The prospects for digital advertising in 2023 are likely to disappoint investors in internet and social media companies. But there will still be bright spots in the growth of digital advertising for an Apple (AAPL), the retail giant Walmart (WMT) and Internet TV.
Advertising agencies in December 2023 cut their digital media market forecasts, citing a weak economic outlook. Mediabrands’ Magna lowered its forecast to 8.4% growth, to $586.5 billion, from 10.8%. GroupM, the media investment arm of WPP, cut its forecast to 7.6% from 7.8%.
Meanwhile, Insider Intelligence in December cut its forecast for US social network spending for 2022 by $9 billion, down to $65.31 billion, up 3.5%. In 2023, though, it expects growth of roughly 9% to $71.05 billion.
One of the factors still affecting the growth of digital advertising for social media and e-commerce companies will again be Apple.
How does Apple affect digital advertising?
In 2021, Apple introduced new consumer privacy rules that restrict how iPhone users can be tracked or ads targeted. Apple policy requires apps to ask users if they want to be tracked, and many consumers have opted out.
At the same time, though, Apple’s advertising revenue growth is a plus for Apple stock. Apple does not detail advertising revenue growth in its financial reports. But it does indicate growth in service revenue for AAPL stock. And some AAPL equity analysts are extrapolating that.
In 2023, Apple’s advertising revenue will grow 26% worldwide to $8.92 billion, estimates market research firm Insider Intelligence. Insider Intelligence analyst Peter Newman says search ads in the App Store are fueling most of the growth.
“We see this as a fairly steady growth space, not a massive explosion, because it’s already relatively saturated (iPhone user numbers aren’t growing that fast),” Newman said in an email.
Searches in the App Store lead to the growth of digital ads
Also, Apple generates revenue from display ads within its News and Stocks apps.
AAPL equity analyst Samik Chatterjee of JP Morgan estimated Apple’s ad revenue down slightly in a report for June. He estimated that Apple’s advertising revenue could reach $5.8 billion in 2025, up from about $3 billion in 2022.
“We expect App Store searches to continue to be the company’s primary ad revenue driver,” Chatterjee wrote in a recent note to clients.
At Baird, AAPL equity analyst Colin Sebastian said in a 2023 outlook report: “Apple will take additional steps to build a big advertising company.”
the alphabet(GOOGL) Google and the parent of Facebook Meta platforms (META) will still be the largest digital advertising company by far in 2023. But some companies will see notable growth, albeit from smaller bases.
Wal-Mart business growth 42%
Insider Intelligence expects Walmart’s U.S. digital advertising business to grow 42% to $3.2 billion in 2023. Globally, Walmart said its worldwide advertising business was growing 30% in its June quarter earnings report. .
Walmart has teamed up with a digital advertising company Trade office (TTD) to grow its advertising business.
Trade Desk’s automated platform allows brands and ad agencies to purchase online and mobile ads in real time, instead of manually purchasing in advance. Trade desk gets access to Walmart’s ad targeting data, reports RBC Capital.
However, Wal-Mart lags behind its arch-rival Amazon.com (AMZN) in the digital advertising market. Goldman Sachs estimates that Amazon will grow its advertising business at a compound annual rate of 19% from 2022 to 2026 to reach $77 billion, or 9% of the company’s total sales. In response, Google has changed its online shopping strategy
Meanwhile, both Google and Meta Plaforms face growing competition from TikTok.
Worldwide digital ad revenue from TikTok will increase 43% to $14.15 billion, according to Insider Intelligence. Google aims to slow down TikTok with its own short-form video service, YouTube Shorts, while Facebook launched Reels.
Google’s 2023 ad revenue will grow just 7.2% to $180.6 billion, according to Insider Intelligence. It adds that Facebook ad revenue will grow by 2.8% to reach $71.32 billion, while Instagram will rise by 17% to reach $50.6 billion.
Netflix and Disney launch ad-supported streaming
Meanwhile, streaming video services are expected to be a bright spot for 2023. New ad-supported streaming services from Walt Disney (DIS) f Netflix (NFLX) is expected to boost advertising revenue. But some analysts say Netflix could lose out on subscription revenue.
Internet TV, called “connected” television in the advertising industry, will grow 18% to $23.2 billion, GroupM forecasts. Spending continues to shift to streaming video services from broadcast TV. GroupM expects linear TV spending to decline by approximately 1%, to $134.5 billion.
“Connected TV advertising is on the cusp of a coup now that streaming video is mainstream, and will take its share of linear TV ad spending,” Sebastian said at Baird. “Currently, CTV is about 10% of ad spend but should eventually reach 30%.” In addition to spending.
According to a Bank of America report, 87% of American households now have connected TV service, up from 69% in 2017.
At Macquarie, analyst Tim Nollen has a cautious view of digital advertising stocks in 2023.
“We believe that marketers will approach 2023 with much tighter controls on their advertising budgets and more selective spending plans by the media, which could handicap budgets for a potential recovery starting later in the year,” he said in a note. “Consequently, the near-term outlook for ad-driven media is very weak. Advertising agencies, ad technology, and network media stocks may therefore suffer.”
Follow Reinhardt Krause on Twitter @employee For updates on 5G wireless networks, artificial intelligence, cybersecurity, and cloud computing.
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