Meta, Google, Apple and others reveal the messy state of digital advertising
Quarterly reports reveal winners and losers among platforms vying for advertising dollars in a tough climate.
Koichiko
A bevy of internet advertising financial reports, from the biggest names in digital media like Meta, Google and Amazon, have brought a deeper understanding of where the market sits today. And digital marketing has indeed hit hard times—some harder hit than others. Even Apple Chief Financial Officer Luca Maestri noted “pockets of weakness, primarily in digital advertising, that we will need to work through,” in an earnings call with analysts, and Apple barely relies on ad sales for its massive revenue machine. It generated $83 billion last quarter, mostly from device sales like iPhones.
In the past two weeks, Twitter, Snap, Meta, Google, Spotify, Amazon, Apple and Roku reported results offering insights into ads on websites, apps, audio and connected TVs. All companies noted that there are “macro-economic” challenges, such as inflation and signs of recession. Each of the major digital ad platforms have unique challenges in this new environment, including how they are coping with the changes that Apple has made to iPhones and its software, making it harder to track consumers online. Apple’s anti-tracking policies have made it harder for performance marketers, that use targeted ads to drive sales and downloads. Meanwhile, Twitter is dealing with totally unrelated uncertainty since it got into a battle for control of the company with billionaire Elon Musk, whom the company is suing to make good on a deal to buy Twitter for $44 billion.
In general, the mood around digital advertising is grim. The IAB, the internet ad industry trade group, issued a report that said although brands and agencies still planned to spend more money in the second half of the year, compared to last year, they would spend less than they originally forecast. The IAB’s survey found that 84% of ad buyers, who expected an economic downturn, also expected ad spending to be affected by it.
Meta
Meta of course owns Facebook and Instagram, and the company is in unique circumstances as a lumbering ad giant that is competing with Chinese-owned TikTok in social media; battling with Apple over its new rules; and trying to change its business model to plan for a virtual reality-fueled metaverse in the next decade. Meta’s revenue saw its first revenue decline ever, with ad revenue of $28.15 billion in the second quarter, down from $28.58 billion in the second quarter of 2021.
Mike Proulx, research director at Forrester, said that Meta’s most immediate concern could be TikTok. “The market has spoken and advertisers are skittish amidst a cloud of economic uncertainty,” Proulx said in an email. “Let’s face it, ad spend is under scrutiny right now and that translates to marketing executives making tough decisions on where to spend their limited budgets. Facebook and Instagram were once the place for brands to be but that’s simply not a sure bet anymore, especially for brands looking to reach Gen Z."
Read: Meta defends Reels, metaverse strategies
Twitter’s ad revenue was up 2% year over year, hitting $1.08 billion. Twitter’s quarterly statement touched on the topic most brands and ad platforms have addressed, the broader economy, but also noted Twitter’s unique circumstances. Twitter said results were “reflecting advertising industry headwinds associated with the macroenvironment as well as uncertainty related to the pending acquisition of Twitter by an affiliate of Elon Musk.”
Read: Twitter's ad revenue barely grows
Similarweb, the data marketing and research company, tracks trends on websites, including portals to ad platforms that marketers use to engage with TikTok, Facebook and Twitter. “The big growth story in social media has been TikTok,” a Similarweb representative said in an email statement, “although even they are no longer seeing multi-hundred percent growth [year over year.]”
Similarweb said it detected less traffic to ads sites, “portals where advertisers buy and manage ads” for properties including Twitter and Snap. Internet traffic to Twitter’s ads portal was down 10.5% year over year in June, Similarweb found. David Carr, a senior insights manager at Similarweb, said the Twitter slowdown could be a mix of economic uncertainty and the hangover effects of Musk’s botched takeover attempt at the company.
Snap
“Demand growth on our advertising platform has slowed significantly,” Snap said in an investor letter after it announced results. Snap’s revenue was still up 13% year over year, reaching $1.1 billion, but the company acknowledged that it was not meeting its own ambitions.
Snap’s results and remarks highlighted the mood of advertisers, who can easily adjust spending on automated digital ad platforms, like Snap, as the economy shifts. “Advertisers have lowered their bids per action to reflect their current willingness to pay,” Snap said.
Read: Snap says demand for ads slowed
Google appeared to be in a better position than its smaller rivals after its earnings report showed search advertising holding up relatively well. The thesis has always been that in uncertain times, and with Apple’s privacy changes, marketers flee to what has worked in the past—Google.
“Despite [Google chief financial officer] Ruth Porat’s reference to ‘pullbacks in spend by some advertisers’ due to rising inflation, supply chain challenges, and slowing economic growth,” said Forrester senior analyst Nikhil Lai, “Alphabet’s search ad sales grew more than 13% in Q2 2022 to $40.7 billion, beating analysts’ expectations of $40.2 billion.”
Spotify
“I’ve said before, I do believe only the paranoid survive,” Spotify CEO Daniel Ek wrote in prepared investor remarks, “and we are preparing as if things could get worse, but it's hard to be anything but optimistic given what I am currently seeing.”
Spotify was practically swooning over its performance, which signaled a bright spot for music and digital audio ads. Monthly active users of Spotify were up to 433 million, a 19% increase year over year. Ad-supported revenue grew 31% year over year to $368 million.
Roku
Roku, the connected TV player, reported a “significant slowdown in TV advertising spend.” Roku’s “platform” services, which is the part of its portfolio that includes its ads business, were up 26% year over year to $673 million, but that fell short of expectations.
Roku sounded the alarm bells about even more stingy advertisers in the future. “We believe this pullback mirrors the start of the pandemic in 2020, when marketers prepared for macro uncertainties by quickly reducing ad spend across all platforms,” Roku said in an investor letter. Roku did try to soften the blow by announcing it completed its upfront ad deals, during which major media holding companies committed to spending more than $1 billion with the CTV platform.
Read: How Ruku aims to grow advertiser interest
Amazon
Although Amazon’s main business is e-commerce, its cloud services through AWS and Amazon Ads are helping keep the company covered in cash. Amazon’s ad revenue jumped to $8.76 billion in the second quarter, up 18% year over year. With all the changes in ad markets, such as Apple’s privacy lockdown, marketers are plowing into alternative platforms like Amazon, where they could theoretically spend ad dollars and track results. That's because sales are closed right there with Amazon, so there is no need to rely on extra Apple data to see when a purchase was made off-site.
Case in point: In its quarterly results, Amazon touted a new service, launched in June, called Amazon Marketing Stream, which “automatically delivers hourly Sponsored Products campaign metrics to advertisers or agencies through the Amazon Ads API.”
Read: Amazon highlights its 'marketing stream'
Apple
Apple doesn’t usually have much to say about how its ad business is doing, since search ads—sponsored results in the App Store—are such a small part of its revenue. But Apple casts a large shadow on the rest of advertising, and as Apple squeezes paths to data, the company could fill that gap for marketers by building more ad tools in-house, commanding a greater share of ad revenue. Apple’s ad revenue falls under Apple’s Services division, which is where it generates subscription fees from its own apps and App Store developers, and where it brings in ad dollars. Services are Apple’s fastest-growing segment, and they were up 12% year over year to $19.6 billion, a fraction of which was advertising. (Apple does not report ad revenue). However, Apple’s Maestri and CEO Tim Cook both alluded to digital ad markets as being one of the weaknesses in the marketplace. “Digital advertising is clearly impacted by the macroeconomic environment,” Cook said.
