The online advertising market is booming and it’s dragging down the tech giants.


“It looks like we’ve entered a recession that will have a broad impact on digital advertising,” Meta CEO Mark Zuckerberg told analysts at the start of the company’s earnings call on Wednesday. “It’s always difficult to predict how deep or how long these cycles will be, but I’d say the situation looks worse than it was a quarter ago.”
Meta (FB), Twitter (TWTR), Snap (SNAP), Google (GOOGLE), Apple (APL) And Microsoft (MSFT) All reported that shrinking ad budgets — due to the recent market downturn and economic uncertainty — took a toll on revenue last quarter and will continue to be a challenge in the coming quarters. Spotify (Spot) He said he has seen a “softening” in his advertising since the last two weeks of June.
Even those with a major market place were not immune. Google’s primary advertising business grew by just 11.6% year-over-year, up nearly 69% from the same period last year. Meta, the parent company of Facebook and Instagram, posted its first year-over-year quarterly revenue decline in its history as a public company. (Advertising is most of Meta’s revenue.)
Very few dependents on advertising also felt the pinch. Microsoft said it took a $100 million cut in second-quarter advertising spending. “Digital advertising was impacted by the macroeconomic environment during the June quarter,” Apple CEO Tim Cook told analysts Thursday, taking into account its services revenue.

Meta shares were down around 7% on Friday morning earlier this week. Shares of Snap fell more than 25 percent after reporting earnings last week.

“Today’s results reflect the impact of a challenging economic environment,” senior analyst Haris Anwar said in a statement.

It’s quite the reverse for the online advertising industry. After a brief hiatus during the pandemic, advertisers began pouring money into online advertising to reach consumers who spend more time glued to screens. At this time last year, Meta and Snap both said quarterly sales had doubled from last year, and Google’s was up 62 percent.

But the world is a very different place now. Russia’s months-long war in Ukraine has created some uncertainty among advertisers, and many tech companies have responded to the attacks by suspending the ability of Russian-based companies to advertise on their platforms.

Lately, high inflation, market downturns and fears of a recession have caused companies to scale back their advertising budgets, tech giants said in their earnings reports this week. Many companies in the technology industry have recently delayed hiring and investments amid economic uncertainty.

The nature of how some online advertising campaigns are run makes the pain quick. Snap CFO Derek Anderson said on the company’s earnings call last week that “advertising spending—specifically, auction-based direct response advertising—is one of the few line items in the company’s cost structure that can be immediately reduced by push response” parts of their business.

Those macroeconomic challenges are expected to drag on into the rest of the year. Meta said Wednesday it expects revenue for the current quarter to be between $26 billion and $28.5 billion, marking a year-over-year decline in quarterly revenue. Although Snap declined to provide financial guidance due to the uncertain environment, it said third-quarter revenue was still flat compared to last year.

The fallout comes after changes to Apple’s app tracking system, which took effect in the middle of last year, have already put pressure on some of the tech giants. Apple has introduced a feature that allows users to opt out of tracking by some apps by taking some of the critical information that some social media platforms use to target ads. The change affected advertising businesses on Meta, Twitter and Snap, as well as smaller players like Pinterest. Meta’s ad revenue alone took $10 billion from privacy reforms last year, and Snap’s Anderson said last week that the changes “raised ad industry standards for a decade.”

And while Google has the benefit of its own third-party data, YouTube’s ad business isn’t entirely spared.

“It’s a perfect storm for digital advertising right now,” said DA Davidson analyst Tom Forte. For companies that rely on advertising, “there’s a huge risk to your revenue.”

–CNN’s Rishi Iyengar contributed to this report.


Source link

Leave a Reply

Your email address will not be published. Required fields are marked *

nineteen + 18 =