This article was originally published on Forbes on Dec 27, 2023, 07:15 am ESTForbes Forbes on Dec 27, 2023, 07:15 am EST
Ad-tech stocks have generally enjoyed strong returns in 2023, buoyed by a rather fierce tech rally. Ad spending growth showing initial signs of stabilizing in the back half of the year, with ad spend growing YoY in each month from July to October.
Ad spending growth is widely forecast to accelerate in 2024, after a bumpy start to 2023 stemming from macro uncertainty as growth forecasts were pulled lower mid-year. The market looks to be cheering on a return to higher growth in 2024, along with new synergies from generative AI advertising offerings from Big Tech and pockets of stronger growth in digital and retail media ad spend.
Lower budgets in 2022 and early 2023 affected nearly every ad-tech stock, including companies that draw audiences in the billions – on a three-year basis, only three of ad-tech’s primary names have a positive return: The Trade Desk (TTD), Alphabet (GOOG), and Meta (META), and the latter two only recently broke back into positive territory. The rest of the sector is still struggling to cope with a significant slowdown in growth, from 19.6% in 2021 to the low single digits in 2023.
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Growth Forecast to Gain Steam
Growth forecasts from Magna, Dentsu and GroupM generally point to an acceleration next year, at around 5.7% on average between the three, compared to 4.7% in 2023.
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Dentsu is projecting 4.6% YoY growth in 2024, almost 2 percentage points higher than its final 2.7% growth forecast for 2023. This outlook is positively impacted by stronger growth in CTV, digital and retail media ad spend. However, Dentsu sees media price inflation contributing 2.1 percentage points of growth in 2024; stripping out that effect, global ad spend is expected to increase just 2.5% YoY, a slight deceleration from 2023. media price inflation contributing 2.1 percentage points of growth in 2024; stripping out that effect, global ad spend is expected to increase just 2.5% YoY, a slight deceleration from 2023.
Magna tends to lean more bullish in its forecasts compared to Dentsu, projecting 5.5% growth in 2023 and a 1.7 percentage point acceleration to 7.2% in 2024. Magna’s outlook is boosted by “economic stabilization and lower inflation,” themes that have been broadly supported by a slew of macroeconomic data over the past two months. Magna and Dentsu both see positive effects from political spend, and major sporting events including the UEFA EURO 2024 and the Summer Olympics.
GroupM is forecasting a 0.5 percentage point deceleration to 5.3% growth in 2024, with this weaker outlook driven primarily by “uncertainty in some markets and interest rates.” Despite the weaker forecast, GroupM is more positive on retail media ad spend, similar to Dentsu, seeing the segment growing 8.3% in 2023.
Below, we will take a look at some of the dominant names across four major digital advertising categories: search, social media, streaming/CTV, and retail media for more color on the ad industry in 2024.
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Search Ad Spend to Decelerate, But AI Showing Promise
Search ad spending is projected to decelerate in 2024, dropping from an expected 12.5% in 2023 to a projected 9.5% next year as advertisers shift dollars to other mediums, primarily social media and CTV. Even with this deceleration, search ad spend is still projected to outpace global ad spend’s growth.
Google has seen Search revenue growth accelerate in each quarter this year, from just below 2% in Q1 to 11.3% in Q3 – the highest growth in five quarters driven by retail vertical growth. What Google is showing in Q3, and likely in a similarly strong Q4, is that AI-powered ad solutions are helping drive resilient Search ad revenue growth.
Google is rolling out AI-driven features and is now reorganizing its digital ad business to place more emphasis on generative AI and AI automated ads. SVP Phillip Schindler explains that these “proven AI-powered solutions like Search and PMax are helping retailers drive reliable, strong ROI and meet customers wherever they are across the funnel.” Increased ROI and improved targeting help keep advertisers engaged and could potentially draw some additional advertising spend to Search.
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We discussed in the past how Google is on the precipice of a multi-decade disruption driven by generative AI: Google is showing early promise with Search Generative Experience (SGE), while Microsoft is actively deploying generative AI to search via Bing Chat.
Deploying generative AI search experiences opens the door for different ad formats and placements, as well as an increase in surfaced links and content. AI can also drive help revenues higher from bid optimization. Google’s AI campaigns, including Performance Max and Smart Bidding, are tapping AI and machine learning tools to analyze millions of data signals to better predict future ad conversions and improve bidding performance.
Today, Google dominates the search advertising market, with estimates placing the giant holding over 60% of the market, however, anti-trust risk is still present for Google as regulators seek to determine if the company has been engaging in anti-competitive behavior across its search engine and demand-side platform (DSP).
For a deeper dive into Alphabet and how the Search giant is entering its Year of Execution, read more here.here.
Social Media Ad Spend Remains Robust
Social media ad spend is expected to remain robust in 2024, and may potentially overtake search ad spending this year, according to estimates from WARC. This medium will enter 2024 with one of the fastest projected growth rates at +13.8%, with spend estimated to climb to $227.2 billion, or less than 1% below search advertising’s $229.2 billion.
Social media’s share of total daily time spent on the internet remains above 35%, at more than 2 hours and 20 minutes per day on average. Combine that with billions of MAUs across the most popular platforms, and it’s easy to see why social media continues to be a popular place to park ad dollars.
Meta dominates the market with more than 60% share and has shown positive trends heading into the end of 2023 that are likely to carry over into 2024. Advertising revenues rose 23.5% YoY to $33.6 billion in Q3. This was driven by 34.2% growth in Europe to $7.77 billion as ARPU rose 33.8%, and 16.8% growth in US and Canada to $15.19 billion.
Pinterest (PINS) and Snapchat (SNAP) also mirror the trend of strong European growth, with Pinterest reporting European revenues rising 33% to $618 million as ARPU increased 26% in Q3. Pinterest said that its shift to Direct Links generated “88% higher outbound click-through rates and a 39% decrease in cost per outbound click for CPC objectives” for early adopters.
Snapchat’s European revenues rose 19.6% as ARPU rose 15.3%, the slowest of the three but much quicker than its overall revenue growth of 5.3%.
