The online advertising market is in decline, dragging the tech giants down with it
Shares of Meta were down about 7% since the start of this week on Friday morning. Snap shares fell more than 25% after reporting earnings last week.
“Today’s results reflect very well the impact of a challenging economic environment that is hurting nearly every tech mega-company,” Haris Anwar, senior analyst at Investing.com, said in a statement.
This is a stark reversal for the online advertising industry. After a brief dip at the start of the pandemic, advertisers began pumping money into online ads to reach consumers who were spending more time plugged into screens. This time last year, Meta and Snap both reported that quarterly sales had doubled from a year earlier, and Google’s were up 62%.
More recently, soaring inflation, a market slowdown and fears of a recession have prompted companies to cut advertising budgets, the tech giants said in their earnings reports this week. Many companies, including in the tech industry, have recently slowed hiring and investment amid economic uncertainty.
The very nature of how some online advertising campaigns are executed has made the pain immediate. Snap’s chief financial officer, Derek Anderson, noted during the company’s earnings call last week that “ad spend – particularly direct-response advertising at auction – is one of the very few elements in the structure. costs of a business that they can reduce immediately in response to pressure” on other parts of their business.
These macroeconomic challenges are expected to carry over into the remainder of this year. Meta said Wednesday it expects current-quarter revenue to be between $26 billion and $28.5 billion, which would mark a second decline in quarterly year-over-year revenue. Although Snap declined to provide financial guidance due to the uncertain environment, it said third-quarter revenue so far was flat compared to a year earlier.
And while Google benefits from its own third-party data, YouTube’s advertising business hasn’t been entirely spared.
“Right now it’s basically a perfect storm for digital advertising,” said DA Davidson analyst Tom Forte. For businesses that rely on advertising, “there is a high risk to your revenue.”
— CNN’s Rishi Iyengar contributed to this report.