An unknown in Google and Facebook’s numbers
Small businesses and startups are suffering from the coronavirus. It will have a ripple effect on giants including Google and Facebook
Not even the tech giants with massive cash piles are immune from the coronavirus.
An early sign: Google’s parent company, Alphabet, suffered a “significant and sudden slowdown in ad revenue” during the first quarter of the year, said Sundar Pichai, even while total revenue for the period rose 13% to $42.2 billion.
Indeed advertising revenue in offerings like Google search are tracking 10% down year over year, as major advertisers, such as those in travel and entertainment, are taking a direct hit from the global lockdown.
Another question for giant ad businesses like Google’s: What percent of their clients are startups? Profitless and money-guzzling companies seeking to upend traditional retailers and banks have spent billions on advertising in a bid to scale up fast. Mattress seller Casper, for example, spent roughly a third of its 2019 net revenue on sales and marketing.
A JPMorgan note from earlier this year suggests that percentage is no negligible amount. Demand for cloud services and digital advertising in the past couple years has reportedly amounted to about 10% of Google, Facebook, and Amazon’s revenues. And that’s not even counting the broader universe of small-and-medium-sized businesses—which Google clearly cares about.
Now, as venture capital funding is expected to contract, portfolio companies are expected to suddenly go from blitzscaling to cost-cutting. Startup risk is real even beyond the ad business—and could especially hurt businesses that have built themselves on other young companies. It’s a risk venture capitalists are watching.
“We are evaluating what kinds of risks are associated with a company when it comes to their end customer [which may be suffering from the coronavirus],” says Floodgate Partner Ann Miura-Ko. “We have to think through if the majority of the clients are travel companies, or, say, what percentage are startup companies.”
Facebook, another ad-based business, is expected to report earnings today.
The coronavirus only hit the Western world in the latter half of the quarter. Analysts think the worst is yet to come.
The KKK pastof a SoftBank-backed startup founder: Sometimes things slip through even the tightest background checks. A past tie with the KKK is only now beginning to resurface, three decades later, for Damien Patton, founder of SoftBank-backed surveillance startup Banjo. In 1990, Patton was involved with the Dixie Knights of the Ku Klux Klan and had been a part of a shooting of a synagogue, according to a grand jury testimony reviewed by OneZero. But thanks to a typo by an FBI agent, Patton was re-christened as “Damion” in filings around the incident—covering his past as Banjo raised $220 million over the past decade, per the story.
In response to the story, Patton said he is now trying to make amends “for this shameful period in my life.”
Since the story surfaced, however, the Utah attorney general’s office and the University of Utah have said they will suspend their contracts with Banjo.
Tune in: Don’t miss Fortune executive editor Adam Lashinsky’s Zoom chat with longtime tech analyst Gene Munster about how he sees the investing environment playing out. Watch the conversation and join the Q&A Wednesday, April 29, at 10:00 Pacific/1:00 Eastern. Register here for free. Or, watch the live stream without registration here.