Why Online Advertising Is Struggling, and What Lies Ahead for the Sector
Challenging Environment
The first quarter of 2022 brought forth a series of economic woes that spilled over into the online ad market. These included both rising interest rates and the war in Ukraine, all while inflation reached its highest rate in 40 years.
Meta Platform’s (META) Facebook is considered by some a canary in the coal mine. Most of its revenue is generated through advertising sales. CEO Mark Zuckerberg recently held an all-hands meeting where he announced the company was cutting back on its hiring of new engineers. He also reportedly called the current state of the economy “one of the worst downturns” in recent history.
Elsewhere in Social Media
Online advertising struggles aren’t limited to Facebook. In May, Snap (SNAP) issued downbeat guidance and said the macroeconomic environment had deteriorated faster than expected. Taken all together, the combined ad revenue for Meta, Google-parent Alphabet (GOOGL), Twitter (TWTR), Snap, Pinterest (PINS), and Amazon’s (AMZN) ad segment will grow 9% year-over-year in the second quarter, according to estimates from FactSet. That’s down from an annualized pace of 17% in Q1, and it represents the slowest rate of growth observed in Q2 since 2020.
Google is a notable outlier, however, due to its search engine dominance. Its online ad sales are expected to grow 12% year-over-year in the second quarter.
Second Half Predictions
Some Wall Street observers predict online advertising will fare better during the second half of the year, but others remain skeptical given the looming possibility of a recession. A recent report from JPMorgan (JPM) analyst Doug Anmuth pointed out that during the financial crisis of 2008-2009, digital advertising accounted for just 12% of all ad spending. In 2021, that number came in at 67%.
Plainly stated, online advertising is much more exposed to the broader economy than ever before. We haven’t yet seen the modern digital landscape and social media platforms be forced to deal with a protracted economic slowdown, so there are plenty of unknowns.
Please understand that this information provided is general in nature and shouldn’t be construed as a recommendation or solicitation of any products offered by SoFi’s affiliates and subsidiaries. In addition, this information is by no means meant to provide investment or financial advice, nor is it intended to serve as the basis for any investment decision or recommendation to buy or sell any asset. Keep in mind that investing involves risk, and past performance of an asset never guarantees future results or returns. It’s important for investors to consider their specific financial needs, goals, and risk profile before making an investment decision.
The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. These links are provided for informational purposes and should not be viewed as an endorsement. No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this content.
Communication of SoFi Wealth LLC an SEC Registered Investment Advisor
SoFi isn’t recommending and is not affiliated with the brands or companies displayed. Brands displayed neither endorse or sponsor this article. Third party trademarks and service marks referenced are property of their respective owners.
SOSS22070703
All your finances.
All in one app.
App Store rating
