The advertising winter may finally be starting to thaw

  • The long advertising winter could be coming to an end in the second half of this year.
  • Companies like Meta and Google reported ad rebounds, and big advertisers plan to increase spend.
  • But some agencies and ad sellers are still struggling.

There are early signs that the advertising winter is breaking.

The advertising industry has been dealing with a slowdown since last summer. Concerns about the economy, higher interest rates and inflation, as well as difficult comparisons with late 2021 and early 2022, meant that many media companies and advertising agency firms reported slowing ad sales growth.

However, this quarter’s earnings season has provided some rays of hope.

Meta, which generates more than 98% of its revenue from advertising, reported revenue that was significantly higher than analysts’ expectations for the second quarter. It predicts that total revenue in 2023 will increase by around 20% over last year, whereas analysts expected only a 13% increase in the third quarter. Alphabet, the world’s largest ad seller, also exceeded Wall Street’s revenue expectations and saw a return to ad sales growth after two consecutive quarters of decline.

Meanwhile, some of the world’s largest ad spenders have indicated that they intend to increase their marketing budgets.

NestlĂ©, which reported advertising and marketing expenses as a separate line item for the first time this quarter, said it expects a “significant increase in marketing investments” for the rest of the year. Advertising and marketing costs accounted for 7.1% of sales in the first half of 2023, an increase of 50 basis points from the second half of 2022.

Kimberly-Clark, the owner of Kleenex, expects its advertising spend to rise by 100 basis points, or 20%, in 2023.PepsiCo increased its advertising and marketing spending by 50 basis points, or $100 million, in the second quarter and said it will continue to do so in the second half of the year.

The majority of consumer-goods companies have also raised their prices, which has contributed to sales growth in the first half of the year.

“They need to advertise to justify those pricing gains, or they risk losing to generic brands,” said Madison and Wall technology and media analyst Brian Wieser.

According to the advertising research firm Warc, total global ad spend is expected to rise 2.9% this year to $907.2 billion. According to a Warc spokesperson, the company expects those figures to be slightly higher when it issues its new forecast next month.

To be sure, some pure-play advertising firms continue to struggle. Adtech companies have continued to lay off employees this year, citing economic uncertainty and lower digital display ad rates as reasons for cutting costs.Snap’s shares fell this week after the company provided weaker-than-expected third-quarter guidance as it deals with higher costs and a major overhaul of its advertising platform, largely in response to Apple’s 2021 privacy update.

And not every advertising industry is increasing spending. Despite being the biggest beneficiaries of the advertising rebound, tech companies such as Meta and Microsoft have reduced their marketing spending as part of their “year of efficiency.” This has come at a cost to advertising firms such as S4 Capital, which has a large number of tech clients. As tech companies tightened their belts, S4 issued a profit warning this week, sending its shares tumbling.

So far, the results of large advertising holding companies have been mixed.Publicis Groupe was the standout performer, exceeding analyst expectations, while Omnicom and IPG fell short. Even Publicis CEO Arthur Sadoun admitted that clients were delaying long-term investment decisions, such as in TV upfronts.

“They are also doing that with upfront because, by definition, they have to commit for the future where they want to keep some flexibility,” Sadoun explained on the Publicis earnings call.

One of the reasons for marketers’ concern is that economists have been predicting a US recession that has yet to materialize, causing economists to keep pushing out their forecasts, according to Wieser. Indeed, the US Commerce Department reported on Thursday that the US economy grew by 2.4% in the second quarter, up from 2% in the first.

“It’s contributed to a world where there are a lot of people who believe there is supposed to be a recession because they’re told there should be,” Wieser said. “It causes them to make very short-term decisions, making it difficult to get even medium-term commitments right now.”

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