UBS cuts digital ad growth forecast to 4.5% from 9%

On Monday, UBS analysts provided insights from their first-quarter 2025 Ad Expert Call, signaling a more cautious outlook for the digital advertising sector. The firm revised its year-over-year growth expectations for digital ad budgets down to 4.5% from the 9% projected in December. This adjustment comes as certain clients in retail, e-commerce, consumer packaged goods (CPG), and travel are reportedly pausing or shifting their budgets towards performance-based spending. For context, Alphabet (NASDAQ:GOOGL), a dominant player in digital advertising, has maintained robust revenue growth of ~14% over the last twelve months, significantly outpacing the broader market. InvestingPro data shows the company holds a "GREAT" financial health score, with multiple positive indicators available to subscribers.

The analysis indicated that advertisers are particularly reducing their budgets in connected TV (CTV), linear TV, and the open web, where measurability of ad performance is a challenge, as opposed to search advertising, which tends to be more direct response (DR) heavy. Furthermore, the overall ad spend growth was noted to be flat to up 1% year-over-year, falling short of the previously projected 2%. This trend echoes the early days of the COVID-19 pandemic, with sectors like entertainment, travel, and retail becoming less aggressive in their advertising spend, especially for brand advertising. Despite market uncertainties, Google maintains strong fundamentals with a healthy gross profit margin of 58.2% and robust cash flows that easily cover its obligations, according to InvestingPro analysis.

The expert cited by UBS observed that although consumer spending continues, there are now longer lead times for higher-priced items. Additionally, there appears to be a shift in consumer behavior towards more price-sensitive options. This suggests a potential change in strategy for advertisers as they navigate a more frugal consumer landscape.

The current market sentiment, as described by the UBS expert, reflects a cautious approach by advertisers, with a focus on optimizing spend in the face of uncertain economic conditions. The shift towards performance spend and the observed consumer behavior changes could have implications for the advertising strategies of companies across various sectors.

In other recent news, Alphabet’s financial outlook has been under scrutiny as Cantor Fitzgerald maintained its Overweight rating for the company with a price target of $200. The firm highlighted risks such as potential impacts from the ongoing Search trial, uncertain returns on AI investments, and a possible macroeconomic slowdown affecting revenue from YouTube and Search. Despite these concerns, Cantor Fitzgerald remains optimistic about Alphabet’s capacity to manage these challenges. Meanwhile, Alphabet’s self-driving unit, Waymo, plans to launch a fully autonomous ride-hailing service in Washington, D.C. in 2023, pending legal adjustments for operating without a human driver.

Additionally, Google has introduced an AI-powered search feature to Gmail, enhancing the relevance and speed of search results for users. This feature is being rolled out globally and is expected to improve email retrieval efficiency. In regulatory matters, Google’s Senior Director of Competition, Oliver Bethell, criticized the European Union’s competition rules, arguing that they negatively impact consumers and businesses by hindering innovation and security. Bethell expressed concerns about additional changes required by the EU, which he claims could reduce traffic to European businesses and expose users to more risks. Despite these criticisms, Google intends to continue engaging with the EU and comply with its regulations.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.