Massive Tech's income confirmed that digital advert income has elevated once more
Mark Zuckerberg, CEO of Facebook, delivers his keynote address at Facebook Inc.'s annual F8 Developer Conference on April 30, 2019 in San Jose, California, United States.
Stephen Lam | Reuters
Big Tech's third quarter earnings showed that digital ad revenue had risen again in recent months, suggesting that some of the digital ad trends associated with the e-commerce explosion may continue.
Alphabet, Facebook, Twitter and Amazon, which reported profits after business hours on Thursday, as well as peers Snap and Pinterest, who previously reported, showed strong digital advertising growth for the quarter as brand advertising rebounded and sport returned.
And while digital advertising has been on the rise for years, this year's events appear to be accelerating existing trends such as the growth of e-commerce as consumers can shop online conveniently out of necessity. And advertisers are tracking them online.
"In a world where we are debating what structural changes COVID will bring, we believe the answer is clear: advertisers' willingness to spend / experiment on digital advertising has had an impact," the analysts wrote by Morgan Stanley in a Friday note. "The leading reach and advertising platforms will leverage and drive this shift into 21 and beyond."
Research firm MoffettNathanson added that the pre-pandemic rebound in digital advertising in Q4 2019 is "so rapid and extensive that many of the leading digital platforms are now outperforming ad growth".
"In essence, history will likely show that the effects of COVID-19 and the associated negative economic shocks have depressed spending for only five months," MoffetNathanson analysts wrote on Friday. "We also firmly believe that history will show that 2020 is seen as a turning point for the industry as mundane shifts in e-commerce, small and medium-sized business startups, and declines in linear television fuel growth in digital advertising spending speed up. ""
Here's what happened in the Google, Facebook, Twitter and Amazon ad businesses this quarter and what they mean for the digital ad market.
Facebook saw ad revenue grow 22% year over year in the quarter and added another million active advertisers in the quarter to hit 10 million. Morgan Stanley analysts said the general trend of advertisers moving dollars online, along with Facebook's reach and the effectiveness of its ads, is why business "is likely growing faster now than it was in January / February".
As brand advertising continues to grow and e-commerce accelerates during the holidays, it will likely mean further acceleration for Facebook, according to analysts at Barclays.
Some are hesitant about possibly reversing the trends brought about by Covid-19. Needham analysts said Facebook benefited from higher daily usage on Friday due to global bans, which means that Facebook can sell more ad units. This increased usage may not continue as businesses such as movie theaters and restaurants open.
However, as JPMorgan analysts pointed out, the road could interpret Facebook's comments on the uncertainties of 2021 as more cautious.
"Investor concerns about the cautious tone for 2021 seem exaggerated given the simple comps (bis) 2Q and the history of such comments from FB," Barclays analysts added on Friday.
Google had a strong advertising quarter. The Search and Others category recovered to 6% growth. YouTube ad revenue grew 32% as the direct response was complemented by a return in branded advertising spend.
Credit Suisse analysts said Google could benefit from the movement of more advertising dollars online.
"As the pandemic accelerates the mundane shift to online, Google has tried to get merchants of all sizes on board with a range of products, including Google My Business and free deals on Google Shopping. All of these and tools that get you to within 15 minutes Getting started with advertising should help. " to convert these companies into paying advertisers, "said Credit Suisse analysts.
Although the pandemic has violated some traditional advertising channels, Wedbush analysts said the move to online Alphabet is benefiting disproportionately.
"We expect this shift to continue, at least until there is a widely available vaccine, and even then it is likely that many consumers have discovered online grocery shopping and online restaurant delivery to be switched in advance to more frequent buyers, "they wrote. "In the near future, we expect consumer spending on e-commerce channels to increase to further promote the promotion of products and brands online."
Though Twitter's ad revenue rose 15% in the quarter, driven by the return of the sport, as well as late events and product launches, many analysts viewed the company as one of the weaker recovery stories in advertising.
The company, which has a stronger branded advertising business, said it would delay updating its direct response ad product for the next year. That means Twitter cannot yet take advantage of a segment of the ad market that has remained stronger during the pandemic.
"The rising tide on the online ad market should mean a significant tailwind for TWTR in the fourth quarter and in the year 21," write analysts from Morgan Stanley. "We believe, however, that TWTR needs to improve execution (and leverage its new ad infrastructure) in order to sustain increased customer loyalty and monetization."
RBC analysts expect sales to grow by 22% year-on-year in the fourth quarter. And it's another example of how advertisers think differently about digital.
"Overall, we see the third quarter results as a positive indicator of the strength of the digital advertising market as offline companies focus on online activities again," wrote analysts at BofA Securities on Friday.
Amazon saw its other revenue category, which includes advertising, grew 51% year over year as ad budgets improved from the decline in the second quarter.
"With increasing online traffic, AMZN has turned this traffic into valuable real estate for advertisers and achieved a strong advertising performance in the third quarter," the analysts at KeyBanc write on Thursday.
Analysts expected e-commerce advertising to spike even more over the Christmas season in the fourth quarter, but noted that if there was more competition for traffic from traditional retail, advertising costs could be higher.