View of Google headquarters in Mountain View, California, United States on March 23, 2024.
Tayfun Coskun | Anadolu | Getty Images
The ad is back.
After a brutal 2022, when brands started spending to deal with inflation, and a 2023 defined by layoffs and cost-cutting, the leading digital advertising companies started to grow again in a healthy way.
After, Break and Google All reported first-quarter results this week, with revenue growing that beat analysts’ estimates and at a pace not seen in at least two years. Their financials were mainly based on improvements in their advertising business.
Companies entered the earnings period in a favorable position, given that their numbers would be comparable to historically weak periods. However, investors and analysts were cautious in their expectations given the political and economic instability in various markets around the world 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, posting a 27% rise in first-quarter revenue to $36.5 billion. For Facebook’s parent company, it was the strongest pace of expansion since 2021.
“When Meta was in its dark days two years ago, the company knew what it needed to do to get back on track,” Bernstein analysts wrote in a note after the earnings report. “To their credit, Meta defended the core.”
This dark age was defined by a combination of macroeconomic challenges and of Apple 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 reduce its workforce.
A smartphone displays Facebook with the Meta icon visible in the background.
Jonathan Raa | Nurphoto | Getty Images
Meta has responded by rebuilding its ad system, with the help of massive investments in artificial intelligence, so that it can deliver value to brands despite the barrier Apple has imposed. The stock nearly tripled in 2023.
While the company’s first-quarter results beat estimates across the board, shares fell on Thursday after CEO Mark Zuckerberg focused post-earnings commentary on the many ways Meta is spending money in areas outside of advertising , especially in the metaverse.
“We’ve historically seen a lot of volatility in our stock during that phase of our product playbook, where we’re investing in scaling a new product but not yet monetizing it,” Zuckerberg said on the earnings call late Wednesday.
Bernstein analysts, who recommend buying the stock, said Meta’s ad revenue comes from the strength of online commerce, gaming, entertainment and media, and that China-based ad demand ” remained strong.” Meta benefited from increased spending from Chinese discount retailers such as Temu and Shein.
“Without sounding too religious, whether you believe in Zuck or not, we do too,” the analysts wrote.
“Gradually Positive”
During the quarterly call with investors, Alphabet CFO Ruth Porat said the company is “very pleased” with the momentum of its advertising business.
Citi analysts wrote in a note on Friday that the broader advertising environment is “clearly strengthening,” pointing to accelerating growth within Google Search and YouTube.
“We are gradually bullish on Alphabet shares from Q1 results,” the analysts wrote, maintaining a buy recommendation.
Shares of Snap soared 28% on Friday after the company reported a 21% rise in revenue to $1.19 billion, its biggest growth in two years. In each of Snap’s last six quarters, sales either rose in the single digits or declined.
According to its investor letter, the company said it is seeing an acceleration in demand for its advertising platform and is benefiting from an improved operating environment.
Analysts at Deutsche Bank wrote in a report on Friday that Snap has achieved the “necessary” pace and that its ad stack is back on track. The analysts, who have a buy rating on the stock, said investors appear “more encouraged by ad platform investments, which show 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 report on Tuesday at the same time Amazonwhich has emerged as a giant in online advertising. Reddit will follow on May 7, reporting earnings for the first time since the social media company’s initial public offering in March.