Marketers + Media Owners (Alphabet, LVMH, Microsoft, Unilever, etc.) Generally Posting 2Q23 Growth
A flurry of second quarter and first half earnings results came out on Tuesday, with many of the world’s largest marketers, including LVMH and Unilever posting significant increases in advertising spending and two of the four biggest sellers of advertising also posting growth (in the case of Alphabet, faster than what we saw in the first quarter and in the case of Microsoft, slower than what we saw in the first quarter). Commentary about the third quarter from those who provided it (i.e. Spotify and Snap) suggested better results in the quarter to come. Results and expectations were generally consistent with my own for the quarter and year.
Looking at results posted by marketers and media owners on Tuesday, first we start with the marketers.
During the first half of 2023, LVMH increased its advertising and promotion spending by 24% in constant currency terms, well ahead of the 17% constant currency growth rate it posted (second quarter organic growth similarly amounted to 17%). Unilever also posted strong top-line results (7.9% for the quarter and 9.1% for the half in organic terms) with brand and marketing investments up by 400 million euros, or approximately 10% year-over-year. Meanwhile, at Kimberly-Clark, marketing-related expenses were also increased significantly ahead of revenue with organic growth of 5% but marketing and related expenses up 12% (and likely by several percentage points more on a comparable basis). Management stated that it expects advertising – a quarter of this marketing-related figure - to increase by 100 basis points of revenue, or what is likely around 20%, over the course of the year.
Perhaps unsurprisingly given commentary from several agencies who reported last week citing weakness in spending on their services from technology and telecom companies, growth in sales and marketing spending at Microsoft was down by 2% year-over-year and at Alphabet the equivalent figure was up 2%. Growth was significantly faster at both companies, indicating a reduced share of revenue allocated to marketing-related activities.
Now focusing on ad revenues posted by these companies, first, Alphabet’s Google posted approximately 5.2% constant currency growth in total advertising revenue. This pace was faster than the first quarter’s equivalent 3.2% level. Comparables were slightly easier in the year-ago period, but at 15% they were still high considering the overall advertising market should be considered to be growing at a mid-single digit level on an underlying basis. As reported, YouTube Ads were up 4.4%, or almost certainly well over 6% in constant currency terms, a rebound from 2Q22 when the as-reported results fell 1.6% (and probably grew around 1% in constant currency terms). Google’s search business was up slightly more than YouTube at 4.8% as reported, or probably close to 7% in constant currency terms. Network revenue declined -5% as reported, likely around 3% down in constant currency, although it’s not possible to know whether this was because of soft ad tech revenue, soft network revenue or a shift of revenue to other advertising products at Google.
At Microsoft, the world’s fourth largest seller of advertising outside of China, total search and news advertising revenue excluding traffic acquisition costs grew 8% in constant currency terms, a deceleration from the first quarter’s 13% rate of expansion. Xandr probably contributed a few percentage points of inorganic growth as it did last quarter, so underlying growth would have been slightly slower. Linkedin’s Marketing Solutions revenues declined year-over-year during the second quarter as they did during the first quarter.
Over at Snap we saw ad revenues declining around 8%, with total revenues falling 4%. The decline was attributed to ad platform changes which led to similarly negative results for both brand and direct response advertising (revenues fell by 8% and 7%, respectively). Snap’s successful launch of Snapchat+ is at a small scale diversifying revenue away from advertising, now likely accounting for around 4% of total revenue vs. none in the year-ago period. Looking forward the company conveyed limited visibility for advertising demand and are now guiding for a range of -5% to flat year-over-year growth for the third quarter. However, advertising growth expectations are implicitly several percentage points lower.
Meanwhile, France’s #2 broadcaster, RTL-controlled M6 saw deterioration during the second quarter as their TV advertising business declined 9.4% vs. the 2.4% decline of the first quarter. The company cited a weaker macro-economic environment as a driving factor, although its radio business grew by 2.9%. Other audio results which came out on Tuesday were also positive, as with Spotify where ad revenues were up 15% in constant currency terms, driven by podcasts. While those results can be viewed favorably for the sector, it’s important to note that the company continues to grow its ad-supported business with activities that essentially produce no or very little gross profit (i.e. by licensing or spending more on content such as podcasts through which they generate this revenue). Spotify noted that it expects its advertising business to grow faster in the third quarter than it did in the second.