Alphabet and Meta Platforms have reported strong Q1 ad revenue, indicating that advertisers are opting for safe and reliable platforms during an uncertain economic climate. Smaller digital ad sellers, including Snap Inc., are facing challenges due to the pandemic-led spending bonanza in the previous year, which made it easier for advertisers to reach their customers online. This year, however, customers have cut their ad budgets amid rising interest rates and concerns about the economy.
Despite this, the social media ad market is expected to grow slightly faster in 2023 than in 2022, according to a report by MAGNA. Advertisers are returning to well-established platforms like Alphabet and Meta, with Zacks Investment Management’s Portfolio Manager, Brian Mulberry, stating that “advertisers are simply going back to platforms they know, like, and trust.”
Alphabet’s Q1 ad sales slipped from the previous year to $54.55 billion but exceeded analysts’ expectations. The company highlighted its work in artificial intelligence (AI) during its earnings conference call on Tuesday, emphasizing that AI had helped improve the relevance of ads shown to users and even automatically generate text for brand ads.
Similarly, Meta has also cited the role of AI in boosting user engagement, noting that AI recommendations increased the time users spent on Instagram by 24% in Q1. Meta’s Q1 report has led to a surge in the company’s shares by 12% in after-hours trading on Wednesday.
On the other hand, smaller platforms like Snap and Pinterest have struggled to attract advertisers, causing losses in their combined stock market value of more than $4 billion after reporting Q1 results. Snap reported a 7% decline in revenue and warned that Q2 revenue could also take a hit due to changes in its advertising platform that have affected ad demand. Meanwhile, Pinterest reported 5% revenue growth but fell below Wall Street’s expectations for Q2, resulting in a 9% drop in its shares in after-market trading.
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