Microsoft Search and Advertising revenue up 3% amid ad spend drop

Microsoft’s advertising business failed to perform as well as expected in the second quarter of 2023. 

Advertising and news search revenue rose by $86 million – an increase of 3% – including traffic acquisition costs that Microsoft pays to publishers. Meanwhile search and news advertising revenue – excluding traffic acquisition costs – was up by 8%.

The company attributed the increase to higher search volume and its acquisition of Xandr, the ad-buying platform it acquired from AT&T.

However, despite signs of growth, Microsoft noted that these figures are “a bit behind expectations” due to lower ad spend.

Microsoft didn’t report its revenue in dollars (although we will update this article as soon as it does), but did confirm that LinkedIn revenue surpassed $15 billion for the first time in Microsoft’s 2023 fiscal year, following a 5% increase and 7% increase in constant currency.

The company attributed the increase in revenue to growth in Talent Solutions, with some continued bookings impacted from the weaker hiring environment in key verticals.

However, despite the increases, these numbers were still below what had been forecast for Q2 as growth was partially offset by a decline in Marketing Solutions, again, due to lower ad spend.

• “Advertising spend was slightly lower than anticipated which impacted Search and news advertising and LinkedIn Marketing Solutions. For LinkedIn, we expect revenue growth in the low to mid-single digits. Even with share gains in our hiring business, growth will continue to be impacted by the overall markets for recruiting and advertising, especially in the technology industry where we have significant exposure,” said Amy Hood, executive vice president and chief financial officer at Microsoft.

Why we care. Following a slump in demand for digital advertising earlier on in the year, analysts had predicted that Q2 would be a more successful quarter due to continued investment in AI. However, the company’s latest results show that growth was slower than anticipated due to a drop in ad spend. Perhaps those expecting AI investment to deliver instant, more significant revenue results have been too presumptuous.

Earnings report. Read Microsoft’s full Q2 performance report for more information.