Tech giant’s third-quarter earnings showed strength in the digital ad sector as brand advertising rebounds and e-commerce spending continues to dominate.
Last week, dominant players in the information technology sector — Google (NASDAQ: GOOG), Facebook (NASDAQ: FB), Twitter (NYSE: TWTR), and Amazon (NASDAQ: AMZN) — all reported third-quarter earnings. The findings suggest that the digital ad trends we are witnessing as a result of an increase in e-commerce spend are helping all digital ad platforms.
The search engine company had a strong quarter in terms of advertisement revenue growth, with Google’s ad business making up 80% of its parent company Alphabet’s $46.2 billion revenue in Q3. The advertisement industry was hit hard earlier this year due to a pullback in spending during the height of the pandemic, but this report showed a rebound for its core advertising revenue, especially Google Search.
In addition, YouTube advertising revenue grew 32% in its third quarter, aided by a return of brand advertising spend using the video-sharing platform. Google’s ‘search and other’ category also showed a 6% growth in Q3. Google has many tools and features to capitalize on the movement of more ad dollars online, such as Google My Business which offers free listings on Google Shopping and a tool that allows merchants to start advertising in 15 minutes. Analysts have stated that the shift to online ad spending has disproportionally benefited Alphabet and expects the trend to continue until a vaccine has been found.
Facebook ad revenue rose 22% year-over-year, adding an extra million digital advertisers this quarter. The social media company’s wide reach of audience and the efficiency of its ad tools are said to be key factors in its continued growth in Q3.
Stay-at-home restrictions increased the number of time users spent on Facebook, which in turn resulted in it selling more ad units. A possible reversal in this trend could occur when more entertainment venues, restaurants, and hotels re-open as lockdowns are lifted around the world. However, the possibility of more companies opening back up could just as well increase the demand for Facebook ads as marketing budgets increase.
Mark Zuckerberg’s firm experienced an ad boycott by 1,000 companies from Ford Motors to Coca-Cola this summer. The ‘Stop Hate for Profit’ campaign was a warning shot to Facebook in a bid to put pressure on it to take more stringent steps to stop the spreading of hate speech and misinformation on its platform. However, after publishing its Q3 earnings report last week, it has remained financially unscathed from the minor pause in ad spending.
The social network is also innovating the way its other companies, Instagram and Reels (a TikTok competitor), for example, show ads by enhancing their shopping services to allow users to purchase items they’ve seen in videos.
One of the weaker advertisement recovery stories on the list, Twitter’s ad revenue was still up 15% in its third-quarter report. Growth in the digital advertisement sector was driven by the return of sports and the launch of previously delayed products and events. The mini social blogging site smashed expectations on revenue of $936 million in its Q3 earnings but blamed the decline in user growth on uncertainties around the U.S election saying it has caused abnormal user behavior.
Critics say that Twitter needs to utilize its new ad infrastructure and improve execution if it wants to keep up with the other tech giant’s advertisement platforms. Delays in updating its direct response advertisement product until next year has resulted in the social media company not being able to take full advantage of the surge in consumers being online.
Amazon had an epic season, and with its ‘most sales in a quarter ever’ crown shining pretty, the ad portion of the business was no different. Last week, the online e-commerce company reported 51% year-over-year growth in its ‘other revenue’ category which includes advertising. With $96.1 billion in sales in Q3, Amazon used that increased traffic and turned it into prime advertisement real estate to sell to advertisers.
Analysts expect that with the upcoming holiday season approaching, Amazon will have a very profitable final quarter in 2020. However, with more competition from traditional retailers during the festive season, there may be higher advertising costs.
The Future of Digital Advertising
The power these tech titans hold over the advertisement industry was confirmed well before the pandemic caused e-commerce demands to explode and is expected to continue far past the discovery of a vaccine. With recent antitrust accusations coming forward against Google, will Big Tech be able to continue to squeeze out competitors in the digital advertising market?
MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in companies mentioned above. Read our full disclosure policy here.