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Advertisement Market Slow Down Causes Big Profit Losses For Big Tech

The year will be particularly difficult for the advertising market due to unfavorable macroeconomic conditions, fluctuating currency exchange rates, reduced ad expenditures, and a reduction in linear TV and internet search trends.


Many U.S. corporations have implemented dramatic cost-cutting measures as a result of the slowing ad market, including mass layoffs. Already this year, more than 94,000 tech industry workers have been laid off, following 160,000 last year. 


The recent slowdown of the advertising market is creating huge losses for media giants Netflix and Disney Plus because both companies launched ad-supported streaming plans in 2022. 

For instance, a staggering $4 billion or more was lost by Disney's direct-to-consumer division in its fiscal year, which ended last October. 


When Warner Bros Discovery reported fourth-quarter losses of more than $2 billion and lowered its annual profit outlook, the company's shares dropped last month. The company is now aiming to save $4 billion in costs over the following two years. Previously, the business disclosed losses of $3.4 billion in Q2 and $2.3 billion in Q3.


This earnings season, media executives such as David Zaslav, CEO of Warner Bros. Discovery have spoken out about the state of the advertising market. 


Zaslav stated last month that the firm will likely experience pressure in the upcoming year, particularly with regard to advertising, due to cyclical headwinds and persistent secular issues.

While Zaslav anticipates  "very slow" ad sales in 2023, he expressed optimism for improvements later in the year. 


Tech Giants like Google and Meta are feeling the squeeze on their profitability as some of their brand and retail clients are pulling back on digital advertising.


Google's advertising revenue fell by 3.6% from $61.23 billion to $59 billion in the fourth quarter of 2022, according to data released by internet giant Alphabet last month. The advertising income for Facebook's parent company Meta's fourth quarter earnings fell by 4.2%.


Meta’s CFO Susan Li said that "poor advertising demand... affected by the uncertain and fluctuating macroeconomic situation" continued to put pressure on fourth-quarter revenue.


For the first time since 2014, analysts predict that the "duopoly" of Google and Meta will generate less than half of all digital advertising revenue in the United States. According to Insider Intelligence's projections, Google and Meta will earn a combined 48.4% of all U.S. digital ad income this year, down from a peak of 54.7% in 2017.


Amazon, which has built its ad business to more than $30 billion per year, is by far the biggest threat to the combined share. But not even Amazon immune from broader trends. The rate of growth for Amazon's advertising division slowed to 19% in the most recent quarter from a quicker 32% increase over the same period in 2017.


The world's largest ad marketplaces are mostly affected by inflation and different macroeconomic issues. 


While the data mentioned above indicate a general decline in the ad business, financial experts held that there is a chance for a recovery. For instance, macroeconomic data in the US (by far the largest advertising market in the world) have indicated some improvement, such as the jobs report showing more jobs being added and the unemployment rate at its lowest level in more than 40 years. But, recent earnings reports show that many companies and retailers are still reducing their advertising budgets, as consumer purchasing is still being restrained by inflation.


Meanwhile in China, the second-largest ad market, continue to hinder the country's economy, prompting ad budget cuts. According to a report by Axios, the advertising market in China is predicted to expand by 6.3% in 2023, which is lower than the earlier projections of 10% growth. 


David Heger, senior equity analyst at Edward Jones, said we are “probably getting through the worst of it now in terms of different industries and companies talking about slowdowns in their businesses and rethinking spending.” He added that “perhaps by the second half of the year — if the economy’s starting to improve — then we may see the spending environment come back up a little bit.”





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