Barclays analyst Ross Sandler acknowledged that investors were "rightfully wary" about the trajectory of digital advertising growth in 2022, especially into Q2 earnings.
In 2022, TikTok looks to ramp from $4 billion to upwards of $12 billion in ad revenue (ex-China) and runs ahead of plan based on Barclays' channel checks. Apple also tip-toed into the digital ad space and ramped revenue to over $7 billion.
Given the deceleration in overall spending, he saw the two players capture 1/3rd of every incremental dollar in 2022, breaking the past trend by the Alphabet Inc (NASDAQ:GOOG) (NASDAQ:GOOG) Google, Facebook rebranded Meta Platforms Inc (NASDAQ:META) and Amazon.com Inc (NASDAQ:AMZN) trio.
Sandler believes a "perfect storm" is here given the step-down in spend and conversions across the whole internet ecosystem in Q2, an "ascending trajectory" from new challengers like TikTok and Apple, and the obvious tough comps.
He thinks this "cocktail of events is likely to generate the lowest growth rates for the sector in years." However, stock valuations already reflect some of this, contends Sandler.
Sandler cut the price targets of three major social media companies citing broad-based economic weaknesses and re-rating among the tech universe.
Sandler cut the price target on Meta to $280 from $370 and reiterated an Overweight. He lowered the price target on Pinterest, Inc (NYSE:PINS) to $20 from $24 and maintained an Equal Weight. Sandler also slashed the price target on Snap Inc (NYSE:SNAP) from $42 to $20 and maintained an Overweight.
Sandler picked Facebook as likely to trade up T+1, given its consensus EPS being closest to the right level. He noted that the multiples had compressed over 30% from December and over 20% from pre-pandemic levels (except GOOG), leading to the pricing in of the bad news.
He saw multiples for large-cap internet compressed 50% in 2009. Therefore, depending on the severity of the current cycle, he saw them well over halfway there.
Price Action: META shares traded higher by 1.91% at $163.09 on the last check Tuesday.
Photo by olivier-bergeron via Unsplash
