Barclays warns eager buyers of a digital ad letdown: See their take on the leaders
anyaberkut/iStock via Getty Images


Expectations for the digital ad giants are heavy in 2022, but Barclays is warning of some heavy buy-side forecasts that may leave buyers disappointed with slower growth.
The firm notes that the consensus forecast is for Google (GOOG, GOOGL) to grow revenues 17% this year, and for Meta Platforms (NASDAQ:FB) to grow by 21% - and a "similar cadence for 2023." And buy-siders are likely expecting better than that.

"We are increasingly concerned these flagship names may disappoint looking ahead based on the massive penetration gains that digital advertising has realized in the past 18 months," analyst Ross Sandler and team write.
Checks for Q4 have been pretty upbeat, but "this is more of a macro call, not based on near-term trends," the firm says.
Every few years the firm says it asks itself "At what time is digital advertising going to drop below 20% growth permanent, simply because the penetration rates are too high and there simply isnât any more meaningful areas for dollars to shift over?â And amid discussions over whether Facebook ads are the "new rent," Barclays is looking to some historical examples as a proxy.
As a model, it cites Google growth rates from 2010-2016 in the UK - the highest digital ad market by penetration. After crossing into the mid-30% range in penetration, despite all the innovation in mobile ads at the time, Alphabet was only able to grow in the mid-teens.
Now, after a couple of years of demand pull-forward spurred by the global COVID-19 pandemic, today's digital ad penetration sits around mid-60% worldwide, Barclays says. And while the first half of this year will be artificially lower growth due to well-understood tough comparisons, the real "disappointment could materialize" in the second half and in 2023.
Barclays is also concerned that TV could see a "mini-renaissance" this year and take some share back from digital channels (outside of YouTube (GOOG, GOOGL)).
There is a "mega-trend" that could offset the headwinds, the firm argues: Given the shift of ad budgets toward "value-based automation" at Google and Facebook, channel checks lead it to believe that "there is upwards of $10 billion of ad spend that could shift over from this increased 'smart' advertising using machine learning."
Expanding its view to the whole sector, Barclays says valuations for Alphabet and ("especially") Meta are "far from demanding currently, but are also predicated on the usual beat-and-raise cadence that weâve seen over the past 18 months." If growth starts to become a concern, the large caps could trade "sideways" and some of the small caps could feel pressure.
Its "most out-of-consensus call" is that Snap (NYSE:SNAP) could surprise to the upside, but "we are not sure if it matters given the current tape and SNAPâs industry-high EV/Rev." Meanwhile, Alphabet (GOOG, GOOGL) has "well over a 50% hit rate on tanking the quarter ahead of senior equity refresh" often on expenses. (That's this quarter.)
Meta (FB) and Twitter (NYSE:TWTR) feel "solid" toward the higher end of guided ranges, while Pinterest (NYSE:PINS) looks more in-line, Barclays says, and may be losing share to TikTok (BDNCE) in the "experimental" line item.
The digital ad sellers (including Meta Platforms (FB), Alphabet (GOOG, GOOGL) and Snap (SNAP)) were prominent in Jefferies' 2022 Internet picks.