YouTube’s shrinking ad business is an ominous sign for the battered online ad market

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

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

Alphabet’s overall revenue growth drastically declined from 41% a year ago to 6% in its latest quarter, underscoring how fears of a looming recession has caused companies to cut back on their advertising and marketing campaigns. Indeed, Alphabet 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 Q3 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 poor economy, the company said in a letter to investors.

Microsoft also reported a slowdown in its online advertising business on Wednesday.

Its search and news advertising business (including Bing and Microsoft News) reported sales growth of 16% in the September quarter (Q1 of its 2023 fiscal year), far below the 40% revenue growth it reported a year ago during the same quarter. Indeed, the growth rate of that business has been shrinking each quarter of the past year, coinciding with the general downward trajectory of entire online advertising marketing.

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

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

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