Forecasts of online-ad growth may be shaky

NEW YORK — Weak results from Google, Snap and other big sellers of online ads are raising concerns that Wall Street’s optimistic growth forecasts are setting investors up for rude surprise this year.

Google, which dominates the $270 billion digital advertising sector, recently disappointed Wall Street when its 8.9% fourth-quarter ad revenue growth fell short of expectations. Snap, which owns social media app Snapchat and relies heavily on advertising dollars, reported discouraging revenue for its most recent quarter.

The misses have raised concerns that Wall Street’s forecast of up to 14% growth in digital advertising in 2024 may be too rosy.

“Alphabet’s disappointing ad revenue numbers suggest that corporations worldwide are still uncertain about the pace of interest rate cuts from global central banks, thus keeping some powder dry while waiting for more clues before opening up their wallets,” said Thomas Monteiro, senior analyst at Investing.com.

Alphabet had its biggest daily stumble since late October, following the disappointing ad revenue figures for its most recent quarter. Advertising makes up for the bulk of the company’s overall revenue, which was $307.4 billion in 2023.

Digital advertising has made up the majority of overall ad spending since the turn of the decade. It accounted for three-quarters of all media ad spending as of 2023, according to FactSet. That’s up from 55% in 2019 and 13% in 2008. It has been a steady shift away from more traditional media, such as television and print.

Various analysts set forecasts for digital advertising growth to accelerate to about 14% this year from just under 10% last year. But concerns about companies cutting back on spending in an uncertain economy have raised doubts about those forecasts.

The U.S. economy remained strong in 2023. The Fed, though, has signaled that it will likely not cut interest rates until the middle of the year. High rates make borrowing more expensive for businesses. That pressure is mixing with uncertainty about continued economic growth.