Third-quarter results for the ‘Big Four’ tech giants – Alphabet, Facebook, Amazon and Apple – have outstripped expectations. Confidence in the wider economy may be shaky as Covid bites, but the world’s largest companies have actually seen benefits from the pandemic, especially in advertising.
The takeaways:
- Facebook reported ad revenue growth of 22% in Q3, beating analyst expectations. Ad revenue rose to $21.2 billion, from $17.4 billion a year earlier, despite an ad boycott in July.
- Google’s advertising business outperformed expectations, with parent company Alphabet recording advertising revenue of $37.1 billion. This followed its first-ever revenue decline in Q2.
- YouTube – also owned by Alphabet – has posted a significant rise in ad revenue from $3.8bn a year ago to $5.04bn. Chief Financial Officer Ruth Porat credited tightened content moderation policies for the rise.
- A newer player in the ad space, Amazon saw a 51% jump in advertising revenue, bringing in $5.4 billion over the quarter. Amazon may be an e-commerce business first, but this rapid growth in its ad business shows what a natural advantage it has to leverage its platform
The bigger picture: Google, Facebook and Amazon may have posted strong results for ad revenue growth. But this doesn’t match the trends faced by the wider industry. Overall US digital ad spending is forecast to grow just 1.7% this year; a steep decline from 2019’s 19.2% growth.
Why is money flowing to the tech giants?
Small and medium businesses are driving a lot of growth. Self-serve ad tools on the platforms make it easy for SMBs to spend a small amount of money on advertising, without the need for big-budget campaigns. This all adds up. With more traditional methods of advertising off the cards during lockdown, spend will flow to straightforward, low-commitment ads on platforms with vast reach.
- Facebook said it thinks that the “pandemic has contributed to an acceleration in the shift of commerce from offline to online,” leading to it experiencing “increasing demand for advertising as a result of this acceleration.”
- Google chief Sundar Pichai said that the picture has grown brighter for the internet economy as people now turn to online services for work, shopping and entertainment. This has pushed Google “to a strong quarter, consistent with the broader online environment.”
Amazon’s results didn’t include Prime Day, which was moved from July to October this year due to the pandemic. This is likely to boost the company even further in Q4 and end-of-year releases.
- However, the company is approaching the end of the year cautiously. There are concerns that holiday-season spending on advertising and e-commerce will ebb as the wider economy suffers.
Yes but: 2021 will bring a “significant amount of uncertainty” for Facebook and the other tech giants. Regulatory pressures, data transfer restrictions and the ongoing effects of Covid are likely to slow growth and dampen confidence.
Monthly active users of Facebook are also on the decline in the US and Canada – down to 196 million from 198 million last quarter. Facebook attributes this to a slowdown of the surge seen during lockdown, but the social platform’s popularity has been on the wane since the Cambridge Analytica scandal.
