The worst digital ad outlook in a decade portends dark times for traditionally dominant players Google and Facebook but a potential windfall for TikTok, Instagram, Amazon.com Inc. and Netflix Inc.
Those are the sobering conclusions of market researcher Cowen’s annual survey of 50 U.S. ad buyers that accounted for $23 billion in spending in December. Buyers said they plan to increase ad spending just 3.3% in 2023 — the lowest expected growth in the past five years, and down from 7.5% in 2022.
“Given the macro concerns, we noticed ad buyers this year are taking a more nimble approach to ad spend, as they are in more of a ‘wait and see’ mode and echoed things could change quickly, which would lead to ratcheting ad spend up or down,” Cowen analyst John Blackledge said in a note Wednesday. “In turn, we expect ’23 to be one of the more volatile years for the ad market over the past 20 years or so.”
Over the next two years, ad buyers told Cowen they intend to do more business with TikTok, Meta Platforms Inc.’s
while shaving back on Alphabet Inc.’s
Google Search, Facebook proper, and Twitter Inc.
About two-thirds of the buyers attributed their ultra-cautious 2023 budgets to recession, inflation and softening consumer demand. They also noted the protracted impact of Apple Inc.’s
App Tracking Transparency (ATT) feature, which gives consumers a prompt asking whether they wish to be targeted by advertisers.
ATT has led to “noticeable declines in ROI, as well as challenges regarding attribution, measurement and reduced re-targeting capabilities,” ad buyers told Cowen. Some 36% expect the challenges to be permanent, up from 30% a year ago. Meanwhile, 22% expect challenges from ATT to persist for at least another 12 months.
TikTok stood out as the biggest digital share gainer in Cowen’s survey, but it could be banned in the U.S., offering a chancefor Meta’s Reels and YouTube Shorts to gain increasing share of the fledgling short-form video ad channel, which Cowen expects to grow at a 19% CAGR from 2022-27.
There was good news for Google: Ad buyers expect to allocate 25% of their digital video budget to YouTube, about the same as in 2022. At the same time, ad buyers expect Amazon’s share of digital ad spending to rise 7% in 2024 from 6% in 2022, and they anticipate Snap’s
share of their digital ad budgets will remain stable through 2024.
The news isn’t all bad for core Facebook, which is shifting from an ad-dependent revenue model to more of a metaverse play over the next several years. The core business ranked as the top destination for branding campaigns targeting those age 35 and over, surpassing TV as the No. 1 choice.
The first of the major tech companies to announce earnings next week, Netflix, is also gaining “significant interest” among ad buyers from its new lower-priced, ad-supported service, according to Cowen.
“We believe this lower cost offering could drive accelerating ’23E net member adds, while the company’s upcoming paid sharing solution could also comprise another monetization lever,” Blackledge said in his note Wednesday. “As such, we view NFLX as the best recession play in our coverage universe if macro conditions worsen.”