YouTube shrinking ad business is an ominous sign for online ad market

A YouTube logo seen at the YouTube Space LA in Playa Del Rey, Los Angeles, California, United States October 21, 2015.

Lucy Nicholson | Reuters

The online advertising market continues to suffer, as heavyweights Alphabet and Microsoft reported disappointing sales during their most recent quarters.

YouTube advertising revenue dropped 2% year over year to $7.07 billion during the Google parent’s third quarter, missing analysts’ estimates of $7.42 billion. It was the first time YouTube’s ad revenue shrank on a year-over-year basis since the company started breaking out the division’s results in 2019.

Alphabet’s overall revenue growth drastically declined from 41% a year ago to 6%, underscoring how fears of a looming recession have caused companies to cut back on their advertising and marketing campaigns. Indeed, Chief Financial Officer Ruth Porat said during a call with analysts that YouTube’s revenue decline “primarily reflects further pullbacks in advertiser spends.”

Some of the advertisers that slowed their online advertising spending with Alphabet come from the financial services, insurance, loans and mortgage and crypto industries, said Alphabet chief business officer Philipp Schindler.

Last week, Snap set the tone for the online advertising market when it missed third-quarter analyst estimates with $1.13 billion in sales, sending its shares tumbling more than over 30% the next day. Snap attributed its poor sales to companies decreasing their marketing budgets” in response to the weak economy, the company said in a letter to investors.

Microsoft also reported a slowdown in its online advertising business.

Its search and news advertising business (including Bing and Microsoft News) reported sales growth of 16% in the September quarter, the first of its fiscal year, far below the 40% revenue growth it reported a year earlier. Indeed, the growth rate of that business has been shrinking each quarter of the past year, coinciding with the general downward trajectory of the entire online advertising market.

Additionally, Microsoft’s LinkedIn’s quarterly sales growth shrank to 17%, down from 42% during the same period in 2021.

Microsoft CFO Amy Hood told analysts during an earning calls that that “reductions in customer advertising spend, which also weakened later in the quarter, impacted search in advertising and LinkedIn marketing solutions.”

Meanwhile, Meta on Wednesday is expected to report its second-straight quarter of declining sales, underscoring the current turmoil in online advertising. Judging from the recent earnings reports of various tech giants, it’s unlikely the Facebook parent is going to report any signs that the online advertising market is set for a rebound.

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