Question-and-Answer Session
Operator
(Operator Instructions) Your first question comes from Ross Sandler - RBC Capital Markets.
Ross Sandler - RBC Capital Markets
Just a couple questions. First I think in the prepared remarks you talked about large advertisers’ still growing about 40% year-over-year. That’s consistent with what we’ve seen recently. Can you talk a little bit about what’s going on with the smaller advertiser segment? And then on the 3Q guidance, if I’m doing my math correct I think the EBITDA margin at the mid-point’s about 19.8%. That’s pretty much flat with what you’ve done in 2Q and in a typical 3Q historically you guys would have seen margins drop off. So is that just kind of the environment getting a little bit better, cost structure realigned or is there something else that’s going on here to get you to flat margins from 2Q to 3Q?
Don Hawk
Okay, this is Don. I’ll take the first of those questions. So with regard to what’s going on with the small advertisers, it’s really what we’ve commented on previously. In an economic downturn like the one that we’re in here, those advertisers are kind of disproportionately impacted by that. They tend to have more of their budgets already heading into this downturn tied up in online marketing programs. So as they look to cut the overall marketing budgets, there’s less traditional marketing spend to cut there. What we’re seeing with the large advertisers is although their overall marketing budgets are absolutely declining at this point, there’s enough traditional marketing vehicles that they’re still making use of that they’re able to cut those first and the online budgets are not impacted as significantly. So on the smaller advertisers’ side of the ledger, those guys have more online marketing to begin with, overall marketing cuts are having a larger impact there.
As we previously commented on that front, we don’t see that as being sustainable. A lot of the advertising spend from the smaller advertisers tends to be focused on lead generation programs. They’re investing less in lead generation in this type of environment because the sales cycles are that much longer for them, but those types of changes to the marketing expenditures tend to show up two or three quarters down the line. So they can afford, if you will, to cut those lead generation budgets in the short term but over the next two or three quarters they’re going to see less and less leads coming into the pipeline. So for that reason we don’t see that as being a long term trend and clearly we see ourselves as being well positioned for when that advertising spend returns.
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