Stifel cuts ad industry estimates, but still likes Trade Desk and Criteo
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Stifel is the latest research firm to cut estimates in digital advertising, driven in large part by in-house forecasts for slower growth in gross domestic product.
The view from analyst Mark Kelley also incorporates some cautious outlooks from the industry itself and conversations with industry participants.
Along with his top-down view based on GDP, Kelley took a 20% haircut to GroupM's growth expectations for advertising outside the United States.
The end result equates to global digital ad growth of 8% year-over-year for 2022, and 6% for 2023, including U.S. political ads. GroupM has forecast such growth at 12% in 2022 and 8% in 2023. Kelley cut his revenue estimates by 2.4% this year, and by about 7% for next year.
In industry commentary, Kelley notes automotive advertising is still a weak spot; one agency suggested auto ads are dropping 17% year-over-year, and will be down 23% from 2020.
Sentiment seems weak especially since Snap (NYSE:SNAP) warned of macroeconomic deterioration in May, he notes.
"Unsurprisingly, we believe sentiment is worst for Snap given a broad investor view that the [second-quarter] headwinds are largely Snap-specific, from our conversations with investors," Kelley said. "Though we donât believe there is a view that anyone is immune from an economic slowdown." Kelley cut his 2023 revenue expectations by 18% from prior estimates - his biggest revision among the companies.
In a rough market, Snap stock (SNAP) fell more than 5% on Monday.
Kelley also said Twitter (NYSE:TWTR) will also see some "downward pressure" in the wake of Elon Musk saying he'll abandon pursuit of the company. "We believe the fundamentals are likely to take a hit from a lack of clarity on the path forward, employee attrition and layoffs," Kelley said. Twitter (TWTR) shares dropped by almost 9% Monday on widespread negative reaction to Musk terminating his $44B acquisition of the company.
The quarter saw a number of management changes at Pinterest (PINS), Meta Platforms (META) and Integral Ad Science (IAS), which weighed on sentiment, and Snap and Twitter joined in in slowing hiring. With cautious commentary from management, "any positive post-print movement is likely to be short-lived," Kelley said.
Kelley's top picks in the sector, though, are still The Trade Desk (NASDAQ:TTD) and Criteo (NASDAQ:CRTO). Kelley said he also sees some relative outperformance from Integral Ad Science (IAS) and DoubleVerify Holdings (DV), "given the fixed-price and defensive nature of both company's business models."