More 2Q23 Ad Data: Meta's China-Driven Growth, Comcast, Havas, ITV, JC Decaux and More

Thursday is proving to be another busy day for data relevant to the advertising industry. Firstly, US GDP for the second quarter came out with 6.3% nominal growth on a year-over-year basis, including 6.0% in growth on personal consumption expenditures. In real (inflation-adjusted terms) growth amounted to 2.6% - in other words a “normal” quarter for a healthy economy.

Among major marketers reporting results today, Nestle reported that during the second quarter of 2023 it grew organically by 8.0%. The company disclosed advertising and marketing expenses for the first time, stated that this line item amounted to 7.1% of sales (around 6 billion CHF on an annualized basis, although this undoubtedly includes much more than paid media) and that it increased these expenditures by 7.5% vs. the year-ago period in constant currency terms. Separately, Hershey reported that its organic and as-reported revenue growth were both up 5.0%. Advertising and related consumer marketing expenses rose 14.9%. Strong growth from packaged goods companies – both in terms of revenues and advertising-related spending – has been a consistent theme so far this quarter.

Next, Vivendi’s Havas provided another window into agency trends by reporting a very positive 6.3% organic growth rate for the quarter. This was much stronger than what we saw from Interpublic and Omnicom, if slightly below where Publicis wound up but still particularly healthy in context of a year-ago 11.5% growth rate. While media was cited as driving growth, by region North America was up 5.6% and Europe grew by only 1.4%. Much of the outperformance came in Latin America where organic growth was 31.2%. Recognizing the mixed picture painted by other holding companies and while noting that some units such as Edge are weak in the US, management noted that they are “cautiously optimistic” about the second half.

Among media owners, the world’s fifth biggest seller outside of China, Comcast, reported that its NBC Universal segment’s ad revenues were down by 4.9% despite weak comparables, although I estimate that excluding political advertising the business was probably down by only 3.3%. Advertising at “Residential Connectivity” – a combination of Sky, legacy Comcast Spotlight, Freewheel and other activities – was down by 10.9% in constant currency terms, although as with NBCU, absence of political advertising probably dragged results down by a couple of percentage points.

Importantly for the rest of the industry, cord-cutting of traditional pay TV subscriptions accelerated during the quarter, falling by 12.6% year-over-year. This was similar to Verizon FiOS TV’s 11.2% decline and reinforces the fact that traditional TV is rapidly eroding for the operators as well as the advertisers who have historically depended on it.

Internationally the problems with pay TV subscriptions are not quite as pronounced, if only because penetration was never quite so high in most places, and viewing remained relatively concentrated on traditional broadcasters’ properties. Nonetheless, shifts of spending into digital platforms continue unabated, as we likely saw in the UK where ITV reported this morning and posted total ad revenue that was down by 11.1% in the quarter, similar to the first quarter’s 10.7% decline. Commentary about the current quarter was more favorable, as they expect some growth to occur.

Outdoor advertising is looking more healthy, as illustrated by JC Decaux, which posted organic growth of 10.3% during the quarter, and 7.8% for the half. A fair amount of this growth reflects recovery, as at a global level revenues are not yet back to pre-pandemic levels. In North America, where the company has done this already, organic growth was only 1% during the first half of the year.

Finally, following on yesterday’s earnings release from Meta, fuller data was provided in the company’s 10-Q release this morning. I’ve written extensively in the past about how revenue from China has been a major source of revenue for the company, with advertisers based there spending money elsewhere (as Meta’s properties are not accessible in mainland China).

One way to see related trends is to look at the gap between revenues apportioned by users’ geography (the data everyone focuses on because it is included in the company’s earnings presentations) and revenues apportioned by the billing addresses of their customers. In the second quarter, US and Canada ad revenues reflected the widest gap in these two figures since 2016, with the user-apportioned number growing 10.5% while the billing address growth was only 3.3%. Put differently, 7.2% of growth into the US and Canada came from outside of the region – i.e. China, primarily.

None of this is necessarily negative for Meta of course – as long as trade continues to flow between China and the rest of the world – but it does highlight a source of growth that Meta has pursued more aggressively than others over the past decade, and helps explain some of the outsized growth that we have seen from the company over that time.

Source: Madison and Wall, Company Reports