After warnings, digital ads' second quarter could have been worse - Bernstein
Artur

Earnings season in the digital-advertising space is behind us, and it could have been worse, Bernstein Research observes - but it has more new questions than answers following the reports.
The second quarter is unlikely to change a bearish narrative in the space, analyst Mark Shmulik says, despite some surprises - such as "Meta (NASDAQ:META) going ex-Growth," and employee counts actually rising despite widespread hiring freezes.
There were five key takeaways from the season's prints, Shmulik said - leading with the fact that digital ad spending growth is slowing down broadly, for everyone in the space.
"More surprisingly, the growth range for our coverage was tightly bound pointing to underlying macro-conditions - digital ad spend slows on a lag to eCommerce - as the likely culprit, compounded by the continued effects from Apple's IDFA changes," he said.
Even so, there was a bit of performance divergence as companies pointed to a slowdown in one group of advertisers - "which we read to mean unprofitable tech with rising cost of capital."
Shmulik isn't yet sure how cyclical digital advertising is, but he will take the step of saying that search advertising is more defensive, noting strong performance from Google Search (NASDAQ:GOOG) (GOOGL) and Amazon ads (NASDAQ:AMZN), which indicate "(1) price conscious consumers accelerating product search queries seeking better deals and (2) advertisers continuing to shift spend to bottom-of-funnel with known consumer intent."
As for everyone's race to catch up to TikTok (BDNCE), "short-form video is a self-inflicted headwind in a soft market," Shmulik said. The players are seeing pressure on near-term revenues as they ramp up in the space - Reels from Meta (META), Shorts from YouTube (GOOG) (GOOGL), Spotlight from Snapchat (NYSE:SNAP), and Idea Pins from Pinterest (PINS). All of those are seeing some strong engagement growth but with limited ad load.
And his message to investors is "users don't care about your feelings." In another year, "we'd be impressed by the user growth everywhere outside of Pinterest (PINS)." Social-media names haven't given back quite as many pandemic-fueled gains as expected, he said.
Shmulik has Outperform ratings on Alphabet (GOOG) (GOOGL), Amazon.com (AMZN), Meta Platforms (META) and Snapchat (SNAP), and Market Perform ratings on Pinterest (PINS) and Twitter (TWTR).