While Microsoft said the coronavirus pandemic had minimal impact on total net revenue in the third quarter of fiscal year 2020, its ad businesses saw significant declines. Overall, Microsoft reported a 15% increase in revenues year-over-year to $35 billion Wednesday.
Search advertising hit. Microsoft’s Search advertising revenues (ex-TAC or traffic acquisition costs) grew by just 1% year-over-year for the quarter, well below company expectations due to “significantly reduced advertising spend” in March amid the coronavirus outbreak. Microsoft also noted that “the effects of COVID-19 may not be fully reflected in the financial results until future periods.” Looking to the fourth quarter of the fiscal year, Microsoft CFO Amy Hood said the company expects Search ad revenues “to decline in the mid 20% range, similar to March.”
LinkedIn sessions up, revenue down. LinkedIn, too, experienced “COVID-related reduction in advertising spend” last quarter, despite continued record levels of engagement — a theme expressed in both Google and Facebook’s earnings statements. Overall, LinkedIn revenue grew by 21% year-over-year for the quarter while sessions rose by 26%.
Why we care. Advertising is a small fraction of Microsoft’s business, which is buoyed, in particular, by its cloud business. The sharp decline in Search advertising, however, may indicate that Microsoft Advertising campaigns were among the first place advertisers most impacted by COVID-19 looked to cut or pull back on. Given the company’s projection that it expects to see continued declines in the mid 20% range in this current quarter, it appears Microsoft campaigns may also be among the last to recover. Earlier this week, Facebook reported it had already seen stabilization in ad spend in April — to flat revenue growth year-over-year.
However, for some advertisers, the continued slow demand on Microsoft could yield good opportunities to reach audiences at lower prices with less competition.
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Source: IAB