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Big Tech is bracing for a global advertising downturn

Autor: Article based upon analysis from Reuters Breakingviews | Link: Big Tech risks a reversion to Web Finance 1.0
Timp de citit: 2 minute

Digital advertising has come a long way in the past decade. During the subprime crisis, Facebook, Google, and Twitter were just emerging in terms of making money.

Global advertising dropped 11% in 2009, while digital accounted for only 16% of a $360 billion market, according to WPP’s media research arm GroupM, cited by Reuters.

This year, digital is to claim 73% of the $850 billion in worldwide ad spending. A pie that big alone sharpens the stake for big tech companies.

Also, times resembling the 2009 crisis are here, so on the eve of an announced recession marketing budgets are under pressure.

These are the first ones to be adjusted when money goes out the door. TV commercials or web campaigns are slashed when economic times get tough.

That’s why tech giants are battling each other – and maybe sooner for a smaller slice of the pie – instead of media organizations that are left behind.

Facebook and Google alone account for almost 40% of digital advertising, so the confrontation is to be fierce.

Last week, Snap Inc. partly blamed competition for anemic top-line growth and projections.

The parent of social media Snapchat almost said that TikTock’s rapid growth is the cause of its firing of 20% of the app’s workers and canceling a number of buzzy projects.

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But Snap’s general and administrative costs were up 50% in the last quarter.

In June, Snapchat was the third-most likely used app among Gen Z users, trailing behind TikTok at No. 2 and Instagram in the top spot, according to analysis from data.ai.

Meanwhile, as TikTok has ensnared young users, it’s also drawn advertiser spending on videos and influencer campaigns, selling its ability to personalize individual feeds (and the ads in them).

Apart from Snap Inc., workforce reductions were also unveiled at companies that are less reliant on advertising, like Microsoft and Amazon.

Meta is axing staff since its EBITDA margin has declined from nearly 60% in 2017 to 36% last quarter. The drop could continue in case of falling ad revenue.

If the top line shrank, say, 10% over the next 12 months, earnings would drop 20%. So Meta’s market value could be hardly hit with no reduction in operating costs.

Analysts also expect the Facebook owner’s SG&A expenses to increase 9% in Q3, even as they project revenue will fall 5% from a year earlier, to $117 billion, according to Refinitiv.

So it is obvious that Big Tech is bracing for a downturn. How bad could it get depends a lot on ad money, that are harder to find these days.