A growing digital ad market is benefiting giants like Meta and smaller players like Reddit
Jaque Silva | Nurphoto | Getty Images
The digital advertising market is doing so well that even Reddit is getting a cut of the spoils.
Reddit on Wednesday reported fourth-quarter revenue of $428 million, which was up 71% from the previous year and represents the fastest growth rate for any quarter since 2022. Although Reddit’s shares tumbled on weaker-than-expected user numbers, the company’s growing sales indicate a particularly healthy digital ad market, said Jeremy Goldman, a senior director at Emarketer.
Investors typically look to the financial performance of tech giants like Meta, Alphabet and Amazon for a view of the ad market’s overall health, Goldman said. That Reddit’s sales grew significantly alongside the bigger players shows that advertisers feel optimistic enough to “diversify to a platform that’s more nascent, like Reddit, and say ‘We’re willing to throw some dollars at this thing that don’t really understand,'” Goldman said.
Media and advertising executives told CNBC in December that they were optimistic about the market and said that ad spending increased in the fourth quarter. That sentiment seemed to be reflected by online ad tech companies’ latest quarterly earnings reports, said Gil Luria, head of tech research at investment banking firm D.A. Davidson. He added that “animal spirits are high” following the U.S. presidential election.
For its fourth quarter results, Meta said sales were $48.39 billion, up 21% from the prior year. Microsoft said its fiscal second-quarter search and news advertising revenue soared 21% year over year, although it doesn’t provide specific sales numbers. Amazon said its online advertising business grew 18% year-over-year to $17.29 billion in the fourth-quarter earnings, and for its fourth-quarter results, Alphabet said its Google advertising sales grew 11% year over year to $72.46 billion while YouTube’s ad revenue rose 14% to $10.47 billion.
“Advertisers feel like consumers are susceptible to advertising and are investing in that,” Luria said.
Luria noted that while Google is the dominant online advertising business, it’s losing some market share as its core search engine is increasingly challenged by other companies investing in artificial intelligence and related services like ChatGPT.
“They are the biggest digital advertising platform by quite a bit of margin, but a lot of that is based on search, and their search franchise is continuously being eroded,” Luria said. “It’s being eroded by Amazon, being eroded by Meta, being eroded by the AI players.”
Fortunately for Alphabet, YouTube is still booming, Luria said.
YouTube is “becoming such an important media destination that the momentum there is greater than what you would just see from the advertising growth,” said Luria. He noted that some creators have migrated to YouTube amid the TikTok ban.
The uncertainty over TikTok’s future in the U.S. has yet to impact advertisers who are still running campaigns on the ByteDance-owned platform, said Kate Scott-Dawkins, the global president of business intelligence of media investment firm GroupM.
If TikTok eventually does get banned in the U.S., Scott-Dawkins said she expects Meta and Alphabet would inherit much of those ad dollars but noted Snap, Pinterest and others could also pick up scraps.
Snap and Pinterest also reported their fourth quarter results last week. Pinterest said its sales jumped 18% year over year to $1.15 billion while Snap reported $1.56 billion in revenue for the period, marking a 14% increase from the previous year.
But not every digital advertising player had good results for the quarter.
Despite ad tech company The Trade Desk on Wednesday reporting a 22% year over year increase in fourth-quarter sales to $741 million, that figure came in below Wall Street estimates, which sent shares tanking. CEO Jeff Green attributed the miss to “a series of small execution missteps” during an analyst call.
Although companies are pumping money into digital ad platforms, there’s a chance that high inflation, tariffs and weaker economies outside of the U.S. put pressure on the ad market, experts said.
High tariffs and new trade policies could result in Chinese-linked retailers like Temu and Shien slowing down their massive digital advertising campaigns with giants like Meta and Alphabet, Luria said. But even if those Chinese-linked retailers curb spending, it’s likely other advertisers take their place, Luria said.
It’s possible that AI startups like OpenAI, Anthropic and others could eventually become major ad spenders, Scott-Dawkins said. It’d be similar to how older tech companies like Airbnb and TikTok once grew their users via Facebook and Google. OpenAI debuted a Super Bowl commercial last week, which could be an indicator of more ad spending to come, she said.
Watch: I’d buy Amazon over Meta, says Hightower’s Stephanie Link
Technology
Tesla’s Model Y debuts in India priced at a hefty $70,000 as the EV maker ‘tests the waters’
In this photo illustration, logo of Tesla is displayed on a mobile phone screen in front of the Indian flag in Ankara, Turkiye on November 28, 2023.
Cem Genco | Anadolu | Getty Images
Tesla has made its long-awaited debut in India, where it will sell its electric SUV, the Model Y, starting at $69,770, a significant markup from other major markets, its website showed Tuesday.
The sales launch comes the same day the American electric vehicle maker opened a showroom in Mumbai, its first in the country.
Isabel Fan, Southeast Asia Director at Tesla, also announced that the company would soon launch a showroom in the Indian capital of New Delhi, according to a report from CNBC-TV18.
The report added that Tesla would hire staff locally and set up experience centers, service centers, delivery systems, charging stations and logistics hubs throughout the country.
There has long been speculation about when Tesla would enter India, the third-largest automotive market in the world by sales. However, the high price tag may come as a surprise to many. For example, the Model Y starts from $44,990 in the U.S.
Why are prices so high?
Vaibhav Taneja, Tesla’s Chief Financial Officer, in April, confirmed the company’s interest in India but said it would take a careful approach to the market considering its 70% tariff on EV imports and about 30% luxury tax.
These high taxes explain why Tesla was forced to set its prices so high in India, despite the country’s preference for EVs at much lower price ranges.
Experts told CNBC that this will see Tesla in India compete in the premium segment of the market with the likes of BMW, rather than with local EV companies like Tata Motors.
“I won’t say that these prices are completely out of range because you will find buyers in India for all price points,” Vivek Vaidya, global client leader for mobility at research firm Frost & Sullivan, told CNBC’s “Inside India” on Tuesday.
“The question is whether they are going to threaten the mass market. The answer to that is no because the most popular selling cars probably sell at one-tenth of this price,” he added.
Testing the waters
While the Model Y will struggle to be price competitive, Tesla is likely more focused on “testing the waters” than generating sales in India, Puneet Gupta, Director for the Indian automotive market at S&P Global Mobility, told CNBC.
India first announced a new EV policy last year that promised to reduce duties for companies that commit to building up a local supply chain. While this could help Tesla push its prices down, the company has yet to commit to building any local manufacturing plants in India.
“The Mumbai showroom is a strategic ‘soft power’ move, not a full commitment,” Diwakar Murugan, automotives analyst at Canalys, told CNBC in a statement, adding that Tesla’s hesitation in India is pragmatic, as the market still lacks the demand to justify a large-scale manufacturing facility.
“Shifting a significant portion of its production to India would require a major re-evaluation of its global manufacturing strategy, something it’s not ready to do while its primary focus remains on scaling production in its established markets,” he said.
Murugan predicted that Tesla may only commit to full-scale Indian manufacturing between 2028 and 2030, with incentives like land subsidies and tax holidays, as well as the maturity of the local battery market expected to be important factors.
In the meantime, the Model Y will be a “niche, limited-volume product for wealthy, tech-savvy early adopters who seek a status symbol,” he added.
S&P’s Gupta noted that India’s tariffs on EV exports could also soon change as a result of ongoing trade negotiations between Washington and New Delhi, as well as further tweaks to its EV policy.
Tesla CEO Elon Musk spoke with India’s Prime Minister Narendra Modi on topics including collaboration on technology and innovation in April.
“The Indian government has been very proactive in terms of pushing green, cleaner, electric cars, and I think that Tesla has a clear advantage due to the India-U.S. relationship,” Gupta said.
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