YouTube’s shrinking ad business is an ominous sign for the online advertising market

The online advertising market continues to suffer like a heavyweight Alphabet and Microsoft reported disappointing sales in their most recent quarters.

YouTube ad revenue fell 2% year over year to $7.07 billion in parent company Google’s third quarter, missing analysts’ estimates of $7.42 billion. It was the first time YouTube’s ad revenue shrank year over year since the company began disclosing the division’s results in 2019.

Alphabet’s overall revenue growth fell sharply from 41% a year ago to 6%, underscoring how fears of a looming recession have caused companies to scale back their advertising and marketing campaigns. In fact, Chief Financial Officer Ruth Porath said on a call with analysts that YouTube’s revenue decline “primarily reflects a further pullback in advertiser spending.”

Some of the advertisers who have slowed their online ad spending with Alphabet come from the financial services, insurance, lending and mortgage and crypto industries, Alphabet Chief Business Officer Philip Schindler said.

Last week, Snap set the tone for the online ad market when it missed analysts’ estimates for a third quarter with sales of $1.13 billion, sending its stock down more than 30% the next day. Snap attributes its weak sales to the companies “are reducing their marketing budgets” in response to the weak economy, the company said in a a letter to investors.

Microsoft also reported a slowdown in its online advertising business.

Its search and news advertising business (including Bing and Microsoft News) reported sales growth of 16% in the September quarter, the first of the fiscal year, well below the 40% revenue growth reported a year earlier. In fact, the growth rate of this business has contracted every quarter of the past year, matching the overall downward trajectory of the entire online advertising market.

Additionally, quarterly sales growth for Microsoft’s LinkedIn shrank to 17%, down from 42% in the same period in 2021.

Microsoft CFO Amy Hood told analysts on earnings calls that “reductions in customer advertising spending, which also weakened later in the quarter, impacted demand in LinkedIn’s advertising and marketing solutions.”

Meanwhile, Meta on Wednesday is expected to report its second straight quarter of sales declines, underscoring the ongoing turmoil in online advertising. Judging by recent earnings reports from various tech giants, parent Facebook is unlikely to report any signs that the online advertising market is ready for recovery.