Meta Platforms CEO Mark Zuckerberg speaks at Georgetown University in Washington on October 17, 2019.

Andrew Caballero-Reynolds | AFP | Getty Images

Wall Street’s worst year since 2008 has wreaked havoc on tech companies, especially those that depend on digital advertising.

The father of Facebook Meta lost nearly two-thirds of its value in 2022 as year-over-year revenue fell in consecutive quarters, prompting the company to cut 13% of its workforce in November. Attachments the stock plunged 81% as growth slipped to single digits and the company decided not to issue a forecast for two straight periods. In August, Snap said it was laying off 20% of its employees.

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After a brutal 2022, investors are starting to return to the online advertising sector ahead of a financial recovery expected at some point in 2023. They are hoping for some signs of recovery this week when the space’s biggest companies report fourth-quarter results and provide an update on whether brands are starting to spend more on advertising after suspending many of their campaigns.

Snap is scheduled to report results after the close of trading on Tuesday. Meta reports on Wednesday, followed by Google parent Alphabet on Thursday. Also on Thursday, investors will hear from Amazon and an appleboth have growing digital ad businesses that have recently been taking market share from Google and Facebook.

With concerns about a potential recession still looming, market analysts expect more turmoil ahead for online advertising. A survey of 50 ad buyers released this month by Cowen found that companies expect their spending to grow just 3.3% in 2023, which the investment bank said represented “the softest forecast for advertising growth in five years “. Last year, these companies increased spending by 7.5%.

“Two-thirds of ad buyers factored the recession into their budgeting process, citing inflation and consumer softening among other macro factors,” Cowen said.

In addition to the macro issues, companies that rely on mobile data for ad targeting are still dealing with the upheaval caused by Apple. In 2021, the iPhone maker introduced a new App Tracking Transparency (ATT) feature that reduced targeting options by denying advertisers access to a smartphone’s user ID. Meta said early last year that ATT would drop $10 billion in revenue for the full year of 2022.

Meta and Snap in the last 12 months


In its latest earnings report in October, when Meta shares fell in extended trading, CEO Mark Zuckerberg acknowledged the many headwinds facing the company, including the economy, ATT and competition, and was left to thank other investors for their patience.

“I think those who are patient and invest with us will be rewarded,” Zuckerberg said.

So far in 2023 there have been awards. Meta and Snap are up more than 22% through the end of January. But revenue growth is not expected to resume until the second half of the year.

According to Refinitv, analysts expect Snap to post growth of less than 1% in the fourth quarter and 1.6% growth in the current period.

“Little Bounce”

Meta, whose advertising business is more than 20 times the size of Snap, is expected to report a third straight quarter of declines — and its steepest decline — of more than 6%, according to Refinitiv. Revenue is expected to fall another 2.8% in the first quarter before returning to below 1% growth in the second period.

Since April 2021, when Apple’s ATT update went into effect, Meta has been working to improve its ad technology and use data from other sources. For example, some retailers told CNBC that they are migrating their customers’ data from their own Shopify websites to the Meta platform, which has helped improve Meta’s ability to serve personalized ads to users.

“There are some signs that maybe Facebook is seeing a bit of a turnaround in ad spending,” said Debra Williamson, an analyst at research firm Insider Intelligence.

However, TikTok has moved consumers from stagnant updates to short videos, and Facebook has been slow to catch up. Meanwhile, even with Meta’s incremental improvements to its ad system, the impact of Apple’s privacy change has been so severe that Facebook and Instagram can’t make up for it.

“Facebook faced many challenges in creating its own tools and metrics to prove the effectiveness of these ads,” Williamson said. “I think it’s getting better, so I’m hoping we’ll see maybe a little bit of a rebound for Facebook compared to the last couple of quarters.”

Google’s business has been less affected by Apple’s actions, but it’s still taking a hit from the economic downturn and TikTok. Alphabet’s growth is expected to be below 1% in the fourth quarter of 2022 and to pick up slowly in 2023, not reaching double digits until the latter part of the year.

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“Among existing players, TikTok is expected to be the biggest earner in digital video advertising over the next two years,” analysts at Cowen wrote. According to their estimates, TikTok will receive 8% of budgets in 2024, compared to 6% last year.

Amazon’s advertising business has also taken a hit, as e-tailers show their willingness to pay big bucks to promote their brands on the company’s website and across its various services. Amazon captured 13% of the digital ad market last year, according to Insider Intelligence, and its ad business grew 25% in the third quarter, even as overall revenue missed estimates.

Analysts expect Amazon’s ad unit to post 17% growth in the fourth quarter, well ahead of peers, and remain in the teens through 2023, according to FactSet.

And then there is Netflix, which added advertising as a source of revenue. In November, the company launched a new ad-supported streaming tier that costs $6.99 a month.

“Netflix is ​​expected to grow from 0% of budgets in 2022 to nearly ~4% of digital video ad spend by 2024,” analysts at Cowen said.

Still, the biggest uncertainty hanging over the online advertising market this year is a shaky economy, said Barton Crockett, an analyst at Rosenblatt Securities. He has a hold rating on Meta, Snap, Amazon and Netflix, but recommends buying Alphabet and Apple, according to FactSet.

If the economy improves, “very economically sensitive things like advertising will attract investors across the spectrum,” Crockett said. “It can be great for everyone in this group.”

This is a gigantic and risky bet. Last week, the US Commerce Department said consumer spending fell 0.2% in December, suggesting people are still holding on to their money.

“Under these circumstances, it will be difficult to achieve any significant expansion of ad spending,” Crockett said.

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