Big Tech's advertising: Is there space for smaller players?

After Big Tech earnings proved digital advertising to be more vital than ever and mega-cap tech companies invest heavily into AI, where do smaller players like Snap (SNAP) and Pinterest (PINS) fit into this picture?

Yahoo Finance Tech Editor Dan Howley gauges whether Wall Street is expecting too much from Big Tech's advertising revenues.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Luke Carberry Mogan.

Video Transcript

RACHEL AKUFFO: Well, a rising tide is meant to lift all boats. But that doesn't seem true for the advertising market. Industry giants like Meta and Amazon seem to be reaping the benefits of an ad recovery. Meanwhile, Snap and Pinterest saw their stocks under pressure after their latest earnings reports pointed to slower sales. Here to break down the key differences between these companies is our very own Dan Howley. Hey, Dan.

DAN HOWLEY: Hey, Rachelle. Yeah, I think the big takeaway here is that the big guys are getting bigger. And the little guys are kind of struggling to keep up with expectations. If you look back at Alphabet, which, by the way, did miss on expectations for its ad revenue despite, you know, very good-- strong growth in performance, overall, it did take a hit as a result of that.

But if you look at Meta, blew away expectations. It also didn't hurt that they have that dividend as well as the buyback boost that they had had for that $50 billion. And then Amazon, which has an ad unit that really has continued to grow and become a formidable force in that space, you know. Then you take a look at what Snap and Pinterest did, two, you know, big companies but relatively small potatoes compared to those other three.

They're just not really hitting what analysts are hoping for. Now, they did beat Pinterest, did beat on revenue but missed on earnings. And so I think excuse me, missed on revenue and beat on earnings. I think that that's something that, you know, they're looking to the kind of Amazon deal and the Google deal to really boost them and their ability to get ads out.

They said during their earnings call that the monetization for the global market where the vast majority of their users are just isn't really where they want it to be. And so the idea is for this Google deal and the existing Amazon deal to kind of help with that.

Now, as far as Snap goes, well, they're continuing to deal with issues as well. They had their failed efforts with the drone that they had. They recalled that. That's no longer for sale. And then while they're growing users, yeah, they just missed on revenue expectations for an outlook for the quarter.

So I think the thing that you have to look at for those smaller companies is maybe Wall Street is just expecting too much out of them when they see what other companies-- the larger companies are doing. And I think it's also worth pointing out, you know, the downturn in the ad market happened, the bigger guys had a leg up.

There was the kind of dual problem of higher interest rates as well as Apple's App tracking transparency. And that-- you know, I brought that up several times. It's kind of kneecapped Meta at the time in particular.

But since then, they've been able to reconfigure their advertising moves and have overcome both of those issues. Now, Snap also at the time had pointed out that that was a problem. Seems like it might not be as much anymore. But overall they just don't seem to be able to meet what Wall Street expects of them for the ad market.

AKIKO FUJITA: Yeah, Dan, it feels wrong, right, to call a company that has an $18 billion market cap a small company, like snap. But it feels like we are seeing that divergence to your point. If we're talking strictly on ads, it's sort of the bigger companies that have scale like a Meta getting even more lucrative, getting bigger and bigger, and then some of those other companies being left behind. I mean, is that where this trajectory is going?

DAN HOWLEY: It looks that way, right? And I think, you know, obviously things could change up, you know, if interest rates start falling further. Obviously, that's not expected in the near term. But it could improve the ad market overall. And perhaps, we will see kind of a coming together of the ad market again where it's everybody doing incredibly well.

But, yeah, I think-- imagine you're a small company. You know, you're looking to advertise on a platform. Are you going to go for the best bang for your buck, which is usually Meta or Google? Or are you going to go to a Pinterest or Snap? Now, I guess it depends on what obviously you're selling. But generally, I mean, I would think that most people would go for a larger platform like a Meta.

AKIKO FUJITA: All right. We'll continue to watch that story play out. It's certainly been an interesting earnings season so far for some of those names. Dan Howley, as always, thanks so much for that.