As economic conditions improve, so too does confidence among advertising executives about their 2024 budget allocations. In this episode of William Blair Thinking Presents, research analyst Ralph Schackart walks through the results of his latest quarterly digital advertising executive survey, including how digital ad spending has changed in recent months and 2024 budget forecasts.

Podcast Transcript

00:00 - 01:33
Chris Thonis
Hi everybody. On today's episode of William Blair Thinking Presents, we welcome research analyst Ralph Schackart, CFA and Partner who specializes in covering the internet and digital media [industry].

He was on as one of our first guests way back when we did an episode on Generative AI. This time Ralph is joining us to go through some of the results of a proprietary digital advertising executive survey that he does every quarter. This quarter was focused majority on the extent of changes in digital advertising budget allocations in recent months, especially given the conflict in the Middle East that arose early in the fourth quarter.

But he's also using the survey to capture notable trending data points expectations around 2024 budgets. As I mentioned, the notable trending data points would be between the third quarter iteration of the survey and the current iteration. Specifically, as it relates to a change in sentiment or a more substantial change in budget allocation. So, with that, Ralph, thank you for joining.

Before we dive in, would love to talk a little bit about what prompted you to start doing the survey in the first place and then just go from there.

1:33 - 2:28
Ralph Schackart
Yeah, for sure. Chris Thanks for having me this morning. Good morning to you as well. So investors often want to get a pulse on intra-quarter spending trends in the digital ad market. So a lot of investors and analysts alike can talk to, let's say, participants that are allocating budgets. And that's a great way to get feedback and checks.

However, we really wanted to be a little bit more thorough, and methodical in our process. So we started a survey about a year plus ago each quarter, and our survey looks at both in-house ad agencies as well as in-house people working at larger enterprises that are controlling ad budgets. And I think what clients have found valuable is not only just looking at the trends in a particular quarter. Sometimes what's more important is just sort of the change and trends and looking at sort of the delta, let's say year over year changes and the derivative impacts that could occur there. So hopefully that gives a little bit of perspective of sort of why we did it and the value it brings.

2:28 - 2:44
Chris T
The big conclusion from this Q4 survey seems to be that there is significantly more confidence to spend digital budgets among advertising executives. Can you just walk through that data a bit and maybe go through some of the key takeaways?

2:44 - 3:59
Ralph S
So we like to look at trending data and see how it progresses. And I'd say through 2023, at the beginning of 23, budgets are pretty weak and coming out of 2023 budgets were stronger. And maybe to put a finer point on that, our survey in the third quarter showed that budgets had continued momentum about 70 plus percent of respondents indicated that their budgets were up compared to the second quarter.

And then when compared to original expectations, interestingly, more than half of the respondents said that the budgets were revised upwards. I think this points to both stats showing positive momentum. As we fast forward to the fourth quarter budgets remain strong. About three-quarters of the respondents said budgets increase in the fourth quarter when compared to the third quarter, and only about 20% or so said the budgets had decreased in the fourth quarter.

Finally, I think really importantly, less than half of respondents indicated that the return on ad spend, or often referred to as ROAS, had decreased and that compared to 60 plus percent in the prior third quarter. This is really important because it shows stabilization in the ad market. When things get really tight in the ad market, the marketers will increase the return on ad spend thresholds to make sure they're getting the most out of their dollars. And the fact that we're seeing it come down is sort of another sort of confirming data point that budgets are moving in the right direction.

3:59 - 4:05
Chris T
Okay. Got it. And then what about looking forward to 2024? Do you mind jumping into some of the findings there?

4:05 - 4:52
Ralph S
Advertisers don't need great macro environments to come back and spend. They just need the the macro environment, let's just say, to be holding steady or maybe in layman's speak, becoming less bad. So as we think about 2024, we were pretty surprised to see that about 75% of our respondents felt that budgets will increase year over year. So that was sort of an interesting data point.

Also, we also like to sort of cross-reference with industry participants who are experts in the space. One person that we spoke with, he monitors about 600 million an annual spend across around 200 companies globally at all major platforms. And he also had a pretty interesting and confirming data point that his total client spend will be up about 20% year over year in 2024 versus about 14% last year.

So again, another confirming data point that shows budget growth in ‘24 as well.

4:52 - 5:27
Chris T
So conflict in the Middle East. We'll touch on this for a sec. It's obviously weighing on a lot of people's minds. In fact, I actually just had a conversation with macro analyst Richard de Chazal all our last month macro about the negative impacts that the attacks by Houthi rebels in the Red Sea may potentially have on inflation.

But based on your data, it doesn't seem like it had much impact on the macroeconomic sentiment among digital advertising executives. If you can, do you mind walking us through some of that?

5:27 – 6:10
Ralph S
During periods of conflicts, what you generally see is an initial pause by advertisers. We certainly saw that in early October with what's going on in the Middle East. However, despite the conflict, about 80% of respondents indicated that the macro environment did improve in the fourth quarter. Also, of those that said, the environment improved, about 40% did indicate that the conflict in the Middle East resulted in some pullback in advertising spend.

That didn't surprise us. You typically see that. However, with that this was interesting. 100% of the respondents who saw the pullback and spent actually returned to budgets. So that is sort of a confirming data point also from our survey that budgets did return in October.

6:10 - 6:14
Chris T
Do you happen to expect that to change? Or is that hard to determine?

6:14 - 6:36
Ralph S
Hard to determine. If you see increased conflicts, you'll probably see some initial pausing. Historically, like I said, conflicts when they occur, budgets pause and then return. If you go back way back to the Ukraine invasion, that also caused budgets to be paused or frozen for a temporary basis. They came back. So history definitely tends to repeat itself in the digital ad market.

6:36 - 6:50
Chris T
So the thread here, we keep coming back to is that there is a lot of confidence in the industry that budgets will continue to strengthen as the economy continues to stabilize. Can you discuss where that budget is likely to go?

6:50 - 7:36
Ralph S
Budgets can definitely ebb and flow in different advertising channels, for example, search, social, connected TV, and other channels. You definitely see that from time to time. Maybe sticking with our survey, more than half of the respondents felt that social was the most important category of digital ad spend in the fourth quarter, and that was up from 40% or so in the third quarter.

I think this speaks to a lot of good changes that are going on in the social channel in terms of performance. Also, when compared to the third quarter, respondents cited both search and social were being cited as being up across the major categories, and this compares to only social spending being up by the major majority of respondents in the previous quarter.

So I think there's a lot of really good performance occurring in social as well, and we expect that to continue through 2024.

7:36 - 7:40
Chris T
Any sense of what's driving the focus on social?

7:40 - 8:04
Ralph S
Yes, there have been many new products that have been impacting this growth, such as messaging services that use gen AI to solve consumer problems, that allow cross-selling and upselling. Also, a general feeling that social channels have worked through recent cell phone targeting challenges. Also a new video format that's really delighting consumers and allowing advertisers to reach audience in a new and really engaging format.

8:04 - 8:22
Chris T
All right. Well, Ralph, that's kind of it. But love to have you here with love to do this again. Maybe the next time you publish your Q1 survey. If anyone is interested in taking a look at Ralph's report, please feel free to reach out to us via our main page at Otherwise, let’s do this again soon.

8:22 - 8:25
Ralph S
Thanks, Chris. Really appreciate it. And I look forward to coming back next quarter.