Jul 26, 2022 - Economy

Media and tech sectors brace for ad market slowdown

Year-over-year change in global advertising revenue, by medium
Data: GroupM; Chart: Simran Parwani/Axios

Analysts have begun cutting projections for advertising growth this year, sending shockwaves through the media and tech industries.

Why it matters: Macroeconomic factors, such as supply chain issues and inflation, are causing a deceleration in ad growth at a level most companies hadn't anticipated when forecasting for the second quarter.

Details: Shares for Snap Inc. are down more than 26% since Thursday, when the firm reported that not only had it missed revenue growth expectations for the second quarter, but also revenue growth would meaningfully slow in the months ahead.

  • Twitter's revenue declined 1% from the second quarter the year prior.
  • Shares for Pinterest, Meta, Alphabet and others have taken a hit, as investors brace for more bad news during their earnings reports this week.

Catch up quick: Ad projections first saw slight cuts in March, following Russia's invasion of Ukraine, and as the global economic outlook began to weaken, so did forecasts.

  • Magna, a global ad agency, originally predicted that the global ad market would grow 12% in 2022 last December. In March, it reduced that outlook to 11% growth. Earlier this month it cut the figure again to 9%.
  • That's more optimistic than some of the firm's peers. Zenith, another global ad agency, said last month that it expects the global ad market to grow 8% in 2022, down from 9.1% as originally predicted last December.
  • GroupM is slightly more optimistic. Its analysts expect the global ad industry to grow 10% this year, and attribute most slowdowns to problems in China.

Yes, but: It's important to note that these are growth decelerations, not declines.

  • And while U.S. media companies are bracing for the worst, they aren't as exposed to some of the headwinds facing other countries with relatively high GDPs.
  • China, which is still suffering from COVID-related lockdowns and supply chain issues, will grow at a pace below the global average (8%), per Magna.
  • European countries with deeper exposure to the war in Ukraine, like Germany and Italy, are also expected to grow slower than the global average, at 6% and 3%, respectively.

Be smart: The ad market's unprecedented 2021 rebound was never expected to last more than a year, but huge top-line revenue growth last year pushed companies to take big bets that they're now trying to backtrack from.

  • Many media and tech firms have begun to slow hiring and pledged spending discipline.
  • For some digital players, the impact may look worse now than later this year. During times of economic volatility, companies tend to cut their marketing budgets first, and digital contracts tend to be much easier to quickly break.

What to watch: Things will get worse before they get better. Magna predicts the global ad market growth will be even slower next year, growing just 6%.

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