Per Trefis estimates, Alphabet’s (NASDAQ:GOOG) advertising revenues are likely to reach $211 billion by 2022 despite regulatory challenges and increased competition. The growth is likely to be driven by Google’s massive reach, utility value as a free online search provider, quality of search results as well as complementary digital assets (such as YouTube and Android). While regulation may hamper growth in the near term, Trefis estimates that Google’s net advertising revenue could grow at a CAGR of 16% between 2018 and 2024 to reach $243 billion in 2024 from $116 billion in 2018.
Google’s revenue has growth at a CAGR of 21% over 2016-18 to reach $116 billion in 2018 from $79 billion in 2016.
In addition to traditional search, Google has benefited from growth in YouTube and its Android operating system.
While Google has not had luck with its social initiatives (Orkut and Google+), the company continues to benefit from strong growth rates owing to its reach and data mining capabilities.
2018 has been a transitional year for traditional online advertisers due to privacy-related concerns, with EU and the U.S. either imposing or planning to impose multi-billion-dollar fines on the likes of Facebook and Google.
Other traditional online advertisers have also seen growth cool-off due to a variety of issues including consumption weakness, transitions in business model and geopolitical narratives.
Besides Google, the companies that have seen an acceleration in growth are Twitter, Facebook and Microsoft.
Twitter has benefited from its initiatives towards improving platform health like pruning bots and culling fake news with the aim of improving advertiser ROI.
Facebook, despite the Cambridge Analytica scandal, claims to have access to 2.7 billion unique users. While advertisers continue to approach Facebook to benefit from the company’s massive scale, the company has also benefited from WhatsApp’s reach as well as from commerce capabilities on Instagram.
Microsoft has been steadily growing its advertising income, as the integration of its different platforms now provides the company with additional analytics ammunition, especially in LinkedIn and Bing.
What to Expect Going Forward
Product changes: In its recent Q1 earnings call, Google called out weakness in YouTube clicks due to product changes in response to stricter privacy regulations globally.
Loss of budget to competitors: We note that Amazon has witnessed strong growth in its advertising business on the back of its capability to convert search into actual product fulfillment. This has led to many advertisers shifting their budgets away from traditional search advertising to Amazon.
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