarter financial results. But those results will only give a hint of the impact, given that the pandemic didn’t start to zap the global economy — and ad budgets — until late February.