Rebounding Ad Market Lifts Social Media Giants. But The War Has Other Plans.
“We sell ads”: Mark Zuckerberg’s iconic phrase to Congress in 2018 when asked how Facebook could stay free. Five years later, advertising remains a major part of Meta (NASDAQ:META) — making up 95% of its sales. Recent years have shown how much the tech industry still relies on the ad market despite efforts to diversify. And also how painful it can be when marketers pull back.
The ad downturn (and ballooning metaverse investments) had forced Meta to pursue a “Year of Efficiency” with cost cuts, leading to 21K people being laid off. Assuming the worst is over, Meta expects to accelerate hiring in 2024 — with 2023 looking like a turning point for the ad market:
- Meta’s sales soared 23.5% to an all-time high of $33.6B for its most profitable quarter ever.
- Competitors Snap (NYSE:SNAP) and Alphabet (NASDAQ:GOOG) also reported strong ad sales that grew 5% and 9.5%, respectively.
War is bad for business (unless you’re in oil or defense)
And that’s especially true in the ad market. Earlier this month, Elon Musk said ad revenue on X “drops massively during war.” And Meta is seeing weaker ad spending to start the last quarter due to the Hamas-Israel war.
- Snap saw “pauses in spending from a large number of primarily brand-oriented ad campaigns immediately” after the start of the war (CNBC).
- While Snap’s management declined to offer guidance, stating “it would be imprudent to provide formal guidance for Q4” given the war.
In 2003, advertisers pulled marketing campaigns as the Iraq war began — but the impacts were short-lived. The following year, TNS Media Intelligence’s then-CEO said, “The reality was overall advertising was not affected.” Despite the initial challenges, Snap is already seeing some paused campaigns restart, while Meta offered a strong Q4 outlook, expecting revenue to rise 13-24% next quarter.
Getting real: Meta is also facing a lawsuit from 42 state attorney generals over claims that the company made its app addicting for teens. Its metaverse is still struggling to make an impact — reporting its lowest revenue of the pandemic era, making just $210M with an operating loss of… wait for it… $3.74B.