Microsoft revealed weakness in its advertising business in its latest quarterly earnings report and analyst call. “Advertising spend declined slightly more than expected, which impacted Search and news advertising and LinkedIn Marketing Solutions,” according to Microsoft CFO Amy Hood.
Search and news advertising, which includes Bing, are expected to grow in the low single digits for the rest of the fiscal year, ending June 30, if traffic acquisition costs (TAC) are deducted from revenue. Excluding TAC, the company expects search and news advertising to grow high-single digits.
The story was the same for LinkedIn which posted a 14% revenue increase, despite weakness in advertising that dragged down the gain.
Hood concluded, “LinkedIn and Search will be impacted as ad market spending remains a bit cautious.”
Despite the slowdown, Microsoft has big plans for its ad business. The company said last fall it plans to increase ad revenue from $10 billion annually to $20 billion over an unspecified period of time. If achieved, it would make Microsoft the sixth-largest digital ad seller worldwide.
ChatGPT everywhere, but mum about incorporating it in Bing. “We fully expect us to sort of incorporate AI in every layer of the stack, whether it’s in productivity, whether it’s in our consumer services,” CEO Sayta Nadella told the analysts.
Nadella passed on the opportunity to comment on rumors that Microsoft is planning to integrate OpenAI’s ChatGPT features into Bing Search in the upcoming months. When asked specifically about adding ChatGPT to Bing, he talked instead about implementing AI broadly and incorporating ChatGPT into other Microsoft products.
Microsoft layoffs in perspective. Microsoft announced it would part with 10,000 employees earlier this month, which is about 5% of its 220,000 workers.
While devastating for the individuals affected, the company increased its headcount by 40,000 in 2022, adding 40,000 jobs. That means the equivalent of 25% of those hired in 2022 will be dismissed.
Dig deeper. Read the full earnings statement from Microsoft here.
Why we care. It may not a canary in the coal mine, but Microsoft’s earnings are yet another indication of a softening in advertising spend.
If that’s the case, then theoretically prices should come down, especially for inventory-constrained PPC placements. We’ll be watching to see if that happens.
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