Just how bad is the Q1 ad market going to be?

What do media layoffs and tech worries have in common? Fear about what’s ahead in coming quarters, especially as it relates to advertising revenues.

The advertising business is huge and lucrative. So lucrative, in fact, that for major tech shops, some level of advertising-derived income is unavoidable once they reach a certain scale. Amazon is famed for its mega-scale advertising business (the other side of that coin is here); Apple’s App Store is an ad goliath; Microsoft’s Bing search engine generates material advertising incomes, and the company has even greater ad-focused aspirations; and Meta and Alphabet are advertising-centric businesses by nature.


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Due to major tech companies’ reliance on generating advertising-based revenues, we track the ad market more than we once did. We kinda cannot not, if that makes sense.

Back to media: It’s a bloodbath out there today, with layoffs arriving in droves and some publications straight-up dying. Underlying the cuts, at least per official corporate talking points, is anxiety stemming from an uncertain economic future.

Concern about the macroeconomic environment as it relates to advertising incomes is not new; we can trace it back to Q3 earnings reports if we like, or even earlier if we wanted to get our gumshoes on.

But what matters is that after a number of warning notes from public companies during their last set of earnings, we’re seeing fresh indications that ad-based businesses are looking to lighten their cost structure.

Let’s talk about it.

Warnings, realities

In Snap’s third-quarter analyst call, Barclays’ Ross Sandler asked the company’s leadership about brand advertising being “weak” in the third quarter and being “forecasted to really drop off as we kind of go forward here in 4Q.” Here’s what Derek Andersen, Snap’s CFO, had to say:

Yes, in Q3, the deceleration in revenue growth was really absorbed across both our Direct Response and the brand advertising business, with the Direct Response advertising growing modestly faster than the overall business, while the brand-oriented advertising business declined slightly year over year in the quarter. Then, in Q4, as we look forward, we expect the brand business to play a bigger role in the [deceleration] that we anticipate to occur as we move through the quarter, and that being due to the fact that, number one, the growth rates were very high in the prior year, but also it’s a bigger portion of the business in Q4.

Later in the same response, the executive added that “it’s incredibly fast and easy for advertisers to turn digital performance advertising on and off if they seek to calibrate their investments in their own growth in their business,” making his company’s revenue accelerate or decelerate month to month.

Lessons? Key advertising categories were looking weak heading into Q4 2022, per Snap, and online advertising can be incredibly responsive to corporate growth plans.

Naturally, we don’t want to lean on any single company’s results for a broader picture of a sector. Meta noted “continued macro headwinds” in the third quarter. Alphabet discussed “further pullback in spend by some advertisers across both brand and direct response” when discussing the same period. Investors have sent the value of Big Tech companies — replete with advertising incomes — down sharply in recent quarters.

We knew all of that heading into Q4. What has happened in the last few weeks? Observe:

  • News giant Gannet cut staff, again. It said the cuts, “while incredibly difficult,” were needed to help the company respond “decisively to [ … ] ongoing macroeconomic volatility.”
  • BuzzFeed slashed staff, telling the world that the cuts were designed to “enable BuzzFeed to weather ongoing macroeconomic headwinds and audience shifts.”
  • There were massive layoffs at CNN, where the company was preparing for a worse overall economic picture, something that we know impacts ad spending.

The list goes on — Axios has a good rundown here of other recent cuts at media-centered business, including the ad-powered Roku. This applies to news, streaming content and written journalism; if it is ad-powered, it’s not looking good at the moment, at least from a growth perspective.

So that’s the bad news. Do we have any good news?

Not really

In the wake of its layoffs, BuzzFeed reaffirmed to investors its prior guidance for Q4 2022, saying that it still expects “overall revenues in the range of $129 to $134 million” and “adjusted EBITDA in the range of $12.5 [million] to $17.5 million” for the period. Good stuff, right?

To a degree.

BuzzFeed is worth around $146 million today, per Yahoo Finance data. That means it’s trading at a revenue multiple close to 0.25x, if we take the top end of its Q4 revenue guidance and convert it into an annualized run rate. That’s not the sort of valuation you get when investors think that things are getting better.

Indeed, this post is Q1-focused because we have known that the back half of 2022 was not a great time for advertising incomes. We got lots of information on that from tech giants and other companies alike to understand that point. But with media businesses — carrying a slimmer cash balance than major tech companies, meaning they’re more responsive to advertising market changes — ringing the alarm bell about their cost structures, and BuzzFeed affirming its Q4 guidance after slashing staff to cut future costs, you can infer what the first quarter of 2023 is going to look like.

As someone who works for a publication that generates good incomes from advertising and is part of a larger, also advertising-driven internet giant, this matters to my gig. I am not precisely an unbiased observer. (Worth noting here that I don’t have inside knowledge about TechCrunch’s financial results, let alone Yahoo’s, so please don’t read too much into my comment here apart from the fact that I am watching both out of curiosity and self-concern.) It’s not a great feeling to hear warning shots (earnings) followed by the sound of companies slamming on the brakes (layoffs) as we stare down another lap around the sun.

Just how bad will the Q1 ad market prove to be? The macro uncertainty and headwinds that tech majors noted are hardly going away. And companies that can see a bit into the future thanks to their advertising sales teams are cutting staff. It’s not a pretty picture. Buckle up for a mess.