Relative to other currencies, the U.S. dollar has experienced ups and downs during the 21st century. At the turn of the century, many factors contributed to a strong dollar. The U.S. economy was booming, thanks in large part to an asset bubble centered around dot-com stocks. While select foreign nations shared in the Internet boom, they were few in number, and no developed country underwent economic expansion during the late 1990s at the level of the United States. Furthermore, the federal budget was balanced for the first time in decades. The government had no need to increase the national debt or print money, both actions that devalue the dollar, to cover budgetary shortfalls.
The next few years brought an implosion of the dot-com bubble, devastating terror attacks and widespread accounting scandals, maladies that led to economic decline, budget deficits and a shrinking dollar. The financial crisis of 2008, along with the government's response to push interest rates to record lows and keep them there indefinitely, sped the dollar's downward spiral.
As of 2015, however, the dollar has reversed course. In large part due to renewed productivity in the United States combined with weakness abroad, the dollar is on a bull run, the likes of which has not been seen in decades. A rising dollar is positive news in many ways. Trade deficits contract when a country's currency appreciates. Citizens and businesses have more purchasing power abroad.
With that said, not everyone is thrilled with the dollar's remarkable rally. A rising dollar has a pronounced effect on large businesses, and that effect is often not positive. Companies with a large percentage of overseas customers have reported declining sales and revenues since the dollar began its climb. It makes sense. When the dollar rises against another country's currency, products from the U.S. become more expensive for citizens of that country and, as a result, many of those citizens look for alternatives to substitute for U.S. products. The appreciating dollar presents major challenges for the following four companies.
Google, Inc.
Google (NASDAQ: GOOG) launched in 1998, squashed its competition with shocking rapidity and has since been regarded by industry analysts and casual consumers as virtually indomitable. Many companies have emerged to try and take a significant bite out of Google's market share; all have failed. The company's revenue has grown steadily during good economic times and bad; it increased 19% between 2013 and 2014.
Google is a member of that elite fraternity of businesses so popular in mainstream society its name has become a verb. Accessing Google is a knee-jerk response for the vast majority of people in the developed world when they are seeking information. The company, however, makes no money when someone uses Google to get directions from Raleigh to Pittsburgh or to ascertain the average height of NBA players. Google is an advertising company, which means it only makes money when someone pays for a site to appear in search results.
The challenge of a rising dollar for Google is the fact a large and growing number of its customers who spend big money on ad placement come from overseas. With the U.S. dollar being the world's reserve currency, its appreciation automatically makes currencies in other developed countries worth less in global commerce. All other variables equal, an overseas businessperson has less money to spend on Google advertising the higher the dollar climbs.
In the first quarter of 2015, Google's financial analysts determined the rising dollar cost the company $400 million in revenue. While that is a significant amount for any business, it should be put into proper context for Google: In 2014, the company's total revenue exceeded $66 billion.
Facebook, Inc.
Like Google, Facebook (NASDAQ: FB) is an advertising company at its core. The company makes nothing from its millions of worldwide users who use the site to keep up with old friends, chronicle what they ate for breakfast and share BuzzFeed listicles. Facebook makes money from advertisers. Businesses and entrepreneurs pay the site to have promotional messages appear on targeted users' news feeds.
When Facebook launched in February 2004, it operated 100% in the U.S.; in fact, access to the social media network was limited to users who had email addresses from certain colleges. The company's reach shifted and expanded rapidly during the intervening decade. As of 2015, Facebook earns over 50% of its ad revenue from overseas.
Asia represents the fastest-growing market for Facebook advertisers. The continent is also home to many countries whose currencies have experienced the worst declines relative to the dollar. Executives with the company blame this dichotomy in part for the company missing its revenue target for the first quarter of 2015, a rarity in Facebook's history.
While Facebook's first-quarter revenue increased 42% between 2014 and 2015, company representatives estimate the gain would have been 49% were it not for the effects of the rising dollar.
Online advertising companies such as Google and Facebook are especially susceptible to the effects of dollar appreciation because, unlike for international companies that produce physical products, revenue declines from overseas sales are not offset by decreases in overseas production costs.
The Procter &; Gamble Company
Procter &; Gamble (NYSE: PG) manufactures and sells consumer products such as toothpaste, diapers and cleaning products. Some of its most well-known brands include Crest, Pampers and Tide. While the company's U.S. sales have been strong throughout the recovery from the Great Recession of 2007-2009, Procter &; Gamble relies increasingly on overseas sales. As of 2015, over 65% of the company's revenue comes from outside the U.S.
The consumer goods company reported that, for the December quarter of 2014, dollar appreciation cost it more than $450 million in revenue. The company projects the strong dollar to cost it between 5 and 6% in revenue for the entire fiscal year.
Johnson &; Johnson
Johnson &; Johnson (NYSE: JNJ) is another consumer products company whose strong overseas sales make it susceptible to the ill effects of an appreciating dollar. The company forecasts that the dollar remaining at its current exchange rate with the euro for the balance of 2015 would slow its sales growth rate by over 5%.
The company, whose brands include Tylenol and Zyrtec, derives slightly more than half of its revenue from overseas. Much of that business comes from Europe. The euro's exchange rate with the dollar climbed as high as $1.59 to $1 in 2008; as of August 2015, the exchange rate is $1.15 to $1.
