Daily Management Review

Market For Digital Ads Is Now Recovering, Emerging From The "Dark Days" Of 2022


Market For Digital Ads Is Now Recovering, Emerging From The "Dark Days" Of 2022
Advertising is really back.
Following a harsh 2022 in which brands curtailed expenditure to offset inflation, and a cost-cutting and layoff-filled 2023, the leading digital advertising businesses have resumed growth at a robust rate.
This week, Meta, Snap, and Google all released their first-quarter financial results. The companies' revenue growth surpassed analyst projections and reached levels not seen in at least two years. The main factor influencing their finances was the growth in each of their ad companies.
The corporations were in a good place going into earnings season since their results would be similar to previous down years. However, given the persistent difficulties brought on by high consumer prices as well as the political and economic unpredictability in many regions across the world, experts and investors were cautious in their forecasts.
After revealing a 27% increase in first-quarter sales to $36.5 billion on Wednesday, Meta—the first company to announce results—allayed some concerns. It was the highest pace of growth for the parent company of Facebook since 2021.
The analysts at Bernstein stated in a note following the results release that "when Meta was in its dark days two years ago, the company knew what they had to do to get back on track." "Meta deserves credit for standing up for the core."
Macroeconomic difficulties and Apple's iOS privacy reform, which made it more difficult for social media businesses to target users with adverts, combined to characterise that gloomy age. In 2022, Meta saw a two-thirds decline in its value and had to make significant cuts.

In response, Meta redesigned its advertising system with significant investments in artificial intelligence to enable it to provide brands with value in spite of Apple's impediment. In 2023, the stock nearly quadrupled.
The company's first-quarter results exceeded all expectations, but on Thursday, the shares plummeted as CEO Mark Zuckerberg concentrated his post-earnings remarks on the several ways Meta is allocating funds outside of advertising, most notably the metaverse.
“We’ve historically seen a lot of volatility in our stock during this phase of our product playbook where we’re investing in scaling a new product but aren’t yet monetizing it,” Zuckerberg said on the earnings call late Wednesday.
The Bernstein analysts, who advise purchasing the shares, stated that China-based ad demand "remained strong" and that Meta's ad sales were driven by the company's strengths in online commerce, gaming, entertainment, and media. The spike in expenditure from Chinese bargain merchants, such as Temu and Shein, has helped Meta.
The analysts stated, "You either believe in Zuck or you don't, and we do," without being unduly religious.
On Thursday, Alphabet released its first-quarter ad income figures, showing a 13% increase from the previous year to $61.66 billion. YouTube's ad revenue increased by 21% to $8.09 billion. The overall growth rate of the corporation was 15%, a level last observed in 2022. On Friday, the stock saw its strongest surge since 2015, rising 10%.
Ruth Porat, the finance head at Alphabet, expressed the company's "great satisfaction" with the growth of its advertising divisions during the company's quarterly investor call.
The broader advertising environment is "clearly strengthening," according to a note released by Citi analysts on Friday. They cited Google Search and YouTube as examples of this increasing development.
"We see incremental positive results for Alphabet's shares in the Q1 results," the analysts said, sticking with their buy rating.
Following the company's announcement of a 21% sales gain to $1.19 billion, the highest growth in the previous two years, Snap shares shot up 28% on Friday. Snap's sales have either decreased or grown by single digits in each of the last six quarters.
In its investor letter, the firm stated that it is witnessing a surge in demand for its advertising platform and is reaping the benefits of an enhanced operating environment.
In a research released on Friday, analysts from Deutsche Bank stated that Snap provided a "much-needed" beat and that its ad stack is again back on track. Investors seem "most encouraged by the ad platform investments, which are showing increasing promise," according to the analysts, who rate the company as buy.
Snap's stock has lost 14% of its value this year despite the recent surge.
Next week, investors will have a better understanding of the digital ad business as Amazon, which has grown to be a major player in online marketing, and Pinterest both report on Tuesday.
For the first time since the social media company's initial public offering in March, Reddit will disclose results on May 7.