Assessing the U.S. response to virus threat
Google’s massive travel advertising business could be hurt because the coronavirus outbreak is disrupting travel plans.
Needham & Co. analyst Laura Martin estimated spending on travel search ads will drop US$1 billion in the first quarter and US$3 billion in the second quarter. Most of that money would have been spent on Google, which dominates the space. Travel ads make up 10 per cent of all search ads and accounted for about US$10.7 billion of Google’s US$98 billion search revenue in 2019, Martin wrote in a Thursday note to clients.
The coronavirus is slowing economic activity and ad budgets are often one of the first expenses to be cut when companies tighten their belts. Alphabet Inc.’s Google relies on millions of businesses, large and small, to buy ads on its search engine and on YouTube to keep revenue growing.
There are other signs of stress on the travel industry. Airline stocks have tanked, with United Airlines Holdings Inc. falling 39 per cent and Deutsche Lufthansa AG dropping 31 per cent since the outbreak began. Booking Holdings Inc. and Expedia Group Inc., two of Google’s largest ad buyers, have slumped, too.
Needham’s Martin kept her buy rating on Alphabet shares because she expects consumer spending and travel advertising will be “back to normal” by the second half of 2020.