More 2Q23: Packaged Goods Ad Spend Increases Leading Industry Growth, Share Shifts to Digital Continue
Continuing with the deluge of second quarter earnings this week, consistent themes are evident. More packaged goods marketers reported robust growth in sales and even stronger growth in advertising spending, while some technology companies, although some spending details around telcos were more mixed. Meanwhile, media owners who aren’t primarily digital media platforms continue to lag. And unsurprisingly, digital platforms continue to take share from traditional media companies in the US and Europe (and elsewhere, too).
Looking at the biggest marketers providing new information over the last day, on Friday P&G posted organic growth of 8% for the calendar second quarter with significant increases in marketing and overhead investments. How much the company spent on advertising for the year won’t be known until their 10-K comes out next week. E-commerce is clearly more important for them as it is for othes, as during the earnings call, management noted that e-commerce sales increased 7% and now represent 17% of sales.
Retail media was featured on the earnings call with a question from an analyst about the topic. Consistent with my past work on the topic, P&G management characterized related spending as part of the overall mix of their media budget rather than something incremental, and that it is something that fits into existing approaches to budget optimization. Increases in spending on retail media platforms (most of which would be classed as digital media) should inevitably continue for htem and their peers.
Over at L’Oreal yesterday, that company reported organic growth of 14% for the quarter and 13% for the half, supported by heavy levels of advertising and promotion expenses, which rose from 31.5% of sales in the year ago half to 32.5% during the first six months of this year. In absolute euros, the increase amounted to 24% year-over-year (and likely a percentage point more in organic terms).
In context of responding to a question on the earnings call about how the company manages its spending, CEO Nicolas Hieronimus noted on its earnings call that it is “developing its own AI-powered allocation tool” for its media budgets. While such a tool isn’t necessarily novel (agencies have built and operated optimizers for decades) that management discussed it on an earnings call was notable. Management said that 75% of its advertising is deployed on digital media presently.
At Colgate, that company reported on Friday that its second quarter organic sales growth was 8%, with advertising spending increases of 20%, rising from 11.2% to 12.5% of net sales. For Mondelez, which reported yesterday, that company disclosed that advertising consumer promotions now amount to 8.4% of revenue. During the most recent quarter, their organic revenue growth was 17.7% while advertising and consumer promotions on a constant currency basis was up 16.9%
By contrast, Microsoft released its 10-K and disclosed its fiscal year (for the twelve months ending June 30) advertising figures in its annual report, unsurprisingly revealing massive cuts. Its advertising expense fell from $1.5 billion to $904 million despite a revenue increase from $192.3 billion to $211.9 billion over that same period.
Telcos providing new data were relatively mixed: T-Mobile cut their SG&A by 10%, while noting that their advertising expense was higher in the quarter. Verizon also indicated higher advertising costs of $69 million in the quarter, or likely a mid-single digit figure for the quarter given their 2022 annual advertising budget of $3.6 billion. AT&T, on the other hand, stated in its new quarterly filing that advertising costs were lower vs. the year-ago period.
Looking at media owners, Roku reported its results on Thursday afternoon. While the company doesn’t disclose advertising revenue (related activities are included in the company’s “Platform Revenue” line, which is approaching $3 billion in annual revenue, with advertising probably more than half of the figure), it indicated that related activity grew in the quarter. Cable operator Charter reported a meaningful decline with ad revenues falling 16.5%, although an absence of political advertising – last year’s second quarter was up 11.9% with essentially all of the growth attributable to political – was a key factor. Local radio broadcaster Cumulus also saw a big decline in the quarter, as total revenue fell 11%. Although lack of political advertising would have represented a modest drag, the company also saw a boost – likely offsetting that political advertising reduction – from increased barter sales.
Outside of the US, we also have additional data to point to from France’s leading broadcaster TF1, where total advertising was down 6.9% on a like-for-like basis (following on 1Q23’s 5.4% decline). This roughly mirrored competitor M6’s 9.4% decline in advertising during the second quarter, which followed a 2.4% decline in the first quarter. By contrast, in Spain, one of that country’s main broadcasters Atresmedia reported TV and digital ad revenue that rose in the quarter by 4%. Paired with significant declines reported by ITV and likely declines from other large European broadcasters during the quarter, it’s understandable that participants in the European advertising would perceive a negative environment for their industries. However, with regional growth for Meta of 14% growth and for Alphabet of 10% growth, let alone growth from Amazon and other retail media platforms, it would appear to be fairly clear that share shifts are responsible for these outcomes.