June 09, 2020

BOTTOM LINE: While its likely not totally shocking at this point, we think that April increasingly feels like the bottom, and the linearity of the quarter appears to be much better in May, with expectations for continued rebound into June. Our and the Street’s 2Q20 estimates are largely in the range of where the companies indicated they were pacing for the quarter in April/early May, and our expectations are that there is likely upside to revenue numbers of at least 4-7%. We will be waiting to see how June shapes up, as well as color around 2H outlook before refining our estimates, but numbers are likely going higher.

Marketers, and their decision on how aggressively to lean in, continue to watch some of the same things investors and consumers have been tracking – Covid-19 case growth, the pace of reopening, etc. From what we can ascertain, they largely appear to be tracking the pace of broader economic reopening. The world seemingly stopped in mid-March/early April, but following this, a tale of two different marketing cohorts emerged different dynamics – brand marketing and direct response marketing.

Direct-response marketing has been surprisingly resilient. As we called out earlier this week, the combination of lower media pricing, offline stores being shuttered and a captive consumer with more idle time on their hands than typical was a perfect storm. We heard through late April/early May from some native-DTC ecommerce brands about successive daily record levels of spend combined with incredibly robust conversion rates.

We think that the pricing tailwind for DR brands has weakened, and are hearing vignettes about pricing down 10% from pre-Covid 19 levels, but we have been surprised to hear about heightened levels of spend. As more of the States begin to re-open over the course of June, it will be fascinating to see how the DR channel responds. Gaming, in particular, we suspect will see some retrenchment – with FB and SNAP the most exposed.

Overall, our view on brand marketing has not radically shifted and we think the recovery will take longer than investors are expecting. Ex-CPG, where we are seeing signs of brands playing offense, we believe that many CMOs/CFOs are taking a more conservative approach. While we suspect it will have a relatively more muted recovery, PAI June estimates were substantially better relative to May, so would suggest a healthy degree of recovery in that segment as well.

In terms of themes we are intrigued about, the “productization” of retail/ecommerce advertising is among the most prospectively game changing we have seen in some time. Moves by GOOG, FB and this week with SNAP would imply to us that the cards are stacking up favorably. We would note that we didn’t see much within PAI around the relaunch of FB Shops, and suspect that its unexpected launch was not well anticipated by the sales force. We would expect that interest increases over the course of 3Q20, with hopeful potential inflection ahead of the holiday season.

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