Meta's Rapid Ad Growth Trends Suggest Faster-Than Expected Industry-Wide Expansion in 2023
More results for the second quarter came out on Wednesday, including from Meta, which should inform any debate about whether or not 2023 will be a solid year for the global advertising industry in general, and digital advertising in particular. Digital advertising appears to be on track to grow by high single digits - or possibly better - for the full year, which would be slightly ahead of June’s forecast estimates from GroupM and Magna of around 8% each.
Illustrating the current state of the advertising market, on Wednesday we saw several large marketers who posted results featuring significant revenue gains and marketing spending increases. Coca-Cola, Danone and Reckitt Benckiser reported 11%, 8% and 4% organic revenue growth, respectively, and all referenced increasing investments in marketing or related activities (with Danone describing their reinvestments in advertising and promotional activity as “significant.”). Unsurprisingly, given prior results conveying weakness in spending from technology companies, Meta cut its own marketing costs by 12% year-over-year.
However, this reduction in spending had no bearing on Meta’s current revenue trends. There, the second quarter was very strong with constant currency advertising growth of 12%. Products such as Advantage+ were cited as a key factor in the outcome. Complementing organic growth at Alphabet and Microsoft (the world’s #1 and #4 sellers of advertising outside of China) of approximately 5% and likely results from Amazon next week which should be in a double-digit range, and it’s hard not to anticipate that digital advertising will be up by at least high single digits during the quarter. Even assuming that the ~20% of advertising that is focused on television falls by 10% or more, total advertising would be up by a mid-single digit range for the quarter. Consequently, it’s hard not to conclude that media owners with poor results citing macro-economic weakness rather than share losses will likely be incorrect in their assessment of the state of the industry.
More remarkably, Meta’s guidance for the third quarter calls for 22% growth at the mid-range, including three percentage points of foreign exchange tailwinds. Although the comparable is relatively easy – the third and fourth quarters of last year were each down by around 5% – such an outcome makes it highly likely that total growth for industry-wide digital advertising in the second half will be in the low double digits, with total digital advertising for the year likely to come in stronger than expected previously, at a high-single digit level or possibly better.
Reinforcing this notion, the much smaller eBay also reported on Wednesday afternoon with constant currency growth for their advertising revenues of 35%. Over the past 12 months, eBay has generated $1.3 billion in revenue, now mostly via first party products (“Promoted Listings”), representing approximately 2% of the company’s gross merchandising value (GMV).