A view from Google headquarters in Mountain View, California, USA on March 23, 2024.
Typhoon Koskun | Anatolia | Getty Images
Advertising is making a huge comeback.
After a brutal 2022, when brands scrambled in spending to keep up with inflation, and a 2023 defined by cutbacks and spending cuts, the leading digital advertising companies have once again begun to grow at a steady pace.
Meta, A click and Google all reported first-quarter results this week, with revenue growing above analysts’ estimates and at a pace not seen in at least two years. Their financials are mainly driven by improvements in their advertising business.
Companies entered the earnings season in a favorable position, as their numbers will be comparable to historically weak periods. But investors and analysts were cautious in their expectations given the political and economic instability in various markets around the world and the continuing challenges posed by high consumer prices.
Meta, which was the first of the group to report results, allayed some fears on Wednesday, showing a 27% jump in first-quarter revenue to $36.5 billion. For parent Facebook, it was the strongest pace of expansion since 2021.
“When Meta was in its dark days two years ago, the company knew what it needed to do to get back on track,” Bernstein analysts wrote in a note after the earnings report. “To their credit, Meta protected the core.”
This dark era was defined by a combination of macroeconomic challenges and of Apple iOS privacy change that made it harder for social media companies to target users with ads. Meta lost two-thirds of its value in 2022 and was forced to drastically cut staff.
A smartphone shows Facebook with the Meta icon visible in the background.
Jonathan Raa | Nurphoto | Getty Images
Meta responded by rebuilding its ad system with heavy investment in artificial intelligence so that it can deliver value to brands despite the blockade imposed by Apple. The stock nearly tripled in 2023.
While the company’s first-quarter results beat all estimates, shares fell on Thursday after CEO Mark Zuckerberg focused his post-earnings commentary on the many ways Meta is spending money in areas outside of advertising, specifically the meta universe.
“Historically, we’ve seen a lot of volatility in our stock during this phase of our product pipeline when we’re investing in scaling a new product but not yet monetizing it,” Zuckerberg said on the earnings call late Wednesday.
Bernstein analysts, who recommend buying the stock, said Meta’s ad revenue was driven by the strength of online commerce, gaming, entertainment and media and that ad demand in China “remains strong.” Meta has benefited from a surge in spending from Chinese discount retailers such as Temu and Shein.
“Without sounding too religious, you either believe in Zuck or you don’t, and we do,” the analysts wrote.
“Gradually Positive”
On the quarterly call with investors, Alphabet CFO Ruth Porath said the company was “very pleased” with the momentum of its advertising business.
Analysts at Citi wrote in a note on Friday that the broader advertising environment is “clearly strengthening,” pointing to accelerating growth on Google Search and YouTube.
“We are exiting Q1 results incrementally positive for Alphabet stock,” the analysts wrote, maintaining their buy recommendation.
Shares of Snap jumped 28% on Friday after the company reported a 21% increase in revenue to $1.19 billion, the strongest increase in two years. In each of Snap’s past six quarters, sales have either grown by single digits or declined.
The company said it is seeing an acceleration in demand for its ad platform and is benefiting from an improved operating environment, according to its investor letter.
Deutsche Bank analysts wrote in a report on Friday that Snap has achieved “much-needed” rhythm and that its ad package is back on track. Analysts who have a buy rating on the stock said investors appear to be “most encouraged by ad platform investments that show growing promise.”
Despite the rally, Snap shares are still down 14% for the year.
Investors will get a clearer picture of the digital ad market next week, with Pinterest reporting on Tuesday together Amazonwhich has become a giant in online advertising. Reddit will follow on May 7, reporting earnings for the first time since the social media company’s initial public offering in March.
https://www.cnbc.com/2024/04/27/digital-ad-market-on-mend-as-meta-alphabet-snap-show-faster-growth-.html
