Meta, Google, Apple, Microsoft & Amazon’s strong quarterly results signal advertising boon

The relative strength of the tech sector, of course, has a rippling effect that impacts many other industries – chief among them being the digital advertising ecosystem, which relies on device makers like Apple and Google as well as walled garden ad ecosystems like Google, Meta and Amazon to operate.

In 2023, a Q1 tech slowdown, for example, hampered the financial success of many of the world’s largest advertising companies, including holdcos WPP and IPG.

Now, things appear to be looking up. Microsoft, Apple, Amazon, Meta and Alphabet all beat analysts’ estimates for the quarter.

Microsoft surges in wake of AI advancements and Activision Blizzard acquisition

Microsoft reported its results after the bell on Tuesday. The company’s earnings were $2.93 per share for the period, higher than the projected $2.78 by London Stock Exchange Group. The company’s revenue for the quarter was $62.02bn, a 17.6% year-over-year (YoY) increase.Net income rose from $16.43bn to $21.87 billion, or $2.93 per share.

In particular, Microsoft’s cloud service Azure is flourishing, with revenue up 30% in the quarter, thanks in large part to a boost from the company’s AI technology.

Activision Blizzard, the game developer that Microsoft acquired last year for nearly $69m in the largest video game acquisition in history, was included in the company’s report this week. It brought in $2.08bn in revenue but suffered an operating loss of $44m during the quarter.

It’s clear that Microsoft is attempting to bolster its position in the gaming market – it’s taking action to streamline its workforce (last week laying off nearly 2,000 gaming employees) and gearing up to compete in immersive gaming with Apple, whose Vision Pro headset hits shelves today.

Microsoft’s performance in this arena, of course, also has the potential to unlock new ad revenue. “The growing interest in gaming translates to an expanding audience for companies, presenting more opportunities for extensive advertising in this dynamic format and paving the way for a comprehensive omnichannel experience across other digital formats,” says Quentin Michon, chief financial officer at adtech firm Equativ.

Microsoft’s search and news advertising for the quarter was up 8%, a positive sign in light of recent innovations to its AI-powered Bing chat, which introduced new ad formats in March of last year.

“Years prior to their runup in share price, Microsoft made empathetic and agile moves to align to the tech trend that is transforming everything – AI,“ says Greg Silverman, global director of brand economics at Omnicom-owned branding agency Interbrand. “Not only are its decisions relating to customer opportunities showing up in their numbers but also their commitment to a clear direction and strong internal alignment. They have integrated these leadership dimensions into a presence that is improving affinity and trust with customers which is reflected in their revenue growth.”

Google parent Alphabet outpaces revenue estimates but underperforms on advertising

Alphabet, which also filed Tuesday, reported better-than-expected financials – but showed signs of a weakened ads business.

The company’s quarterly revenue came in at $86.3bn, a 13% YoY lift that surpassed analysts’ expected $85.3bn. Earnings stood at $1.64 per share, beating estimates of $1.59. Google Cloud’s revenue for the period, at $9.2bn also surged ahead of previous projections.

The tech titan’s advertising business, however, was a different story. The company saw $65.5bn in total advertising sales during the fourth quarter – representing an 11% YoY increase. However, the figure came in slightly under analysts’ expectations. YouTube advertising brought in $9.2bn, about what was projected. Google Search and other ads were at $48.02bn, just under estimates of $48.1bn. Google Network ads, which span a variety of platforms, was down 2% from the previous year, at $8.3bn.

“Google Network ads, especially Google ads that appear on properties other than Google, continue to decrease … meaning that Google most likely brings less money to their publishers now than one year earlier,” says Equativ’s Michon.

While Alphabet’s advertising results represent a marked improvement from the same period last year, when Google saw its first dip in ad revenue since the onset of the pandemic, they were disappointing enough to spook investors. Shares dropped more than 6% in extended trading on Tuesday after the news broke.

Still, some experts are optimistic. The company’s overall financials are improving in large part due to increasing investment in AI, according to Interbrand’s Silverman. “They are finding efficiencies that are delivering productivity gains – including a reduction of the number of employees -– and a sharp rise in earnings.”

As Alphabet finds even more applications of AI – in its adtech stack in particular – Silverman predicts, it’s likely to see even more growth. “Their long-held structural advantages in adtech remain and clearer tools about how their platforms deliver return are fueling uptake after a reset in the market. Applying their AI tools to the use of existing products will likely continue to fuel growth.”

Plus, while Alphabet’s overall advertising business slumped slightly, YouTube’s advertising results were a bright spot during the quarter – a positive sign for the platform, says Forrester analyst Nikhil Lai. “YouTube’s increasing ad revenue signals advertisers’ cautious optimism,” he says. “Advertisers have weathered the last couple years’ macroeconomic uncertainty and are now ready to reinvest in the top of the funnel to generate awareness, expand retargeting pools and activate video advertising’s halo effects of branded search activity.”

Plus, he anticipates that increasing subscription revenue brought in by YouTube TV will help make up for ad sales dips.

Apple faces challenges in China but comes out on top

The iPhone maker reported its quarterly results Thursday evening, just hours before its highly-anticipated Vision Pro headset launched on the market Friday.

Overall, the company exceeded expectations, reporting earnings per share of $2.18 on revenue of $119.6bn, surpassing analyst estimates of $2.11 and $117.9bn, respectively.

But the stock experienced a more than 2% drop in early trading on Friday due to lower-than-expected sales in China, Apple's third-largest market. Sales in the region came to $20.8bn, falling short of a projected $23.5bn. The company attributed the lag to economic challenges in China and intensified competition from Huawei.

Nevertheless, Apple found strength in the North American and European markets. Total iPhone sales reached $69.7bn, surpassing the anticipated $68.6bn. Meanwhile, Mac sales hit $7.8bn during the quarter, just under analysts’ expectations of $7.9bn, while iPad revenue came to $7bn compared to a $7.1bn expectations.

Chief executive officer Tim Cook expressed confidence in the company’s growth, saying, “We are pleased to announce that our installed base of active devices has now surpassed 2.2 billion, reaching an all-time high across all products and geographic segments.”

And in spite of the stock price slide Friday, the outlook is good for Apple, says Interbrand’s Silverman. “Apple's earnings reflect the resilience of their brand ecosystem and a misunderstanding by analysts who priced the stock lower. By extending its brand into a variety of arenas – their portfolio of businesses such as streaming, wearables, and services – Apple continues to deliver outsized profits despite headwinds in China and other countries.”

Meta stock spikes 20% after unveiling first-ever dividend plan

Meta’s business is booming Friday, with the company’s stock surging 20% on the heels of its announcement Thursday that it plans to introduce its first-ever dividend for investors. The stock is set to close at a record high this afternoon.

The company plans to offer a quarterly dividend that entails a payout of 50 cents a share on March 26. Additionally, Meta announced a $50bn share buyback plan.

Along with these changes, Meta filed its regular quarterly earnings Thursday – and results outperformed analysts’ expectations. Earnings for the quarter ending in December were $5.33 per share, well above analysts’ expected $4.82. Earnings grew a staggering 203% from the same period last year. Revenues were up 25% YoY, reaching $40.1bn, compared to last year’s $32.2bn.

Digital ad sales, as usual, brought in almost all of the company’s revenue. The tech company posted $38.7bn in ad sales for the quarter – an increase of 24% from the same period in 2023.

“We predicted in 2024 big media would get its mojo back. Meta’s 2023 results signal a promising year ahead as brands double down on advertising once again,” says Mike Proulx, vice-president, research director at Forrester.

The impressive results come on the tail of what CEO Mark Zuckerberg had dubbed Meta’s ‘Year of Efficiency.’ As part of this strategy, the company cut costs, laid off staffers and invested deeply in its proprietary AI technology.

Zuckerberg said on Thursday’s investor call that “being a leaner company is helping us execute better and faster, and we will continue to carry these values forward as a permanent part of how we operate.”

One of the only significant hits that Meta took during the quarter was the less-than-ideal performance of its VR branch, Reality Labs. The division raked in over $1bn in quarterly sales but saw an operating loss of $4.65bn. Apple’s Vision Pro is likely to introduce fierce competition in 2024.

But Zuckerberg doesn’t appear too worried, as the company is dedicating more resources to AI now than to its VR and metaverse technologies. Following last year’s debut of Meta’s AI-powered chatbots, the social giant plans to invest more deeply in AI development. In particular, the company aims to develop consumer AI solutions like personal assistants.

“Moving forward,” Zuckerberg said, “a major goal will be building the most popular and most advanced AI products and services. And if we succeed, everyone who uses our services will have a world-class AI assistant to help get things done.”

Growing AI investment across the tech ecosystem is likely to establish a swath of new opportunities for advertisers. “Big tech firms have increased investments in AI and machine learning, assuring advertisers of enhanced targeting capabilities and improved ROI,” says Effectiv’s Michon. “This trajectory is anticipated to evolve, bringing forth new advantages and productivity gains across various sectors.”

Amazon makes AI chatbot debut as earnings outstrip expectations

Amazon on Thursday officially entered the AI chatbot wars, unveiling a personal shopping assistant called Rufus, which will answer customer questions and recommend products in the platform’s mobile app. The tool, made available to a small subset of users Thursday, will roll out to more customers in the coming weeks.

The ecommerce giant also filed its quarterly financial results Thursday, largely beating estimates. Revenue hit $169.9bn, well over the expected $166.2bn, and up nearly 14% YoY. Adjusted earnings per share were $1.00, up from $0.03 during the same period last year.

Amazon Web Services came in just shy of estimates at $24.2bn compared to analyst projections of $24.22bn.

Meanwhile, the company’s advertising business grew substantially, jumping from $11.6bn in 2023 to $14.7bn in 2024, growth of more than 23%. Ad revenues also beat analyst estimates of $14.2bn for the quarter.

Outside of display ads and sponsored product ads, a growing part of the company’s advertising business is Amazon Prime Video, which just this week debuted a new ad-supported tier (mirroring a decision made by competitor Netflix in 2022). Now, as eyeballs increasingly migrate away from linear TV and toward streaming and connected TV channels, Amazon is poised to eat up more ad spend.

It’s a positive sign for innovation in the ad space, some say. “Increased competition, including new entrants such as Amazon Prime Video's ad tier, will drive innovation across all advertising products to deliver improved transparency, performance and business accountability for marketers,” says Stephen Magli, founder and chief executive officer of programmatic agency AI Digital.

Like many other tech companies, Amazon has recently undergone significant layoffs. In mid-January, the company let go of hundreds of staffers at Prime Video, MGM Studios and livestreaming platform Twitch. Experts attribute many such layoffs to resource recalibration efforts post-pandemic. The move may position Amazon to perform even better in the next quarter.

Implications for the advertising sector

Taken together, the latest tech financial results point to a sector entering a new era of building. As resources flood into AI development, gaming, video streaming and search, the world’s tech titans are diversifying their revenue streams and positioning themselves for growth in 2024.

And advertising, which provides much of the fuel for the fire, is likely to benefit from the tech sector’s boom.

In particular, Silverman posits, growing investment in AI will translate to valuable opportunities for advertisers. “As the tech sector improves, through leadership and engagement, and financials strengthen, we expect the share of media dollars to somewhat improve in 2024, primarily led by advancements in AI.”

Ultimately, these latest financials are a probable sign of an ad industry resurgence, says Forrester’s Lai: “Taken together, these earnings signal advertisers’ return to cautious optimism, after nearly two years of macroeconomic uncertainty’s chilling effects on ad spend.”

However, Lai emphasizes that advertisers may still be feeling burned from last year’s tech sector hiccups. It will be up to platforms to prove their trustworthiness to brands and media buyers. “These companies’ ad platforms must continue to earn advertisers’ dollars,” he says, “by delivering performance without making advertisers sacrifice transparency and control.”

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