KeyBanc sees few narrative changes for big Internet ad names into earnings
Artur
The first quarter reports from large-cap ad-facing Internet names aren't likely to see any changes to narratives, KeyBanc says, and sentiment on the stocks is "subdued" as investors approach the results with caution.
Five major companies report this week, with Alphabet (GOOG) (NASDAQ:GOOGL) coming after the closing bell Tuesday; Meta Platforms (NASDAQ:META) and Roku (NASDAQ:ROKU) reporting Wednesday; and Pinterest (PINS) and Snap (SNAP) posting on Thursday.
Alphabet (GOOG) (GOOGL) is first up among those, and you can expect a "noisy" print there, analyst Justin Patterson said. He's expecting downside to Street expectations for operating income and earnings per share, thanks in part to the timing of restructuring expenses (weighing heavily on Q1) and headcount cuts (on Q2).
"While we do not expect concerns on traffic acquisition cost and AI competitiveness to be resolved on this call, valuation looks reasonable and more opex cuts are likely forthcoming," Patterson said. He's cut 2023 earnings per share expectations by 2%, to $5.01, but keeping a 2024 forecast for $5.91, and holds a $117 price target, implying about 12% upside.
On key rival Meta Platforms (META), though, he sees a slightly stronger Q1 and in-line guidance as the company pursues its "year of efficiency." Revenue should gain strength from Reels and Advantage+, Patterson says, expecting Q1 revenues of $27.7B-plus while Q2 guidance will likely be over $29.5B at the midpoint. "We maintain that consensus understates 2024 earnings power, and maintain our $240 price target," he says, implying 15% upside.
The bank is a little more subdued on Roku (ROKU), with a Sector Weight rating and noting that Q1 upside might not be enough to "settle the profitability debate."
Investors expect a beat in the mid- to high-single digits, but "we are skeptical media activation revenue will remain a solid contributor, and the scatter market remains challenging," Patterson said -- so he's expecting a more modest beat, and while expecting some first-half strength, he's expressing caution on pacing into 2024 and cutting that revenue forecast by 2%, to $3.93B.
He's also Neutral on Snap (SNAP), where he also expects a slight beat, and also sees a stronger start to the 2023 revenue forecast tempered by a lower 2024 revenue forecast to reflect concerns about market share. "Until Snap can demonstrate consistent gains in engagement, monetization, and margin progression, we expect shares will remain range-bound at 20x 2024E EV/EBITDA," he said.
Pinterest (PINS) will continue to see debates on second-half monetization and margin trajectory and a likely in-line quarter, but Patterson is maintaining an Overweight rating, saying the second-quarter guidance should be in-line around $700M-$710M, and expecting "near-term overhang" with some product catalysts still distant.
Turning to ad-tech, The Trade Desk (NASDAQ:TTD) reports in early May, and KeyBanc is expecting a beat-and-raise there. "Improved trends in Europe (headwind last year) coupled with product momentum can drive solid growth" in 2023, Patterson says, and raises revenue forecasts for this year and next by 3% (to $1.9B and $2.42B respectively), and the same for EBITDA (to $715M and $944M respectively). A $72 price target implies 20% upside.