Morgan Stanley cuts online ad/commerce estimates - but sees heavy upside for blue chips
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Morgan Stanley has given its take on the Internet macroeconomic slowdown story, cutting estimates for online advertising and e-commerce amid a growing risk of recession - but is staying upbeat, still expecting heavy upside from its blue-chip choices in the space.
A warning about macro deterioration from Snap (SNAP) hit not only its online advertising-focused peers but the larger market amid worries about recession. And Morgan Stanley cites "micro and macro uncertainty" leading to a more conservative base case on online ads and e-commerce, analysts including Brian Nowak write.
The firm's U.S. Economics team cut its outlook for GDP and personal expenditure growth for the second half and 2023, and it says the chance of a recession has risen from about 5% at the start of 2022 to about 35% now - but still expects growth.
Still, a slowdown in consumer products spending is relevant as the space drove some 50% of online ad growth in recent years, the firm says. Meanwhile, signs of softness are showing up in Europe, and Alphabet (GOOG) (GOOGL) has been speaking frequently about the cyclicality of its ad business.
The firm is lowering models for digital ads and e-commerce by about 1-4% across the board, now expecting year-over-year online ad growth of 13% and 16% for 2022 and 2023, and e-commerce growth of 8% and 10% respectively.
Some of that, though, may be mean reversion after a "white-hot" 2020-2021, Nowak and team write, and blue chips like Meta Platforms (FB), Amazon.com (AMZN) and Alphabet (GOOG) (GOOGL) have "30%-plus upside from depressed levels."
"We expect investors to return to blue-chip names like these first if/when inflation fears subside and the consumer (hopefully) holds on better than feared," the firm says. It's cutting EBITDA expectations for those three by 1-4%, and cutting Snap (SNAP) and Pinterest (PINS) by somewhat more.
Still, even though Snap will require "multiple quarters of consistent execution and messaging to regain investorsâ trust," Morgan Stanley still sees about 74% upside.
It's cut its price target on Amazon.com to $3,500 from $3,800, now implying 43% upside in the stock. A cut in its GOOGL target to $3,000 from $3,270, implying 32% upside.
Meta's (FB) target goes to $300 from $330, implying a hefty 57% upside. The firm stays Overweight on Snap (SNAP), with a new price target of $24 suggesting 74% upside from here. And it's got an Equal Weight rating on Pinterest (PINS), with a price target cut to $21 from $28 implying 11% upside.
In a mostly flat to lower market Wednesday, Amazon.com (AMZN) is up 2%.
In related news, Meta (FB) is finally set to get its non-Facebook ticker, switching to META in the coming week.