Digital ad market is finally on the mend, bouncing back from the ‘dark days’ of 2022

Advertising
is
so
back.

After
a
brutal
2022,
when
brands
reeled
in
spending
to
cope
with
inflation,
and
a
2023
defined
by
layoffs
and
cost
cuts,
the
top
digital
advertising
companies
have
started
growing
again
at
a
healthy
clip.

Meta,


Snap
and


Google
all
reported
first-quarter
results
this
week,
with
revenue
growth
that
exceeded
analysts
estimates
and
at
rates
not
seen
in
at
least
two
years.
Their
financials
were
primarily
driven
by
improvements
across
their
ad
businesses.

The
companies
entered
earnings
season
in
a
favorable
position
in
that
their
numbers
would
be
comparable
to
historically
weak
periods.
But
investors
and
analysts
were
cautious
in
their
expectations,
given
the
political
and
economic
instability
in
various
markets
across
the
globe
and
the
ongoing
challenges
posed
by
high
consumer
prices.

Meta,
which
was
the
first
in
the
group
to
report
results,
put
some
fears
to
rest
on
Wednesday,
showing
a
27%
jump
in
first-quarter

revenue
to
$36.5
billion.
For
the
Facebook
parent,
it
was
the
strongest
rate
of
expansion
since
2021.

“When
Meta
was
in
its
dark
days
two
years
ago,
the
company
knew
what
they
had
to
do
to
get
back
on
track,”
analysts
at
Bernstein
wrote
in
a
note
after
the
earnings
report.
“To
their
credit,
Meta
defended
the
core.”

That
dark
era
was
defined
by
the
combination
of
macroeconomic
challenges
and


Apple’s
iOS
privacy
change,
which
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
dramatically
cut
headcount.

Meta
responded
by
rebuilding
its
ad
system,
with
the
help
of
hefty
investments
in
artificial
intelligence,
so
it
could
deliver
value
to
brands
despite
the
roadblock
imposed
by
Apple.
The
stock
almost
tripled
in
2023.

While
the
company’s
first-quarter
results
beat
estimates
across
the
board,
the
shares
tanked
on
Thursday
after
CEO

Mark
Zuckerberg
focused
his
post-earnings
commentary
on
the
many
ways
Meta
is
spending
money
in
areas
outside
of
advertising,
notably
the
metaverse.

“We’ve
historically
seen
a
lot
of
volatility
in
our
stock
during
this
phase
of
our
product
playbook
where
we’re
investing
in
scaling
a
new
product
but
aren’t
yet
monetizing
it,” Zuckerberg
said
on
the
earnings
call
late
Wednesday.

The
Bernstein
analysts,
who
recommend
buying
the
shares,
said
Meta’s
ad
revenues
were
led
by
strength
in
online
commerce,
gaming,
entertainment
and
media,
and
that
China-based
ad
demand
“remained
strong.”
Meta
has
benefited
from
a
surge
in
spending
from
Chinese
discount
retailers
like
Temu
and
Shein.

“Without
sounding
overly
religious,
you
either
believe
in
Zuck
or
you
don’t,
and
we
do,”
the
analysts
wrote.

Alphabet
followed
on
Thursday,
reporting
ad
revenue
for
the
first
quarter
of
$61.66
billion,
up
13%
from
the
year
prior,
with
YouTube
ad
revenue
jumping
21%
to
$8.09
billion.
The
company
as
a
whole
grew
15%,
a
rate
last
seen
in
2022,
and
the
stock
shot
up
10%
on
Friday,
the
sharpest
rally
since
2015.

During
the
quarterly
call
with
investors,
Alphabet
finance
chief
Ruth
Porat
said
the
company
is
“very
pleased”
with
the
momentum
of
its
ad
businesses.

Analysts
at
Citi
wrote
in
a
note
on
Friday
that
the
broader
advertising
environment
is
“clearly
strengthening,”
pointing
to
accelerating
growth
within
Google
Search
and
YouTube.

“We
emerge
from
Q1
results
incrementally
positive
on
shares
of
Alphabet,”
the
analysts
wrote,
maintaining
their
buy
recommendation.

Snap
shares
rocketed
28%
on
Friday
after
the
company

reported
a
21%
increase
in
revenue
to
$1.19
billion,
the
strongest
growth
in
two
years.
In
each
of
Snap’s
past
six
quarters,
sales
either
grew
in
single
digits
or
declined.

The
company
said
it’s
seeing
accelerating
demand
for
its
ad
platform
and
benefiting
from
an
improved
operating
environment,
according
to
its
investor
letter.

Deutsche
Bank
analysts
wrote
in
a
report
on
Friday
that
Snap
delivered
a
“much-needed”
beat,
and
that
its
ad
stack
is
back
on
track.
The
analysts,
who
have
a
buy
rating
on
the
stock,
said
investors
appear
“most
encouraged
by
the
ad
platform
investments,
which
are
showing
increasing
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
alongside


Amazon,
which
has
emerged
as
a

giant
in
online
ads.


Reddit
will
follow
on
May
7,
reporting
earnings
for
the
first
time
since
the
social
media
company’s

initial
public
offering
in
March.