Advertisers are sticking with safe havens Alphabet and Meta Platforms in an uncertain economy, likely helping the tech giants take market share away from smaller digital ad sellers such as Snap Inc., their quarterly results showed.
Tech companies that rely on ad sales have faced difficult comparisons in the past few quarters as a result of an advertising spending boom spurred by the pandemic. After interest rates increased and record-high inflation stoked concerns about the economy, consumers reduced their advertising spending.
However, a report released last month by media and intelligence firm MAGNA predicted that the social media ad market would expand this year at a slightly faster rate than it did in 2022.
“Advertisers are simply going back to platforms they know, like and trust,” said Brian Mulberry, a portfolio manager at Zacks Investment Management.
Although Google parent Alphabet’s first-quarter ad sales decreased from a year earlier to $54.55 billion, they still exceeded analysts’ expectations.
Advertisers are facing an environment where they must “do more with less,” Philipp Schindler, Google’s chief business officer, said on an earnings conference call.
The business highlighted its progress in artificial intelligence (AI), claiming that it had improved the relevance of the ads that customers saw and could even write text for advertisements for brands on its own.
Meta echoed this, claiming that it was investing in artificial intelligence to get advertisers to spend more money on its platforms.
Meta also said that artificial intelligence recommendations had increased users’ time on Instagram by 24% in the first quarter.
According to MAGNA, the social media advertising market overall is expected to grow 6% this year to $66 billion. In 2022, the social media ad market grew 2% in part because privacy updates by Apple Inc made it more difficult for advertisers to gather user data to serve targeted ads.
Insider Intelligence principal analyst Debra Aho Williamson said, “There’s a lot of inertia to staying put with platforms that you’re familiar with and have tools that are well-developed for advertisers.”