Madison and Wall: Saturday Summary
For the week ending November 10, 2023:
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Although concerns around macroeconomic weakness featured prominently in commentary from this quarter’s earnings, now that almost every large company dependent on advertising has reported its third quarter results (with this past week’s 3Q reporters covered here and here) we can say with a fairly high degree of certainty that macro conditions did not lead to noticeable negative consequences at an industry level.
Looking at the 20 largest sellers of advertising globally outside of China who represent more than 70% of global ex-China advertising revenues (mindful that we are still waiting on more specific data from Disney as well as results from MFE and Z Holdings, and need to include assumptions for growth from TikTok, Apple and Yahoo) I calculate an approximate 11% growth rate in ad revenues from these companies in the third quarter. This was well ahead of that group of companies’ 5% growth rate in the second quarter and 3% growth rate in the first.
For multiple reasons, such an outcome shouldn’t be too surprising.
First, we can point to generally growth-y spending trends from many of the world’s largest advertisers. Earlier this week I compiled comments about ad spending trends from the largest marketers’ CEOs and CFOs during their third quarter earnings calls.
As for a second reason, last year’s comparables were much harder in the first half – as some unsustainable post-pandemic-era spending was still in the market during 1Q22 and 2Q22 – while the second half saw most of that excess washed out, with an overlay of negative sentiment to boot. The third quarter of last year was up by approximately 5.7%, which was much more favorable when compared with a 17.6% growth rate in the first quarter and 11.4% growth rate in the second quarter.
As the fourth quarter of 2022 was the weakest of last year – the top 20 only grew by 2.4% - I continue to expect that 4Q23 will show continued growth. It is certainly possible that the consequences of “higher for longer” interest rates in the US and elsewhere will start to bite on economic activity and then onto advertising, but evidence to date continues to suggest that we’ll see another strong quarter in 4Q23.
Of course, the overall average growth rates for the third and fourth quarters will be dragged down by the media companies who are experiencing meaningful declines – most of whom are smaller – but probably not by more than a few percentage points. Over the coming weeks we’ll have more data to refine the past quarter’s results and expectations for the full year with even more precision.