While the FANG stocks has staged a dramatic rebound from their March lows, and have in fact surged to new all time highs...
... fundamentally these trillion-dollar companies are nothing more than ad platforms, whose viability and growth depends on continued increases in ad spending. Needless to say, if said advertising dollars stop growing or, worse, plunge well there goes the bulk of FANG revenue, and their value.
Well, according to Barry Diller, chairman and senior executive of IAC and one of the biggest online advertising spenders, Expedia Group, the booking-based company will slash ad spending this year, joining a chorus of advertisers that are putting campaigns on hold or cancelling spend altogether.
"At Expedia, for instance, we spend $5 billion a year on advertising. We won’t spend $1 billion on advertising probably this year,” Diller said. “You just rip that across everything.” He noted that advertising spend across the board would be hit in the second quarter. What is even strangers is that shares in Expedia Group, whose brands include Expedia, Hotels.com, Trivago, Orbitz and more, have plunged almost 50% YTD while the companies who ads Expedia funds, are paradoxically soaring.
Speaking to CNBC, Diller described the landscape during the coronavirus crisis as "cataclysmic" and said "I don’t think this is analogous to anything.... There's nothing like it before, and while we know some things we really know nothing."
“I don’t think this is analogous to anything.” IAC Chair Barry Diller discusses the “cataclysmic” landscape he’s seeing during the coronavirus crisis. https://t.co/lGL9R326lD pic.twitter.com/pyaiqUljhe— CNBC (@CNBC) April 16, 2020
He then added that "we’re all too frightened right now. We’re going to have to get over it," on returning to public spaces in the wake of coronavirus. "Or everything will change."
“We’re all too frightened right now. We’re going to have to get over it,” says IAC’s Barry Diller on returning to public spaces in the wake of #coronavirus. “Or everything will change.” pic.twitter.com/HrBBKXrBFp— Squawk Box (@SquawkCNBC) April 16, 2020
Diller, who bought Expedia soon after 9/11, said today’s conditions are worse: "What I said then is if there's life there's travel. I still do believe that but this is not going to be what happened then … I don’t think it’s until Sept, Oct, Nov that we really get life back.”
Barry Diller bought Expedia soon after 9/11. He says today’s conditions are worse: “What I said then is if there's life there's travel. I still do believe that but this is not going to be what happened then … I don’t think it’s until Sept, Oct, Nov that we really get life back.” pic.twitter.com/eDirXBWust— Squawk Box (@SquawkCNBC) April 16, 2020
Diller made one final notable point saying that nobody knows what is "fair value" in this market: "How the hell would I know? No one knows these things” Diller said, although clearly FANG management teams know: after all they have been buying billions of their own shares in the past few weeks.
What is fair value in this market? “How the hell would I know? No one knows these things” says Barry Diller. pic.twitter.com/mMKjdxCRGw— Squawk Box (@SquawkCNBC) April 16, 2020
In a major hit to online ad giants whose stock prices have staged a tremendous rebound thanks to a spike on stock buybacks, advertisers have pulled back significantly because of budget uncertainty in the months ahead. Companies in the travel space, for example, have little reason to buy ads when much of the globe is under stay-at-home orders.
As CNBC reports, Expedia Group and its peers, like Booking Holdings, spend heavily on Google, since so many travelers search for trips with terms like “flight to London” or “hotel in San Francisco.” On the company’s February fourth-quarter earnings call, Diller mentioned Expedia is one of Google’s biggest advertisers and that Expedia is trying to move away from its “reliance on Google and Metasearch” to grow more direct relationships with its customers. That happened after shares of Expedia reached new year-to-date lows in November when the company said changes in Google’s search algorithm has lessened its visibility on search results, resulting in a heavier reliance on paid advertising.
MediaRadar in a March research report called the deceleration in ad spend in the travel industry “like a car hitting the brakes in advance of an oncoming accident.” A chart from Ezoic shows that the CPM plunge in recent weeks has been furious.
In a survey last month, the Interactive Advertising Bureau surveyed nearly 400 media planners, buyers and brands responsible for U.S. ad spend, and found that 74% of them believe the coronavirus will have a greater impact on ad spend in the country than the 2008-09 financial crisis. Nearly a quarter of respondents said they have paused all ad spend for the rest of the first and second financial quarters.
Sooner or later, investors will realize what this means for the stock price of Facebook and Google. Until then, thanks for the very cheap puts.