- The long advertising winter could be coming to an end in the second half of this year.
- Companies like Meta and Google reported ad rebounds, and big advertisers plan to increase spend.
- But some agencies and ad sellers are still struggling.
There are tentative signs that the advertising winter is starting to thaw.
Since last summer, the ad industry has been grappling with an advertising slowdown. Concerns about the economy, higher interest rates and inflation, plus tough comparatives with late 2021 and early 2022, meant many media companies and advertising agency firms were reporting decelerations in ad sales growth.
But this quarter’s earnings season has brought with it some glimmers of hope.
Meta, which derives more than 98% of its revenue from advertising, reported revenue well ahead of analysts’ estimates for the second quarter. It predicts its total revenue in 2023 will grow by around 20% versus last year, while analysts had only been expecting third quarter revenue growth of 13%. Google parent Alphabet, the world’s biggest seller of ads, also exceeded Wall Street’s revenue expectations and a return to ad sales growth after two straight quarters of decline.
Meanwhile, some of the world’s biggest ad spenders have indicated they plan to up their marketing outlays.
Nestlé, which broke out its advertising and marketing expenses as a line item for the first time this quarter, said it plans a “significant increase in marketing investments” in the remainder of the year. Advertising and marketing expenses represented 7.1% of its sales in the first half of 2023, up 50 basis points from the second half of 2022.
Kleenex-owner Kimberly-Clark said it expects its advertising spend to increase by around 100 basis points, or around 20%, in 2023. PepsiCo increased its advertising and marketing investment by 50 basis points, or $100 million in the second quarter, and indicated it’ll continue to invest in those areas in the back half of the year.
Most consumer-goods companies have also been increasing their prices, which contributed to their sales growth in the first half of the year.
“To justify those pricing gains they need to advertise, otherwise they risk losing to generic brands,” said Madison and Wall technology and media analyst Brian Wieser.
Overall, total global ad spend is forecast to grow 2.9% this year to $907.2 billion, according to the advertising research firm Warc. A Warc spokesperson said the firm expects those figures to be slightly higher when it releases its new forecast next month.
To be sure, some pure-play advertising companies remain challenged. Adtech companies have continued a drip of layoffs into this year, with companies citing uncertainty in the economy and lower digital display ad rates as reasons for cutting costs. Snap’s shares fell this week as it provided weaker than expected guidance for the third quarter as it deals with higher costs and an intensive overhaul of its advertising platform largely in response to Apple’s 2021 privacy update.
And not every advertising sector is upping spend. Tech companies like Meta and Microsoft have winnowed their marketing outlays as they continue their “year of efficiency” — despite being the biggest beneficiaries of the advertising rebound. This has come at a cost to advertising groups like S4 Capital, which has a significant number of tech clients. S4 issued a profit warning this week, sending its shares tumbling, as tech companies tightened their belts.
Large advertising holding companies themselves had a mixed bag of results so far. Publicis Groupe was the star performer and beat analyst expectations, while Omnicom and IPG missed estimates. Though even Publicis CEO Arthur Sadoun said clients were delaying their long-term investment decisions, such as in the TV upfronts.
“They are also doing that with upfront because by definition, they have to commit for the future where they want to keep some flexibility,” said Sadoun on the Publicis earnings call.
One of the reasons for marketers’ apprehension is that economists have been anticipating a recession in the US that still hasn’t come to pass, causing the economists to keep pushing out their forecasts, said Wieser. Indeed, on Thursday, the US Commerce Department said the US economy grew by 2.4% in the second quarter, which was up from 2% in the first quarter.
“It’s contributed to a world where there are a lot of people who believe there is supposed to be a recession because they’re told there should be,” said Wieser. “It leads them to make decisions on a very short-term basis and means it’s harder right now even to get medium-term commitments.”
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