3 Reasons Why CPMs Are Lower In Q2

3 Reasons Why CPMs Are Lower In Q2

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There is a product that exists that you cannot feel or touch but is bought and sold daily by the hundreds of millions. The product here is called an impression and it gives consumers an opportunity to purchase or learn more about a product/service. Advertisers pay publishers a dollar amount for every thousand impressions or times an ad appears on a screen. This is referred to as a Cost Per Thousand (CPM) bidding model. The recent outbreak of COVID-19 has changed many “normal” activities, one of them being the price of impressions.

Here are three reasons why Q2 CPMs are significantly lower than Q1: 

Advertisers (Demand)

A study conducted by the IAB states that “ 70% of buyers have already adjusted or paused their planned ad spend, while 16% is still determining what actions to take” and “In the near term, digital ad spend is down 33% and traditional media is down 39%”. Advertising spend is decreasing and the large AdTech companies are going to feel the pain of decreased revenue.

Consumers (Supply)

According to a recent Forbes article, “As millions of people go online for entertainment and more, total internet hits have surged by between 50% and 70%, according to preliminary statistics. Streaming has also jumped by at least 12%, estimates show.” The majority of the population is working from home and those who unfortunately are not, are either literally saving the human race or are home either way. iPhone screen time has increased from anywhere between 36% to 185% for some individuals as social media and web browsing are skyrocketing. All data points to the fact that there is an increase in the supply of consumers online today.

Stock Prices Plummet

Large AdTech companies such as Facebook, Google, Adobe and many others are experiencing a significant drop in stock price and advertising revenue. Data pulled from Yahoo Finance shows that from mid-February to mid-March Facebook’s stock price fell by 31.83%, from $214.18 to $146.01, Google by 27.69%, from $1515.60 to $1096.00 and Adobe by 23.37%, from $376.28 to $288.36. Given the information above with a decrease in demand (Advertisers), these large AdTech companies are losing significant portions of their revenue since advertisers are not spending. In 2019, Facebook earned $69.66 billion and Google $134.81 billion in advertising revenue. 

Ultimately, the 3 points above can be directly related to the theory of Supply-Side Economics or also known as Reaganism. An increase in supply, in this case, the number of consumers ultimately decreases the cost of the product, impressions and therefore demand for advertisers will theoretically increase in time. Regardless, of what the theory is, the fact remains that CPM’s are cheaper now. 

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