More mixed signals for advertising growth trends, albeit largely positive ones, from a series of fourth-quarter 2022 earnings releases including one big agency holding company (Publicis) and two big ad-supported social media platforms (Meta and Snap). Alphabet and Amazon report later today.
Publicis reported strong results for the last calendar quarter of 2022 -- citing organic revenue growth of 9.4% worldwide, including 10.1% in the U.S.
“Media grew again double-digit this quarter,” the agency called out in its earnings release, citing “particularly strong performance in digital media.”
Publicis’ results come in contrast to last week’s release of new U.S. Ad Market Index data from Standard Media Index, which shows U.S. ad spending form major agencies trending downward in the fourth quarter. A MediaPost analysis based on simple average monthly changes for October, November and December shows the index dropping 6.6% in the quarter.
Following the release of that data, several holding company and major independent media agencies that do not release public forecast data told MediaPost they are not seeing the ad-growth momentum projected by the Big 4-- including Publicis, Dentsu, Interpublic and WPP -- forecasting units, and that their own perspective is “closer to” the SMI data trending.
Meanwhile, Snap and Meta released ad-revenue data for the fourth quarter that included their own mixed signals.
Snap reported lower, flat fourth-quarter revenue and issued an outlook projecting a “softer” first quarter.
“Snap noted it expects the macro ad environment will remain challenging,” Raymond James analyst Aaron Kessler wrote in an equities research report sent to investors, adding: “Additionally, Snap expects a number of new improvements and optimizations to its DR platform that may be disruptive to auction dynamics in the near term.”
“Direct response ad revenue has been volatile to begin the year as new product implementations have been rolled out after holiday season, but the most disruptive DR ad product implementations have been made already and changes will be more incremental from here,” added New Street Research analyst Dan Salmon in his Snap earnings assessment, noting: “As such, its DR appears to be driving underlying improvement, as brand advertising weakened into year-end and remains so.”
But the story coming out of Meta’s fourth-quarter release Wednesday is in the opposite direction, according to UBS analyst Lloyd Walmsley, who characterized Meta’s management as “brushing aside concerns post SNAP's weak guide and likely pointing to improvements in ad tech,” as well as improving ad sales for the Reels short-form video ad format Meta has been pushing to compete with TikTok.
“Forty percent of advertisers now using Reels,” New Street’s Salmon said in his analysis, adding: “No doubt some of them are doing so owing to use of automated ad placement tools, but management’s comments mirror those of our recent ad exec calls, which suggested strong advertiser support for the format.
“Reels still has a “monetization efficiency” headwind versus Feed and higher monetizing surfaces, but improvements are expected to bring Reels usage to revenue neutral by the end of 2023, early 2024.”
Meanwhile, Meta’s guidance for the first quarter of this year is “just below flat,” according to Madison and Wall analyst Brian Wieser (formerly GroupM), who goes on to opine: “While we’ll need numbers from Alphabet and Amazon (which report later on Thursday) before anyone can say so conclusively, digital advertising almost certainly grew at a much faster pace overall.”
He notes that Microsoft “grew its search and news advertising business by approximately 9%,” and that Spotify grew its ad revenue by 4%,” but that despite the digital ad-seller earnings released to date, Alphabet and Amazon will provide a more complete picture of industry trends.