Online advertising feeling the weight of macro concerns in 2022 - MKM
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Online advertising names - the well-known Internet giants including Alphabet (GOOG) (NASDAQ:GOOGL), Meta Platforms (NASDAQ:FB), Twitter (NYSE:TWTR), Snap (NYSE:SNAP) and Pinterest (PINS) - are facing rough macroeconomic seas ahead, MKM Partners says, and it's cutting back on estimates heading into Q1 reports accordingly.
"We believe online advt. companies are facing four incremental macro headwinds: (1) direct impact of the Russia/Ukraine war; (2) indirect impact and potential contagion from the war into Europe; (3) soft brand ad spend, particularly around geopolitical content; and (4) likely impact from soft consumer spend in Europe, driven by inflation and higher oil prices," analyst Rohit Kulkarni says.
The ad market outlook at home could moderate by 1% based on the Ukraine conflict, and MKM sees potentially more impact on Europe's ad market, Kulkarni notes.
Ad spend accelerated globally in 2021 amid reopening and the ongoing secular penetration of online advertising, the analyst says. For 2022, there should be a slowdown, particularly in the first half, driven by tough year-over-year comparisons - and U.S. spending should slow down to 9-11% growth. (In the second half, as comparisons ease, that should accelerate - and midterm elections should add some 2% of incremental spend, the firm says.)
Industries expected to spend more on advertising this year include Technology, Telecom, Media & Entertainment, and Travel; industries expected to pull back (on supply chain/inflation justification) are Auto, Real Estate and Consumer Products.
Accordingly, MKM is cutting 2022-2023 revenue expectations for Alphabet (GOOG) (GOOGL) by 1%, and operating income by 2%. For Meta (FB), it's cutting revenue estimates for 2022 by 3% and for 2023 by 8%, and earnings per share by 6% and 15% respectively. And for Pinterest (PINS), it's cutting 2022 revenues/EBITDA by 1% each, and 2023 revenues and EBITDA by 7% and 8% respectively.
It's also cutting price targets on a few names. On GOOGL, it's a slight haircut to $3,300 from $3,375, implying 30% upside. For Meta (FB), it's dropping target to $315 from $365, implying 50% upside from here. And for Pinterest (PINS), it's cutting its target to $38 from $42, implying 71% upside.
The company has Buy ratings on all the names except Twitter (TWTR), where it's Neutral. It's leaving its SNAP price target unchanged at $47, implying 42% upside. And its Twitter target is also unchanged, at $49, implying 9% upside.
Twitter's (TWTR) takeover drama goes on: Billionaire Elon Musk is reportedly considering bringing in partners on a hostile bid for the company.