Madison and Wall: Saturday Summary For The Week Ending July 28, 2023

Earnings season was in full effect this past week.

The biggest takeaway is an affirmation that the advertising industry expanded solidly in the second quarter of 2023, and at a better pace than what we saw in the first quarter, albeit on easier comparables vs. the year-ago period.   While it’s true that some companies such as Snap declined, others such as Alphabet grew reasonably well.  Of course, it’s safe to say that when one company is 40x larger than the other, there really isn’t much of a comparison to be made.

Needless to say, assessing news-flow in an appropriate context is as critical, which has been a problem throughout the last year. As I told Insider’s Lara O’Reilly, many marketers probably aren’t fully convinced that they aren’t in the middle of a downturn - despite persistent real economic growth in the United States and much of the world in recent quarters - and that’s resulted in reluctance to make budget commitments, negatively impacting visibility for many media owners. 

But the path forward for the remainder of the year still seems really clear to me, at least: growth should accelerate from here.  In particular, with Meta’s guidance implying high ‘teens growth in ad revenues during the third quarter, digital advertising should be on track to grow by high single digits - or possibly better - for the full year, which would be slightly ahead of June’s forecast estimates from GroupM and Magna of around 8% each.  And comparables are generally easier for everyone, not just Meta, so the appearance of growth will be more pronounced across the industry.

At the same time, TV network owners and others might still experience negative trends, as we are finally at a point in time where large marketer budgets appear to be collectively shifting more aggressively into digital media than was the case before the pandemic.  If we expect to see TV network owners experiencing mid- or high single digit declines – and that’s consistent with what we saw from Comcast, TF1 and ITV this past week – while large packaged goods advertisers are consistently posting high single digit or double digit increases in advertising spending, no traditional media platform experiencing decline should be blaming their current trends on the economy.   The growth of retail media is great for P&G and Amazon, but it’s probably not helping traditional media owners, either.  And with cord-cutting accelerating at Comcast and Verizon at a double-digit level (and “only” declining by mid-single digits at Charter), professional video-based advertising platforms face serious long-term challenges that are poised to worsen meaningfully, as I expect ad-supported subscribers to streaming services will remain a distinct minority for most services.

At least the agencies appear relatively durable among companies exposed to traditional media. Although S4 Capital started the week with a trading update meaningfully reducing their revenue growth forecast, this outcome appears to be a consequence of too heavy concentration among the marketers most aggressively cutting spending (as we saw in results from Meta, Microsoft and other technology-focused companies, despite benefiting from others’ growth in budgets, they mostly decided to cut their own. So much for “dogfooding…”). Havas, on the other hand, reported strong organic growth of 6.3% in the quarter, despite facing fairly difficult comparables.  Overall, the agency business remains very much on track to post decent growth for the year.