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A year ago, Goal Chief Financial Officer Susan Li offered chilling comments on the state of the digital advertising market, telling analysts the struggling industry would remain in recession.
Speaking to analysts on the company’s fourth-quarter earnings conference call, Li said at the time that Facebook’s revenue “remained under pressure from weak advertising demand” and that sales would continue to “be impacted by the macroeconomic outlook.” uncertain and volatile.”
During that period, Meta’s ad revenue fell 4% and Google’s ad business suffered a similar decline. Inflation, supply chain problems and global conflicts were depressing spending.
The narrative is very different now.
With results of AlphabetGoal and Amazon (the three American leaders in digital advertising) it is clear that the market has recovered, at least for the moment.
Meta’s fourth-quarter advertising sales rose 24% from a year earlier to $38.7 billion, while Amazon’s booming advertising unit rose 27% to $14.7 billion. Meanwhile, Alphabet, which remains the market leader, saw its Google advertising business grow 11% to $65.5 billion, driven by 16% growth at YouTube.
Debra Aho Williamson, an independent analyst, told CNBC that big advertising events like the Summer Olympics in Paris and the upcoming presidential election will contribute to higher spending. Insider Intelligence said in a recent report that global ad spending will increase 10% in 2024, up from 6.3% growth in 2023 and the same level of expansion the previous year.
“After two years of relative unrest, the outlook is very positive on a global scale and in all major regions,” the report says.
William Blair analysts expressed a similar sentiment. They said companies appear less concerned about the Russia-Ukraine conflict than in the past and are seeing a potentially more favorable interest rate outlook.
“The current macroeconomic environment continues to improve for digital advertising,” they wrote, adding that Meta and Alphabet’s investments in artificial intelligence to improve their advertising platforms are paying off.
Investors will gain additional data on the digital advertising market when Break and Pinterest report earnings this week. Those numbers could look quite different, Williamson said, because they are “much smaller companies that have struggled to build substantial advertising businesses, and in this environment, the big ones are getting bigger.”
Overall, “digital advertising continues to consume share” of global advertising, Williamson said.
Whether the big players will be able to maintain the momentum is a question that will linger over the coming quarters. One of the reasons growth looks so strong now is because the numbers are being compared to the same period last year, when conditions were bleak.
Another increase comes from China-based advertisers, who are spending big to reach users around the world. Meta said sales from China accounted for 10% of revenue last year and accounted for 5 percentage points of growth. Analysts have said online retailers Temu and Shein are the biggest contributors to Meta’s business in China and have expressed concern that that spending may not last.
Regarding Meta’s business in China, Li told analysts last week that “the level of growth in 2023 will probably be difficult to replicate, but we will continue to watch this and see how it develops.”
Analysts at Bank of America Global Research warned in a note on Friday that investors should not overlook the conflict in the Red Sea, which is causing supply chain bottlenecks and could lead e-commerce companies to reduce your advertising investment.
“We believe Alphabet & Meta’s exposure is very modest,” they wrote.
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