EkaLore has previously released an analysis on the Alien Sightings about advertisers participating in the online advertising markets. (https://www.ekalore.com/post/alien-sighting-online-advertising)
EkaLore sees disruption of long-time legacy advertising spend to be a high risk if economic trends of inflation and likely recession continue.
Changes in the advertising spend plans for critical North American/EU demographics are happening rapidly. Plans are being driven by macroeconomic (fears of recession, changes in consumer spend patterns, energy price spikes) effects and investor confidence in advertising delivery enterprises (Traditional media, online/influencer, social media). Share prices in Internet-based advertising-revenue enterprises are showing market forces.
SNAP, in 3Q 2022 earnings notes, specifically calls out decreased spend by advertisers due to “operating environment headwinds, inflation-driven cost-pressures, and rising costs of capital.” The market already lowered SNAP’s capitalization. It began the year at (Jan 3, 2022) priced at $46.59. On November 17, it had dropped to $10.85 (as of 3:38 PM EST)
SNAP’s recent revenue report, if confirmed by reports from Meta, Alphabet, Amazon, and others; points to continued drops in equity valuation. After 3Q2022 earnings were released SNAP’s equity prices continued to drop to a 52-week low representing more than an 80% drop in valuation and an assessment by the equities market of the enterprise’s forward value. This was in spite of a 6% year-on-year quarterly revenue growth (ignoring currency translation). Internet advertising driven enterprises see changes even as operational metrics of regional differences in spend and targeted engagement change.
SNAP may have a specific issue as headcount is up 31% year-on-year for quarter-to-quarter comparison although not reflecting reductions in process as some products and services are cut back. A possible shared concern is the continued expense (and likely gap between expense and reward) due to BAD Projects (such as the 15 ML optimization projects, big data collection efforts adjusting for Apple iOS privacy changes, and integration of Augmented Reality and other platform features in response to technology changes by Samsung, Microsoft and others). SNAP may be a specific case, or it may be an early warning of continued costs of investment in a time of revenue changes across the sector.
Another clear target of legacy advertising spend are efforts by non-linear media (not broadcast/cable TV, satellite, theater or physical media) to capture advertising campaigns. Examples of these efforts are Netflix’s advertising support mode, continued engagement focused changes by YouTube, Amazon, and Meta; and continued growth in influencer and social media spend (at better costs points for demographic engagement). The effects of these targeting changes may become more apparent after the 4Q 2022 results. Advertisers are sure to use their buying power to the fullest in the next few quarters as rapid changes occur – thus accelerating marketspace participant changes and survival.
The Alien Invader series by EkaLore uses a framework to identify overwhelming competitors who play by different rules than incumbent market players. To read more about them visit the Ekalore Blog at www.ekalore.com/alien-invaders
Comentarios