Social Media Ad Revenue Takes Another Beating in Q4
Social media earnings results last week showed digital-advertising revenue continued its decline during the fourth quarter. And the downward trend will likely persist for some time.
Things were off to a bad start when Snap kicked things off Tuesday with revenue growth that was basically flat year-over-year. On top of that, the social media giant said it expected a 10% revenue drop in the current quarter. The stock fell a whopping 15%.
Given Snap’s ominous outlook, many were anticipating similar narratives from Meta and Alphabet Thursday. While Meta’s revenue decline of 4% was definitely not great, it was better than Wall Street’s estimates. Unlike Snap, Meta saw its stock soar 23% the following day for its best day in over a decade. It also added $92 billion in market value for its largest single-day market cap gain ever.
In addition to the better-than-expected revenue results, investors were thrilled that CEO Mark Zuckerberg seemed to have reflected on 2021 and took their considerations to heart. Zuckerberg’s post-earnings commentary focused on creating further efficiencies at the company. It’s worth noting, Meta laid off 11,000 employees in November.
Google and YouTube’s parent company, Alphabet, rounded out the week with a surprising ad revenue decrease. YouTube saw its ad revenue fall 8% in the quarter for its second consecutive quarter of declines. Alphabet stock fell 4% following the results.
Digital advertising is closely watched as it is often considered a bellwether for the health of the overall online economy. As the economic downturn persists, it’s important to remember that digital ads account now for a bigger piece of the ad market pie than they did in the past. And Google and Meta together represented 42.7% of all advertising (not just digital) in 2022, excluding China, according to GroupM.
Advertising, and specifically digital advertising, is bracing for more tough times ahead. With so much uncertainty, various industry growth estimates were revised lower within just a six-month period. In June, GroupM forecast 8.4% global advertising growth, but then said in December it projected 5.9% growth. Similarly, in June, Magna Global predicted 6.5% global ad growth for 2023 and then revised it lower to 5% growth in December.
On the bright side, GroupM sees stabilization in the global ad market over the next four years. These pullbacks in ad spend during economic slowdowns are usually temporary and we will likely see a bounce back from any meaningful decline.
And more recently, economists have been predicting a “soft landing” for the economy. A soft landing is when the economy is in a downturn but is able to avoid a full-blown recession. Given the current economic picture in the U.S., several data points signal strength in certain areas and weakness in others.
Though Big Tech’s advertising results haven’t quelled fears of a recession quite yet, the future results this year will help paint a clearer picture of the outlook for the overall economy. As we all know, Big Tech’s performance and overall health doesn’t impact just the U.S. economy but the global economy as well.
