Big Tech and Digital Ads Revenue are in Decline: Here’s Why

After a challenging 2022 in which advertising-dependent companies faced shrinking budgets and cratering stock prices, fourth-quarter results this week from Alphabet, Meta Platforms and Snap showed they were not yet in the clear.

The health of the advertising industry closely mirrors the economy, and many advertisers have pared back their marketing budgets in response to record-high inflation rates and continued uncertainty about a recession.

Google-owner Alphabet on Thursday reported a slight fall in quarterly ad revenue, missing Wall Street expectations and surprising investors as the world’s largest digital ad platform has traditionally been resilient compared to smaller rivals. Shares of Alphabet were down 5 percent in trading after the closing bell.

“For a company the size of Google and as influential as Google to have such disappointing results, (that means the ad industry) won’t turn around in one quarter,” said Evelyn Mitchell, an analyst at Insider Intelligence.

Snap, owner of photo messaging app Snapchat, said Tuesday it expects current-quarter revenue to decline as much as 10 percent due to competition for ad dollars and a challenging economy.

“(Advertisers) are managing their spend very cautiously so they can react quickly to any changes in the environment,” Snap Chief Executive Evan Spiegel said during an earnings call.

Meta Platforms, the second-largest digital ad platform, lifted Wall Street on Wednesday with its cost cuts and big share buyback, though it posted its third consecutive quarter of year-over-year revenue decline.

Lower ad spending from brands in the financial services and technology sector was one reason for the revenue decline, the company said.

Meta Chief Financial Officer Susan Li said the broader economy continues to be “pretty volatile” and it was too early to tell what the year would look like.

The mood among advertisers broadly is one of “cautious optimism” for the year ahead, said Nicola Mendelsohn, Meta’s vice president of global business group, in an interview on Thursday.

By region, advertisers have been bullish about the US market, while sentiment in Europe has struggled comparatively and China has shown signs of improvement, though the future remains uncertain amid the country’s reopening, Mendelsohn said.

© Thomson Reuters 2023