Digital Ad Outlook: Horizon Glum But Apple, Walmart, Internet TV Bright Spots
The outlook for digital advertising in 2023 is likely to disappoint investors in internet and social media companies. But there will still be bright spots in the growth of digital advertising appeal (AAPL), retail giant Walmart (WMT) and Internet television.
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Advertising agencies lowered digital media market forecasts in December 2023, citing deteriorating economic prospects. Mediabrands’ Magna cut its forecast to 8.4% growth, to $586.5 billion, from 10.8%. WPP media investment arm GroupM cut its forecast to 7.6% from 7.8%.
Meanwhile, Insider Intelligence in December cut its forecast for 2022 US social media spending by $9 billion, to $65.31 billion for a 3.5% gain. However, in 2023 it predicts growth of almost 9% to $71.05 billion.
One factor that continues to influence the growth of digital advertising for social media and e-commerce businesses will again be Apple.
How Apple is impacting digital advertising
In 2021, Apple introduced new consumer privacy rules that limit how iPhone users are tracked, or targeted ads. Apple’s policy requires apps to ask users if they want to be tracked, and many consumers have opted out.
At the same time, however, Apple’s own ad revenue growth is a plus for Apple stock. Apple doesn’t break out its ad revenue growth in financial reports. But it does report growth in services revenue for AAPL stock. And some AAPL stock analysts extrapolate from that.
In 2023, Apple’s ad revenue worldwide will grow 26% to $8.92 billion, estimates market research firm Insider Intelligence. Search ads in app stores are driving most of the growth, says Insider Intelligence analyst Peter Newman.
“We see this as a fairly steady growth space, not very explosive because it’s already relatively saturated (iPhone user numbers aren’t growing that fast),” Newman said in an email.
App Store searches drive digital advertising growth
Apple also brings in revenue from display ads in its News and Stocks apps.
AAPL stock analyst Samik Chatterjee of JP Morgan estimated Apple’s ad revenue a bit lower in a June report. He estimated that Apple’s ad revenue could reach $5.8 billion in 2025, up from about $3 billion in 2022.
“We expect App Store searches to remain the primary driver of ad revenue for the company,” Chatterjee wrote in a recent note to clients.
At Baird, AAPL stock analyst Colin Sebastian said in a 2023 outlook report, “Apple will take additional steps to build out a large advertising business.”
Alphabet‘s ( GOOGL ) Google and Facebook parent Meta Platforms ( META ) will still be by far the largest digital advertising companies in 2023. But some companies will have outstanding growth, albeit from smaller bases.
Walmart’s business grows 42%
Walmart’s US digital advertising business will grow 42% to $3.2 billion in 2023, Insider Intelligence predicts. On a global scale, Walmart said its global advertising business grew 30% in its June quarter earnings report.
Walmart has teamed up with digital advertising company Trade desk (TTD) to grow its advertising business.
Trade Desk’s automated platform enables brands and ad agencies to buy online and mobile ads in real-time, rather than manually in advance. Trade Desk is getting access to Walmart’s ad targeting data, according to an RBC Capital report.
Still, Walmart lags behind its competitor 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 total company sales. In response, Google changed its online shopping strategy
Meanwhile, both Google and Meta Plaforms are facing increasing competition from TikTok.
TikTok’s global digital ad revenue 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 only 7.2% to $180.6 billion, says Insider Intelligence. It adds that Facebook’s ad revenue will grow 2.8% to $71.32 billion while Instagram will rise 17% to $50.6 billion.
Netflix, Disney launch ad-supported streaming
Streaming video services, meanwhile, are expected to be a bright spot for 2023. New ad-supported streaming services from Walt Disney (DIS) and Netflix ( NFLX ) is expected to increase advertising revenue. But Netflix could lose subscription revenue, some analysts say.
Internet TV, called “connected” TV in the advertising industry, will grow 18% to $23.2 billion, GroupM predicts. Spending continues to shift to streaming video services from broadcast TV. GroupM expects linear TV spending to fall nearly 1% to $134.5 billion.
At Baird, Sebastian said: “Connected TV advertising is about to change now that video streaming is mainstream, and will take a share of linear TV ad spend. Currently, CTV is around 10% of ad spend, but should eventually reach 30% – plus of spending.”
According to a Bank of America report, 87% of US households now have a connected TV service, up from 69% in 2017.
At Macquarie, analyst Tim Nollen has a cautious outlook for digital advertising stocks in 2023.
“We believe that marketers will approach 2023 with tighter reins on their advertising budgets and more selective media spending plans, possibly holding back budgets for a potential recovery starting later in the year,” he said in a note. “So the near-term outlook for ad-driven media is quite poor. So ad agencies, ad tech and media network stocks could struggle.”
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
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