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Advertising Growth in 2Q23: Positive Early Signs
Going into earnings reports for the media industry’s calendar second quarter, there are a number of signs reinforcing my view that we should expect growth in advertising this quarter, at least in the United States which remains on track towards mid-single digit underlying (ex-political) growth for the full year.
First, we’ve already seen several large marketers report second quarter earnings so far. Last week Pepsico reported that they increased advertising and marketing spending by 50 basis points of revenues, or $100 million during the second quarter, which likely represents a solidly mid-single digit percentage year-over-year as the company’s annual “advertising and other marketing” activities amounted to $5.2 billion on a full year basis last year. Moreover, the company’s CFO stated “you’re going to see us invest in (advertising and marketing)” in the second half of 2023. This followed on results from General Mills last month (covering the March-May period) conveying double digit increases in spending on media. Second, banks including JP Morgan Chase, Wells Fargo and Bank of America all reported their results, featuring increased spending of advertising or marketing-related line items of 27%, 80% and 11%, respectively And today (Tuesday) new US retail sales data came out covering the month of June 2023.
While the headline retail sales number may not look inspiring, with only 1.7% growth on a year-over-year basis for the month and 1.6% growth for the quarter, when we weight these figures against the typical advertising-to-revenue ratio for each category of advertising (eg. 4.1% for nonstore retailers and 0.2% for gasoline stations) I calculate 4.7% growth in spending on advertising, presuming those ratios held constant. Growth in consumer spending via retail channels continues to be weighted towards the categories predisposed towards spending more on advertising and away from those which don’t.
Of course, advertising faces a difficult comparable year-over-year. It’s important to recall that globally, the 20 largest sellers of advertising grew their ad revenues by 11.4% during the second quarter following on a 17.6% rate of expansion in the first quarter. Comparables will not begin to ease until the third quarter, as last year’s 3Q “only” saw growth of 5.7%, and so to some degree we should expect some softness, at least relative to what will occur in the second half of the year. As weak advertising results come in for some higher profile individual companies – owners of TV networks, for example – it’s also critical to keep in mind that spending is increasingly getting distributed across a wider range of companies, especially as the likes of TikTok, Apple, Walmart, Uber and others in retail media who are slightly below the radar or who do not disclose their results continue to grow much faster than the rest of the industry.
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