On paper, it’s a turbulent time for the world’s tech giants. Third quarter results released over the past couple of weeks have revealed continued uncertainty, with ad revenues looking stable for some (if not up to analysts expectations), but in potential freefall for others.
The most notable of these is Meta, which once again reported a year on year drop in its ad revenues – this time of 3.7% – when it released its Q3 results at the end of October. In an earnings call, the company’s CEO Mark Zuckerberg thanked investors for their “patience” after challenges of “too many experiment bets versus proven bets on the core”.
Zuckerberg conceded that the company was “still behind where we should be” but remained positive about the engagement on the company’s WhatsApp and Instagram Reels, while touting that the number of people using Facebook daily (nearly two billion) is “the highest it’s ever been”.
Ad revenue growth slows in Q3
Similar fluctuations were reported by Google parent Alphabet – which revealed a drop in YouTube ad revenues after a more muted growth than expected in Q2. Though overall Google’s advertising revenue was up 2.5% to hit more than $54bn this was a sizeable slowdown from Q2’s 12% hike.
Snapchat also saw a growth of 6% in revenue globally year-on-year in Q3, though this was slowed from the 13% growth in Q2. But newer kid on the ad block Amazon saw ad revenues shoot up 25% year-on-year in Q3, amounting to 30% at a flat foreign exchange rate and bucking the “slowdown” trend.
Will ad prices fall to compensate for the chaos?
In the days since these releases, the news of layoffs has been rife, with Meta this week announcing 13% of its staff – some 11,000 employees – would be losing their jobs, hot off the heels of Twitter culling around 50% of its workforce last week – a combined loss of workforce in the adtech arena of almost 15,000 from those two alone.
Snap had earlier in the year announced a 20% reduction in staff.
Performance marketers could also pose an legitimate question over whether Twitter will be forced to drop ad prices to woo back previous advertisers in the wake of Musk’s takeover – or if the mogul will seek to tweak the bidding programmes to increase revenues.
Q2 ad revenue for Twitter was only marginally higher year on year – up 2% – and with many former stalwarts pausing advertising since the chaos around the takeover, its next couple of quarters of published results will make for interesting reading.
“I got this wrong”
Messages of streamlining and caution when it comes to investment budgets has been consistent this past fortnight. Amazon CEO Andy Jassy explicitly stated the giant will “balance our investments to be more streamlined without compromising our key long-term, strategic bet”. Zuckerberg admitted in his open letter to staff this week that the predicted surge of e-commerce and outsized revenue growth in the COVID era, leading to his decision to boost investment, had not paid off.
“Not only has online commerce returned to prior trends, but the macroeconomic downturn, increased competition, and ads signal loss have caused our revenue to be much lower than I’d expected. I got this wrong, and I take responsibility for that,” he said.
Q3 Adtech: Results in numbersA brief summary of results and year-on-year changes.
Amazon: Advertising revenue was reported as $9.6bn in Q3 2022, 25% up on $7.6bn for the same period last year, though still lagging slightly on Q4 2021’s $9.7bn haul.
Google: Google parent Alphabet posted that ad revenue in Q3 2022 hit $54.48bn, up 2.5% from Q3 2021’s $53.13bn. YouTube revenues were down 1.9% to $7.1bn, but Google Search (and other) was up 4.3% to $39.54bn.
Meta: Ad revenues were down year-on-year for the second consecutive quarter – by 3.7% in Q3 2022 to $27.74bn. Facebook daily active users were up 2.8% in Q3, to 1.95 billion, touted as the highest in its history.
Pinterest: At a reported year-on-year growth of 8%, revenue for Q3 2022 hit $685m. Monthly active users, at 445 million remained stable year-on-year.
Snap: Global revenue was up 6% to $1.11bn, but this was a slowdown from the 13% year-on-year growth reported in Q2. The platform’s daily active users in Q3 grew by 19% to 363 million.
“Meta’s vision of the future may be too far flung for the average advertiser”
Commentators would agree. Thomas Walters, CEO and Founder of leading global creative agency, Billion Dollar Boy asserts that "Meta bet big on the metaverse, but its vision for the future of the internet may be too far flung for the average consumer and advertiser”.
“It brings into question the research which informed the rebranding last year. While we know that Meta needed to protect itself from the negative reputation surrounding Facebook, it was also motivated by a shift towards virtual reality. But rather than focus on the evolution of the internet, Meta has tried to sell in a revolution. For many it represents an overly ambitious gear shift from one version of the internet to another.
“News of redundancies at Meta is terrible for those staff affected. But, while Meta may argue that a lot of the staff it employs are on fixed term contracts and had been expected to depart, the scale and the timing suggest otherwise. Following its recent, underwhelming financial results, the redundancies look increasingly like the unfortunate side-effect of the enormous $10+ billion investment in a vision of the metaverse that people don’t yet understand.”
Janie Rees, Strategy Director, The Brooklyn Brothers, adds: “With regard to Meta – it is perhaps not surprising that it is taking longer to bear fruit than first anticipated. Mark Zuckerburg's vision was always a long term one – expecting us to be playing, socialising and purchasing in the Metaverse by the mid 2030’s. There is of course also the fact that Zuckerburg, whilst he hasn’t got many of his ‘punts’ wrong, may have moved too far, too quickly in the direction of the future after the ‘misinformation’ issues Facebook has been confronted with in recent years.”
Should brands hold fire – or hedge their bets?
We’ve all heard the message that cutbacks to marketing spend will do more harm than good – even when it comes to investing in reaching the eyeballs or clinching those conversions on platforms that have degrees of uncertainty around them. Revenue slowdown for Meta, YouTube and others might not necessarily signal alarm bells in terms of “should we or shouldn’t we”, but as we have seen, these stalls will hit investment, potentially into the tools and tech that marketers can have at their disposal.
But if marketers can prove return on their investments here, and consistently show increased awareness and increased engagement of their brand – as they will undoubtedly be under more pressure to do – then they should continue to take advantage of the scale offered by tech giants, says BrightBid CEO and Founder Gustav Westman.
“Due to the recent economic downturn, marketing teams are tasked with justifying budgets and ensuring they are able to deliver greater ROI. The recent slowdown in Alphabet’s digital advertising revenue indicates that brands and advertisers are being reasonably cautious with how much they are willing to spend and are actively looking for more cost effective solutions. Google Search, which continues to grow, is a key revenue component for Alphabet and should be taken advantage of as the company’s vast scale in terms of reach still makes it one of the most useful platforms for advertising.
“BrightBid's advice is to continue ad spend into 2023 and ensure brand awareness, but utilise the latest innovations for Automated Search campaigns using Artificial Intelligence, as they not only save time and resources but also maximise budget and achieve better results.”
Rees points to Amazon, and its “exception to the downward trend” for robustness. “This can be explained by an overall drop in marketing spend triggered by the above factors, and a ‘flight to safety’ mindset. Amazon Ads offer one of the most robust channels for marketers to be able to prove ROI.”
Data privacy movements – Meta’s competitors
“Ahead of the upcoming cookie phase out next year, a lot of Meta’s competitors have been investing resources into new ways to acquire user data as these changes take shape,” Walters said.
“TikTok for example is exploring ways of circumventing Apple's prohibitive changes to code audits and user activity tracking. Brands too are preparing for the shift in data privacy restrictions, investing increasingly in creating digital loyalty programs… This is where the evolution of the internet is going, a more sustainable approach in the short to medium-term than Meta’s strategy to gamble all on the rapid adoption of VR."
Paul Thompson, UK Country Manager, Seedtag, concludes: “Meta continues to reference Apple’s iOS privacy changes as weighing down on their advertising sales, but I find it interesting we hear nothing about this from the rest of the ad tech market whose platforms are reliant on 3rd party bid stream data.
“However, the open web offers a safer alternative for brand marketers trying to navigate these uncertain times. Budgets can be invested to support professional content makers and contextual advertising increases campaign efficiencies especially attention whilst allowing full use of the open web without compromising on privacy.”
“It’s tempting for advertisers to chase the low hanging fruit”
Niki Grant, The Kite Factory’s Head of Search, points out that the current economic climate affecting consumer purchase power meant that “Q3 2022 was always going to be tricky for advertising giants. Brands are more hesitant to invest in channels which could be achieving lower-than-usual or even negative returns”.
Grant adds: “This represents a shift in brand marketing behaviour, with squeezed budgets and consumer caution compounding into decreased brand activity. In times such as these, it is tempting for advertisers to chase the ‘low hanging fruit’, ploughing limited budgets into channels proven to produce a positive return.
“We know from extensive research that this approach is unlikely to benefit brands longer term, potentially stunting brand awareness and growth in lieu of quick sales, however as 2023 looms, it's unsurprising that the first port of call for advertisers is to bolster Q4 revenues.”
The impact on influence?
Confidence remains in influencer marketing, despite many of the platforms utilised for this medium being owned by the tech giants under scrutiny.
Jenny Tsai, CEO and Founder of WeArisma, says: “Meta’s declining ad revenue in Q3 raises a number of questions, following weak performances in Snapchat and now Twitter given the change of ownership. How does the recent news on social media platforms impact influencer marketing?
“Whilst the overall marketing spend may be tightening given the wider economic climate, we are seeing more and more brands shifting budget from other media channels into influencer marketing. The channel is effective in not only driving high and authentic upper funnel awareness and consideration metrics such as reach and engagements with their communities, when done right it also delivers higher ROI compared to alternative channels.”