Equity analyst Ralph Schackart breaks down findings from his team’s quarterly digital advertising executive survey, including the continued improvement in confidence among advertising executives as it relates to go-forward budgeting, the increased importance of video and search in online ad strategies, and the anticipated impact that recent regulations will have on which social media platforms ad executives plan to use in the future.

Podcast Transcript

Chris Thonis
Hello everybody. On today's episode of William Blair Thinking Presents, we welcome back research analyst Ralph Schackart, CFA and partner, who of course specializes in internet and digital media. He's joining me once again, this time to discuss results from the brand new digital advertising survey that he does every quarter. Ralph, welcome back. I wanted to kick things off by reminding the audience what the purpose of the survey is. I figure that might be a good place to start. And then from there, let's talk about who takes a survey and then what you're looking for each quarter, and then we'll move into the actual results.

Ralph Schackart
Yeah. For sure. Thanks for having me back, Chris. Great to be here. So, our proprietary survey that we conduct each quarter has about 80 or so advertising executives. And they can either work at a large agency or in-house at a corporation in a marketing or advertising role. But the basis for it is they have to have control or discretion over the budgets. Really the purpose here is to better understand the extent of changes in budget allocations in recent months. You know, sort of think about how do we capture updated expectations for 2024 budgets and also look for anything notable in terms of, trending data, between the fourth quarter that we ran it and then more recent iteration.

So, we've got a number of interesting takeaways from this one. I figured we could start first with confidence in go forward budgeting. And then, the continued sequential budget increases through the first quarter. From your point of view, what would be some of the big takeaways there?

Sure. Unlike in the third quarter, where the majority of respondents indicated that budgets for the quarter were revised upwards against the original plan. 67% of respondents indicated that budgets increase sequentially in the fourth quarter, and about 57% or so respondents also indicated that budgets were in line with the original expectations. Also, it's probably worth noting about 63% of the respondents this quarter indicated budgets increased in the first quarter when compared with the fourth quarter, which is a good sign, and only about 15% or so respondents indicate that budgets had decreased in the first quarter compared to last quarter.

And not only all that, but you found, the majority of respondents continue to expect 2024 budgets to increase against 2023, which seems like a good sign for the sector. What's your take overall there? In that regard?

Yeah, for sure. So about 54% or so, as you highlighted, respondents indicated that they expect their, fiscal 2024 budgets will increase against 2023 budgets. So that's a positive sign. And the majority of respondents also held this view in our fourth quarter survey iteration, more respondents in the fourth quarter about 75% or so, felt their budgets were an increase on the year over year basis.

So, my guess that gap closed because people had already increased budgets as we moved into 2024.

Overall, I think this just points to the overall health of the industry returning to growth after a very prolonged period of pullback in the digital advertising market. And my guess is each iteration, assuming that the economy just sort of holds neutral, will continue to see these, trends going forward.

Let's talk a bit about search and video becoming more important for Ad execs as it relates to their broader online ad strategy. I thought that this was an interesting finding. Do you mind just diving a bit into what you think is driving this?

Yeah. Of course. So, each quarter we asked the respondents, what's the most important digital ad vertical to your overall digital ad strategy? This quarter, interestingly, we found that search and video had increased by the respective respondents, and they are now viewed as the most important channel.

I didn't ask the question specifically whether it was search or video. But my best guess what's driving this shift is the new gen AI Tools that are offered by the larger platforms. And also, what we're hearing, when we talk to other people in the industry, is that the gen AI technology allows a small medium business to create professional grade video, and then also turn that professional grade video into a direct response ad.

So at the end of the day, it may be a buy now button and maybe an offer for a full trial. So, what's also interesting here is historically, SMBs or small medium businesses, did not run video ads in mass because it was just too expensive. And now the automation tools are allowing them to basically find a new, effective way of advertising.

Interesting. I didn't realize automation was having that impact.

The survey also found that ROAS targets, which, for those who don't know what that is, it's the average conversion value for each dollar you spend on ads. They're continuing to stabilize. Do you mind jumping to that data really quick?

Yeah. Of course. So, we saw this metric spiked during sort of the depths of the pullback within digital advertising a year plus ago. And then it's consistently sort of stabilized each quarter. And looking more specifically this quarter, only about 44% of respondents indicated the ROAS targets had decreased in the last few quarters, compared about 47% from last quarter.

So, I think just another sort of reaffirming data point that we continue to see signs of stabilization in the ad market.

All right, so then to close this out, let's talk a bit about TikTok and regulatory concerns. So, in your survey, you found a majority of ad execs are using the channel for advertising. And for those that are, these regulatory headwinds are not a concern. Do you mind digging into that a bit?

Sure. So, we were kind of surprised only about 45% of respondents for this survey are currently using TikTok for advertising and for those that are, just about more than half of them indicated that the recent regulatory pressure would not cause them to pull any ad budgets out. So, I don't know what's going to happen with the regulatory environment, but if there was a change in legislation, there would be very suitable platforms at scale that would be able to take these budgets on

All right, well, Ralph, that's all the time we've got today. If anyone is interested in taking a look at Ralph's report, feel free to reach out to us via our contact page at WilliamBlair.com/Contact-Us. Otherwise, let's do this again soon.