Weak results from Google, Snap and other big sellers of online advertising are fueling concerns that Wall Street's optimistic growth forecasts are rudely surprising investors this year.
Google, which dominates the $270 billion digital advertising sector, recently disappointed Wall Street when its fourth-quarter ad revenue growth fell short of expectations. Snap, which owns social media app Snapchat and relies heavily on advertising dollars, reported disappointing revenue in its most recent quarter.
Misses expressed concern that Wall Street expects digital advertising to grow by 14% in 2024.
“Alphabet's disappointing ad revenue numbers suggest that corporates around the world are still uncertain about the pace of interest rate cuts from global central banks, leaving them somewhat dry while waiting for more evidence before opening their wallets,” said Thomas Montero, senior analyst at Investing. .com.
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Alphabet posted its biggest daily stumble since late October following disappointing ad revenue figures in its most recent quarter. Most of the company's total revenue will come from advertising, which will be $307.4 billion in 2023.
Digital advertising has accounted for the majority of total ad spending since the start of the decade. According to FactSet, it will account for three-quarters of all media ad spending by 2023. That's up from 55% in 2019 and 13% in 2008. It has evolved from traditional media such as television and print.
Various analysts have predicted digital advertising growth to accelerate from just 10% last year to 14% this year. But growing concerns about companies cutting costs in an uncertain economy cast doubt on those expectations.
The US economy remains strong throughout 2023 as inflation cools and consumers continue to spend. The Federal Reserve, however, has signaled that it is likely to cut interest rates through the middle of the year. Higher interest rates make borrowing more expensive for businesses. That continued pressure is compounded by uncertainty about continued economic growth and could reduce spending.
Digital advertising faces several risks in 2024, including the speed with which meta platforms and other companies develop artificial intelligence services.
Digital retailers can attract more ad spend, resulting in less money for Google and social media companies like Facebook and Snap. That means more benefits for online retail giant Amazon and gains for companies like eBay and Walmart, which have ramped up their digital presence.
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