The digital advertising industry landscape represented by Google is undergoing new changes. With the increasing challenges of global economic uncertainty, companies have cut online advertising expenditures, resulting in a significant reduction in the income of Internet companies; on the other hand, TikTok and Apple are included. The entry of new competitors has also eroded the market share of technology Internet companies that once dominated.
As a giant in the digital advertising industry, Google is facing unprecedented challenges. The company reported weaker-than-expected third-quarter earnings on Oct. 25 after the market closed, and its YouTube ad revenue fell for the first time, suggesting a shift in momentum even for the industry’s most entrenched players.
Also facing challenges is Microsoft, which also reported a slowdown in its online advertising business in its earnings report on the same day. The search and advertising businesses, which include Bing and Microsoft News, saw sales rise 16% in the latest quarter, well below a quarter of a percent. 40% revenue growth in the year-ago period. The business‘s growth rate has contracted in every quarter of the past year.
“A new era is happening,” Google CEO Sundar Pichai said on a conference call with analysts.
Shares of Google and Microsoft fell nearly 7 percent after the earnings report, dragging down Meta and Amazon shares by 4 percent. Shares of Google, Microsoft, and Amazon are all down nearly 27% or more so far this year, and Meta shares are down nearly 60%. The S&P 500 is down about 20% over the same period.
Meta and Amazon will report after-hours on October 26 and October 27, respectively. The market expects that Meta will report a second consecutive quarter of revenue declines, and the turbulent situation in the online advertising business will be more prominent.
Earnings from tech giants, from Google to Microsoft, provide more evidence that the digital advertising industry is in recession, largely as businesses cut online ad spending against the backdrop of massive uncertainty facing the global economy; On the one hand, the astonishing rise of the emerging social media platform TikTok has also begun to eat into the market share and profits of big tech giants such as Google.
The latest to join the fray is Apple. Apple on Tuesday expanded its search ad library on the App Store, offering advertisers new product page ad placements. As part of Apple’s services business, which will generate $68 billion in 2021, Bank of America estimates Apple could generate $5 billion in revenue from search ads alone this year.
The drop in income has also led companies to take action to cut spending in response to the challenges of the recession, including inflation and soaring interest rates. Google has enacted a series of measures, including curbing employee growth and cutting spending on some unprofitable businesses. Pichai said he hopes to increase the company’s efficiency by 20 percent. Last month, Google said it was shutting down its digital gaming service Stadia; it also canceled its next-generation Pixelbook laptop and cut funding for its internal incubator at Area 120.
Microsoft also plans to slow its operating expense growth in the coming quarters. Cyclical trends are affecting Microsoft’s consumer business, Chief Executive Satya Nadella said on a conference call with analysts.
In addition to the decline in the advertising business affecting Microsoft’s revenue, the company also expects that the personal computer (PC) market will continue to deteriorate during the quarter. Research firm Gartner said earlier this month that PC shipments fell nearly 20% year over year in the quarter.
Corning, a supplier of consumer electronics giants such as Apple and Samsung, also warned in its earnings report on October 25 that the slowdown in consumer electronics this year has not improved. Corning’s latest quarterly earnings missed expectations as smartphone glass sales slowed. In the quarter that ended in September, Corning’s smartphone sales fell 14% year over year, while tablet and laptop sales fell 17%.
At present, the market is highly concerned about Apple’s earnings report, which will be released after the market on Thursday, especially the company’s iPhone sales and the growth of services business.
Apple is cutting production of the iPhone 14 Plus and increasing production of the more expensive iPhone 14 Pro, market research firm TrendForce said on Tuesday. The share of the iPhone 14 Pro series has grown from 50% to over 60%.
At the same time, TrendForce said that rising interest rates in the United States may dampen consumer spending, thereby weakening demand for iPhones in the first quarter of 2023, which may lead to a 14% year-on-year decline in iPhone production to 52 million units.