View of Google Headquarters in Mountain View, California, United States on March 23, 2024.
Tayfun Coskun | Anadolu | beautiful images
Advertising is back.
After a brutal 2022, when brands reeled in spending to cope with inflation, and a 2023 defined by layoffs and cost-cutting, leading digital advertising companies have begun growth returns at a good rate.
Meta, Take a snap And Google all reported first-quarter results this week, with revenue growth exceeding analysts’ estimates and at levels not seen in at least two years. Their financial performance is largely driven by improvements in their advertising business.
Companies enter earnings season in a good position because their numbers are comparable to periods of historical weakness. However, investors and analysts are cautious in their expectations, given political and economic instability in various markets globally and ongoing challenges due to consumer prices. High.
Meta, the first of the group to report results, allayed some concerns on Wednesday, showing a 27% gain in the first quarter revenue up to 36.5 billion USD. For parent company Facebook, this is the strongest expansion since 2021.
“When Meta was in its dark days two years ago, the company knew what it had to do to get back on track,” Bernstein analysts wrote in a post-earnings note. “To their credit, Meta has protected the core.”
That dark period was defined by a combination of macroeconomic and economic challenges Apple iOS privacy changes make it harder for social media companies to target users with ads. Meta lost two-thirds of its value in 2022 and forced to significantly reduce headcount.
A smartphone displaying Facebook with the Meta icon visible in the background.
Jonathan Raa | Nurphoto | beautiful images
Meta responded by rebuilding its advertising system, with the help of major investments in artificial intelligence, so that it could deliver value to brands despite the hurdles posed by Apple. imposed. Shares almost triple in 2023.
Although the company’s first-quarter results beat estimates, shares fell on Thursday after CEO Mark Zuckerberg focused his post-earnings commentary on the many ways Meta is spending money in areas beyond advertising, especially the metaverse.
“In the past, we’ve seen a lot of volatility in our stock during this phase of our product strategy when we’re investing,” Zuckerberg said during the earnings call late Wednesday. on scaling a new product but not making money from it yet.”
Bernstein analysts who recommend buying the stock said Meta’s advertising revenue was led by strength in online commerce, gaming, entertainment and media, and strong advertising demand. Reporting in China “remains strong”. Meta has benefited from increased spending from Chinese discount retailers such as Temu and Shein.
“Without sounding too religious, you either believe in Zuck or you don’t, and we do,” the analysts wrote.
‘Incremental positivity’
The alphabet followed on Thursday, reported first-quarter advertising revenue of $61.66 billion, up 13% year-over-year, with YouTube ad revenue up 21% to $8.09 billion. The company as a whole grew 15%, a rate last seen in 2022, and shares jumped 10% on Friday, the sharpest gain since 2015.
On a quarterly call with investors, Alphabet chief financial officer Ruth Porat said the company was “very pleased” with the momentum of its advertising business.
Analysts at Citi wrote in a note on Friday that the broader advertising environment is “clearly strengthening,” pointing to rapid growth in Google Search and YouTube.
“Q1 results suggest we are increasingly positive on Alphabet shares,” the analysts wrote, maintaining their buy recommendation.
Snap shares soared 28% on Friday after the company reported Revenue increased 21% to $1.19 billion, the strongest growth in two years. In Snap’s past six quarters, sales have either increased in the single digits or decreased.
The company said it saw growing demand for its advertising platform and benefited from an improved operating environment, according to the letter to investors.
Deutsche Bank analysts wrote in a report on Friday that Snap delivered a “much-needed” beat and that its advertising stack was on track. Analysts, who have a buy rating on the stock, said investors appear to be “most encouraged by investments in advertising platforms that are showing promise.”
Despite the recovery, Snap shares are still down 14% for the year.
Investors will get a clearer picture of the digital advertising market next week, with Pinterest reported on Tuesday along with Amazonhas emerged as one giant in online advertising. Reddit will next on May 7, reporting earnings for the first time since the social media company public output March.
