Online ad names see (another) estimate cut at Morgan Stanley
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Morgan Stanley has the latest in what has become a drumbeat of estimate cuts for companies exposed to online advertising, saying the outlook is still "healthier than '09" but worthy of a more pragmatic outlook.
The firm had cut estimates for the companies on June 1, and since then, "signs of a weakening macro ad market continue to grow," writes analyst Brian Nowak. Inflation is still above expectations, he notes; the firm's data show "high and rising" inflation concerns; consumer confidence is low, and the firm's macro teams keep cutting back GDP expectations; and industry conversations indicate "modestly weakening" monthly trends for July vs. June, and June vs. May.
That's led to an across-the-board cut of growth estimates by 3% for this year and 6% for 2023, Nowak said.
Advertising is still highly cyclical, so the link to GDP matters most, the firm says - and now it estimates the online ad markets are now about 70% performance-driven; that is, linked to transactions that drive GDP. Online advertising is more durable than in the last big recession, though, with a "larger, healthier and more sophisticated (less experimental) Search and Display market and mix now than in 2009."
It's cutting estimates on the microeconomic side too, though, saying 2023 EBITDA expectations for Google (NASDAQ:GOOG) (GOOGL) are down by 4%, while it's cutting the EBITDA forecast for Meta Platforms (NASDAQ:META) by 7% for 2023. Snap (NYSE:SNAP) and Pinterest (NYSE:PINS) see even bigger cuts, by about 27% and 15% respectively.
With earnings coming up for all the names, the actual Q2 figures won't matter much to driving post-report outperformance, Nowak suggests; "more important will be how the market feels about the achievability of â23 estimates."
His preferred pick in online ads for the coming 12 months? Meta Platforms (META), which has taken a beating this year, and his $280 price target implies 59% upside.
Meta is likely to see less revision risk than other names, having already seen cuts based on Reels issues. Google (GOOG) (GOOGL) presents about 25% upside, though there's not much micro level investor tension (as it looks like the most owned in the group). Snap (SNAP) has about 20% upside as the best positioned and most undermonetized "SMID-cap" online ad platform, Nowak says.
A target of $18 for Pinterest (PINS) implies about 14% downside, with traffic data pointing to higher risk of its bear case playing out.
One recent note in a long series of cutbacks to ad-industry estimates came from Stifel, also tied to its macro estimates for slower GDP.