1Q23 Ad Results From Amazon, Comcast, Snap, TF1 and AtresMedia Continue to Show Overall Digital Growth, TV Decline
Advertising trends generally continue to come in for the first quarter with mixed results including positive growth for digital advertising and negative growth for television, consistent with expectations I have for slight growth in overall advertising for the quarter. Note that whatever growth is occurring is almost certainly below the growth that is occurring in underlying economic activity.
GDP figures for the United States for the first quarter of 2023 were released today, and on the basis I look at them – in year-over-year and nominal terms, which is the most appropriate figure to compare to reported advertising revenue growth rates rather than headline GDP figures which are reported in sequential, annualized and inflation-adjusted terms – GDP expanded by 7.0% in the quarter. Personal consumption grew even faster, rising by 7.2%. In this context, advertisers who cut spending have arguably done so because of unfounded expectations of economic decline.
Of course, it’s important to note that most large advertisers have increased their ad budgets, at least based on those who have provided public disclosures or commentary. For examples, consider the following:
After P&G indicated it grew advertising spending during the first quarter last week, Unilever stated on its earnings call on Thursday morning that its advertising spending will be up during 2023.
Hershey disclosed that it increased advertising and related consumer marketing by 9%.
Coca-Cola also disclosed in its 10-Q that it increased advertising spending by 9% as-reported (and with foreign exchange causing a 6% drag on revenues, implicitly advertising spending was up by double digit levels).
Pepsico similarly conveyed it increased its advertising expenses during the first quarter.
Looking at the media owners who reported on Thursday, Amazon, the third largest seller of advertising outside of China posted constant currency ad revenue growth of 23%, identical to their fourth quarter result. Unsurprisingly, this figure is significantly above results posted by all other large sellers of digital advertising (Google was up around 3%, Meta was up around 7% and Microsoft was probably up somewhere in-between these figures) as large marketers continually allocate more resources to retail media and as Amazon’s marketplace – itself up 20% in the quarter in constant currency terms vs. O&O sales which were up by only 3% – undoubtedly drives much of the growth in competition for attention from manufacturers who rely on the marketplace.
Next, Comcast, the global industry’s #5 player outside of China, reported a 6.1% decline in NBCU’s domestic advertising business excluding the Olympics and Super Bowl from the year-ago period. Note that for every $20 million of political ad revenue the local stations generated in the year ago period the current quarter would be a percentage point stronger (political figures were not disclosed). Residential connectivity – which includes both the US cable operations and the European operations via Sky - saw advertising down 12.7% in constant currency terms. As Sky represents around 40% of the newly-defined reporting segment’s ad revenue, it’s difficult to precisely identify domestic ad revenue trends, although even then political advertising – which might have accounted for a couple of percentage points of the year-ago period – distorts interpretations further, although overall it’s likely that Sky was down much more significantly than US cable.
Snap (which I ranked as #12 outside of China for last year) faced similar trends at a global level with a 6% as-reported decline or a 7% constant currency decline. The company’s management cited macro-economic conditions (presumably referring to sentiment among marketers and press commentary rather than actual economic output) and changes to its ad platform as key factors driving this outcome.
They noted that brand-oriented business was down 12% while direct-response-oriented business was down 9% and further pointed out that a small number of the largest advertisers who are skewed towards North America were disproportionately responsible for declines, as North America results apportioned by user location were down by 16% as-reported vs. a 3% decline in Europe.
(While US-specific and advertiser-geography-apportioned revenues won’t be disclosed until the 10-Q comes out, in the past couple of years the gap between these figures was not significant although as recently as 2019 cross-border advertising into North America accounted for 14% of revenue likely via spending from TikTok or other Chna-based advertisers).
Paid subscribers to Snapchat+ – now amounting to 3 million at approximately $4/month – would have accounted for $20-30 million of revenue in the quarter and imply that advertising was probably a couple of percentage points worse than the overall company’s decline in revenue. By inference, North America was therefore down by closer to 20% year-over-year.
An important question to consider when assessing these results was whether or not TikTok – already more than double Snap’s size – gained share of social media budgets at Snap’s expense and was a more significant factor than anything else. While Linkedin headcount data will serve as an imperfect proxy for larger companies, to the extent there is any relationship between people attributed with employment at TikTok and its revenue we could infer a 40% growth in revenue for TikTok during the quarter. Snap, coincidentally or not, saw its employee base down by 7%, essentially matching its revenue decline.
Finally, outside of the US, TV results from large network owners in France and Spain looked similar to what we saw from Comcast’s US figures. France’s TF1 reported a like-for-like decline of 6.9% in its advertising revenue, which mostly represent television activities. Meanwhile, Spain’s AtresMedia saw its TV advertising business decline by 5.4%. Both companies gained a small degree of share over competitors during the quarter.