In an uncertain economy, advertisers are sticking with Alphabet and Meta Platforms, which is likely helping the tech giants take market share away from smaller digital ad sellers like Snap Inc.
Advertisers who wanted to reach customers online spent a lot more than usual because of the pandemic. As a result, tech companies that depend on ad sales have had to face tough comparisons in the last few quarters. Customers cut their advertising spending when interest rates went up and inflation hit an all-time high, which made people worry about the economy.
According to a report from the media and intelligence firm MAGNA released last month, the social media ad market is likely to grow at a slightly faster rate this year than in 2022.
“Advertisers are simply going back to platforms they know, like, and trust,” said Zacks Investment Management portfolio manager Brian Mulberry.
Alphabet, which owns Google, saw its ad sales drop from the same time last year to $54.55 billion, but that was more than what analysts expected.
Philipp Schindler, Google’s chief business officer, said on Tuesday’s earnings conference call that advertisers have to “do more with less.”
The company talked up its work in artificial intelligence (AI) on Tuesday, saying that it helped it make ads more relevant to users and even automatically create text that can be used in ads for brands.
Meta echoed this on Wednesday, saying that AI tips had caused users to spend 24% more time on Instagram in the first quarter and that it was investing in AI to get advertisers to spend more money on its platforms.
On Wednesday, Meta stock went up by 12% after regular business hours.
MAGNA says that the social media advertising market will grow by 6% this year and reach $66 billion.
Last year, the social media ad market grew by 2%. This was partly because Apple Inc. made changes to privacy settings that made it harder for marketers to get information about users so they could serve targeted ads.
Insider Intelligence’s principal analyst, Debra Aho Williamson, said, “There’s a lot of inertia to staying put with platforms that you’re familiar with and have tools that are well-developed for advertisers.”
Advertisers have ignored Snap, which owns Snapchat, and Pinterest, a digital pinboard because they don’t reach as many people as their bigger competitors. The value of the two companies stocks fell by more than $4 billion on Thursday after they reported their first-quarter results.
Snap’s revenue dropped by 7%, and it said that its revenue in the second quarter could also go down because recent changes to its advertising platform hurt ad demand.
Even though Pinterest reported 5% growth in sales and said it expects the same growth in the second quarter, Wall Street didn’t think it would happen, so its shares fell 9% in trading after the market closed.
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