Google, Meta and Snap show differing impacts from digital ad efforts
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With the likes of Google parent company Alphabet (NASDAQ:GOOG), Facebook's Meta Platforms (NASDAQ:FB), Pinterest (NYSE:PINS) and Snap (NYSE:SNAP) delivering quarterly reports this past week, the topic of digital advertising was thrust into the spotlight for many investors.
No less than Alphabet (GOOG) Chief Executive Sundar Pichai cited the company's advertising business as one of the main drivers of its better-than-expected fourth-quarter results. Of Alphabet's (GOOG) $75.33 billion in fourth-quarter sales, nearly $62 billion came search, YouTube ads and Google network ads. 
With digital advertising getting so much attention, Stifel analyst Mark Kelley admitted he was "starting our journey in the middle of a storm" as he resumed coverage of eight Internet companies, and started coverage of two others, that are deeply ingrained in the digital advertising market. Kelley called the current digital ad market "challenging", but said he was "selectively positive" about the sector due to the potential for gains by companies in the sector.
Kelley restarted coverage of Facebook's Meta Platforms (FB), Snap (SNAP), Tremor International (NASDAQ:TRMR), Perion Network (NASDAQ:PERI) and Criteo (NASDAQ:CRTO) with buy ratings, resumed coverage of Twitter (NYSE:TWTR), Pinterest (PINS) and The Trade Desk (NASDAQ:TTD) with hold ratings, and initiated coverage of DoubleVerify (NYSE:DV) and Integral Ad Science (NASDAQ:IAS) with buy ratings.
Kelley said that there are several major themes emerging that are likely to have an effect on the digital ad sector this year, such as continuing share gains for digital ads, the increase in retail media and what he called "increasing, but manageable regulatory pressure." 
"We believe [these companies] shares are approaching a bottom on valuations, if the fundamentals of these businesses remain relatively intact," Kelley said. "We also expect to receive a bit of near-term clarity with earnings over the next few weeks."
Based on how some well-know companies in the digital ad space performed this week, it didn't take too long to get a sense of that clarity.
While Alphabet (GOOG) scored with investors following its quarterly results, Meta (FB) was dealt a brutal gut punch by Wall Street, as its shares fell more than 26% on Thursday. The drop--which shaved more than $200 billion off of Meta's (FB) market capitalization--resulted from the company reported weaker-than-expected fourth-quarter earnings, daily and monthly active users, and said its first-quarter sales will come in lower that analysts had forecasts.
Meta (FB) said that is is seeing signs that its sales are being affected by advertising budgets that are tightening up. "We're hearing from advertisers that macroeconomic challenges like cost inflation and supply chain disruptions are impacting advertiser budgets," Meta said, in a statement reporting its fourth-quarter results. 
Still, Kelley said it is far too early to bury Meta (FB). In addition to setting a buy rating and $400-a-share target price on Meta's (FB) stock, Kelley called Meta (FB) "the most scaled and sophisticated digital advertising company we cover," and that advertisers are "pointing to the company's unmatched scale and marketer tools relative to competitors." 
Other Internet-based companies that depend on digital ads for a large part of their revenue saw how sensitive investors can be when it comes to trends affecting their main source of sales.
On Thursday, Pinterest (PINS) saw its shares fall more than 10% as it got caught up Meta's (FB) wake. Snap (SNAP) had it even worse, as its shares gave up almost 24% on the day. Both companies then reported their own quarterly results, and those losses were quickly forgotten.
By Friday, Pinterest (PINS) was up by almost 7% in response to the company saying it was focusing on ways to stabilize its user base and appeal to more creators and those shopping on its site.
Snap (SNAP) showed investors that lumping it in with Meta (FB) and its issues was a mistake. On Friday, Snap (SNAP) shares soared almost 50% after the company reported better-than-expected earnings and sales, and also forecast solid growth for the first quarter of 2022.
"What we are seeing with the growth of our user base overall is that people are coming to Snap for all sorts of different reasons," said Snap (SNAP) Chief Executive Evan Speigel, on a conference call to discuss his company's results. "And then [they are] migrating across our platforms."
Following Snap's (SNAP) results, Stifel's Kelley reiterated it as his top pick among the companies in his digital advertising coverage, and raised his price target on the stock to $50 a share. "The work here isn't done," Kelley said. "[But] in all, we are encouraged by the results."
Wedbush Securities Dan Ives said that when it comes to the companies in the social media and digital ad space, Snap's (SNAP) results put Facebook's Meta (FB) "in an even darker light."