Advertising revenue has rebounded for the two biggest digital advertisers players, Google and Meta, but does this mean the slump is over?
The digital media players last year and early this year started shedding staff in big numbers with forecasters expecting a deep fall in ad spend in 2023.
But green shoots are coming. Analysts have noted last week's reported accelerating growth across Google’s core Search and YouTube, emerging tailwinds from AI investments and improving overall operating efficiencies.
“And while we acknowledge continued macroeconomic challenges, we believe the broader online advertising market is now improving and Alphabet’s (Google) core advertising products are well positioned to benefit,” analysts at investment bank Citi wrote in a note to clients.
Google reported a better than expected revenue of $US74.6 billion, up 7%, for the June quarter, reflecting improving advertising revenue.
This is the second quarter in a row that advertising revenue has lifted, following weaker growth in 2022. It follows an announcement in January to cut 12,000 jobs.
Both Google and Meta are heavily invested in AI to drive audiences and to monetise that via advertising.
Philipp Schindler, Google’s chief business officer, told analysts generative AI is supercharging new and existing ads.
“We're really helping advertisers here make better decisions, solve problems, enhance creativity,” he told a briefing.
“When I talk to customers, they're very excited about AI and understandably have some questions. One of the top questions is, for example, what's the next best step I should take?
“This is a key reason why we launched our Google Ads AI Essentials, which was a big announcement at GML. It's a checklist of simple steps customers can take right now to unlock the power of AI. And it has to do with the foundation of data and measurement.”
Bank of America analysts say Google is “well positioned” to benefit from a lift in advertising and cost control in the second half of the year.
“With accelerating advertising growth, and larger platforms outperforming, we now expect slightly higher growth,” they write.
Evercore ISI analysts say Google’s key advertising segments grew ahead of expectations, with Search up 5% and YouTube 4%.
“At the very least, we view this as evidence that the ad winter may have moved past its trough,” write the analysts in a note to clients.
Analysts at investment bank Jefferies believe the June quarter demonstrates Google's AI prowess in ads and gaining advertiser confidence with better returns.
They see the second half of 2023 accelerating but "acknowledge the macro is not all clear as ad budgets are not universally strong".
At Meta, the usage numbers are significant. More than 3.8 billion people use at least one of Meta’s apps every month. Facebook now has more than 3 billion monthly active users.
AI-recommended content, from accounts not followed by a user, is now the fastest growing category of content on Facebook's feed. This has driven a 7% increase in overall time spent on the platform.
Meta posted better than expected revenue for the June quarter, up 11% to $US31.999 billion.
Adjusting for currency fluctuations, that’s more like 13% growth. And Meta expects September quarter total revenue to be in the range of $32 billion-$34.5 billion.
“The usage numbers are good,” Mark Mahaney, Evercore ISI head of internet research, told CNBC.
“But what’s really just gonna pop out to every single person, every investor out there, is revenue growth acceleration. So the ad revenue growth if you adjust for currency, it was like 13% in the quarter.”
At Meta, the investment in AI continues despite keeping expenses tight and headcount lower.
Founder and CEO Mark Zuckerberg, says that AI has been helping advertisers run ads without needing to supply as much creative.
“Or if they have an image but it doesn't fit the format, be able to fill in the image for them,” he says
Based on geography, ad revenue growth was strongest in the Rest of World at 16%, followed by Europe 14%, North America 11% and Asia-Pacific 10%.
The total number of ad impressions served across Meta services in the June quarter increased 34%.
But the average price per ad fell 16%, driven by that strong impression growth, especially from lower monetising surfaces and regions.
“While overall pricing remains under pressure from these factors, we believe our ongoing improvements to ad targeting and measurement are continuing to drive improved results for advertisers,” says Meta CFO Susan Li.
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