Alphabet, Meta lure back advertisers as smaller rivals expected to struggle
Advertisers are sticking with safe havens Alphabet and Meta Platforms in an uncertain economy, their quarterly results showed, likely helping the tech giants take market share away from smaller digital ad sellers such as Snap Inc.
Following a pandemic-led spending bonanza by advertisers who wanted to reach customers online, ad sales-reliant tech firms faced tough comparisons in the past several quarters. Customers cut their ad budgets after interest rates rose and record-high inflation fueled worries about the economy.
This year, though, the social media ad market is expected to grow at a slightly faster pace than in 2022, according to a report last month from media and intelligence firm MAGNA.
“Advertisers are simply going back to platforms they know, like and trust,” said Brian Mulberry, a portfolio manager at Zacks Investment Management.
First-quarter ad sales at Google-parent Alphabet slipped from a year earlier to $54.55 billion, but beat what analysts were expecting.
Advertisers are facing an environment where they must “do more with less,” Philipp Schindler, Google’s chief business officer, said on an earnings conference call on Tuesday.
The company on Tuesday played up its work in artificial intelligence (AI), saying that helped it improve the relevance of ads shown to users and even automatically generate text that can be used in a brand’s ads.
Meta, on Wednesday, echoed this, saying AI recommendations had increased the time users spend on Instagram by 24 percent in the first quarter and that it was investing in AI to lure advertisers to spend more on its platforms.
Meta shares spiked 12 percent in after hours trade on Wednesday.
The social media advertising market overall is expected to grow 6 percent this year to $66 billion, according to MAGNA.
Last year, the social media ad market grew 2 percent in part because privacy updates by Apple Inc made it more difficult for advertisers to gather user data to serve targeted ads.
“There’s a lot of inertia to staying put with platforms that you’re familiar with and have tools that are well-developed for advertisers,” said Insider Intelligence principal analyst Debra Aho Williamson.
Advertisers could snub Snapchat-owner Snap and Pinterest, which will report quarterly results on Thursday, as the companies reach only a fraction of potential consumers as their larger rivals, analysts said.
Analysts expect Snap to post a 2-percent fall in its first-quarter revenue from a year earlier, according to Refinitiv.
Snap has struggled to translate its investment in new technology like augmented reality into revenue, said Jasmine Enberg, another principal analyst at Insider Intelligence.
Digital pinboard company Pinterest is expected to post a 3-percent year-over-year rise in quarterly revenue on Thursday, according to Refinitiv data.
However, Pinterest’s outlook could be volatile as “the competitive landscape remains fierce” and companies are “guarded” with their digital ad budgets, Brian White, an analyst with Monness Crespi Hardt, said in a note on Tuesday.
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