After years of being “super-optimistic” about digital advertising, MoffettNathanson is lowering its long-term advertising forecast. This week’s earnings warning by social media company Snap was the immediate trigger, however, the company says it is concerned about the long-term growth prospects for digital advertising as a whole.
In a new report – titled “US Advertising: It’s Not Just A Cyclical Problem – Revising Down Our Long-Term Bullish Forecasts” – MoffettNathanson says he is “very concerned” that the 2021 advertising market has been buoyed by both “unsustainable corporate profitability” and the explosion of e-commerce activity by small and medium-sized enterprises. These growth engines are now “succumbing” to a combination of factors. As a result, the company is lowering its long-term growth forecast for online ads to a compound annual growth rate of 12.5%, from 18.5%, for the 2021-2025 period. Figures do not take into account the impact of a recession, if any.
Cutting his thesis down to the most basic terms, MoffetNathanson says the recent advertising market has been driven “by an unprecedented increase in the profitability of the largest companies” due to pandemic-related cost cutting. This allowed for a greater expansion of advertising spending. “These expenses are expected to be reduced as these costs increase in future years,” the report said. Meanwhile, the pandemic has helped accelerate the growth of e-commerce, creating a bubble in spending by small and medium-sized businesses “that is also likely to burst.”
What does this mean for the US advertising market as a whole? MoffettNathanson’s revised forecast calls for advertising in the United States to grow at a compound annual growth rate of 9% from 2021 to 2025, down from its previous estimate of 13% growth. The top 100 U.S. advertisers will increase spending by 7% over this period, while the “long tail” of small and medium-sized businesses will increase by 10%.
The call is for online advertising growth to be moderate to low double digits over the next few years from the pre-pandemic mid double digit range. TV ad spend is expected to be slightly down in 2023.
A slowdown in online ad spending “was inevitable at some point,” the report says, after overtaking TV’s share of U.S. advertising in 2018. to climb to a 68% share in 2025. Meanwhile, the TV share (including ad-based video-on-demand) will drop from 27% in 2022 to 23% in 2025.
Although MoffettNathaonson has cut his estimates for the advertising market and online advertising, he estimates that what is known as the bottom of the funnel will take the largest share over the next few years, reaching 37% of US ad spend. by 2025, up from 32%. share in 2021.
Company confirms U.S. radio market rebounded in 2021 to $15.9 billion in revenue from $12.8 billion in 2020 impacted by COVID for a 25% year-over-year increase the other. For 2022 and beyond, forecasts call for a 3% annual decline through 2025. MoffettNathanson includes both digital radio assets and traditional assets in its advertising model.
The MoffettNathanson Ad Tracker is based on quarterly analysis of US advertising trends using publicly released quarterly financial results. Its database tracks reported advertising revenue for 43 large-cap, U.S.-listed ad-supported media companies, which totaled approximately $240 billion in advertising revenue in 2021, or approximately 83% of the total advertising market. measured media in the United States.