Alphabet and Meta Indicate Advertising Market Recovery is in Progress
The advertising divisions of Google, Meta, and Snap experienced a resurgence, indicating that the increasing use of artificial intelligence was attracting marketers to digital platforms, despite an uncertain economy.
Three companies beat quarterly revenue expectations this week and each posted positive metrics for their advertising businesses.
“Artificial intelligence helps advertisers find as many people as possible and their ideal audience at the lowest possible cost,” said Philipp Schindler, Alphabet’s Google business director.
The company has doubled down on technology, using tools like Performance Max, which uses artificial intelligence to decide how marketing budgets should be allocated across Google’s ad network.
Schindler said the retail segment was particularly strong between July and September. He said the company had “started preparing retailers for the long holiday season ahead” to help them deliver deals to consumers who increasingly care about price and convenience.
Alphabet’s advertising revenue grew 9.5% in the July-September quarter, faster than Wall Street estimates. Its YouTube advertising business grew by 12%.
meta The company’s average ad cost fell 6%, but the rate of decline was the slowest in seven quarters.
The Facebook and Instagram owner has relied heavily on AI-based marketing planning and ad measurement capabilities in recent years to fuel its growth amid Apple-led privacy changes that weakened its ability to use personal data to target ads.
It is now deploying tools that use generative AI to create different variations of ad campaigns.
“Facebook/Instagram’s tools for creating a (marketing) campaign are significantly faster and easier to use” than those of smaller rivals such as Snap, RBC analysts said, which could give Metal an edge.
Snap’s efforts to revamp ad targeting tools with technology also paid off, as average revenue per user increased in the third quarter.
The results suggest that the recovery in the advertising market remains on track, analysts said, led by spending by retail firms. They pointed to Google and Meta as the biggest potential beneficiaries.
“We expect larger platforms such as Meta and Google to lead share-of-wallet growth, at least initially, in this recovery in ad spending,” analysts at Evercore ISI said.
Companies are seen as more resilient to the uncertainty fueled by geopolitical turmoil, such as conflict in the Middle East, because their wider reach helps attract continued advertisers.
Still, Meta’s chief financial officer, Susan Li, said on Wednesday that the company had seen “softness” in ad spending at the start of the fourth quarter, which appeared to be related to the Israel-Gaza conflict.
Media research and investment firm Magna last month raised its forecast for U.S. ad spending growth to 5.2% from 4.2% through calendar 2023. It expects digital ad sales to grow 9.6% this period.
