Guggenheim updates Meta, Snap, Trade Desk on greater ad stability
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Guggenheim has updated models and changed up estimates on a few digital ad-facing companies - Meta Platforms (NASDAQ:META), Snap (NYSE:SNAP), and The Trade Desk (NASDAQ:TTD) - to account for the latest industry discussions noting increasing stability in ad demand.
"Spending trends on Meta Platforms (META) indicate modest incremental demand while a deceleration in spend growth is most pronounced on TikTok (BDNCE) amidst possible regulation," analyst Michael Morris said. (Momentum has steadily been growing to ban TikTok in the United States.)
"While conversations have not indicated a change in near-term trends, discussions of a delayed macroeconomic impact on demand have become more frequent, indicating potential risk to the consensus view of growth acceleration in 2H23," he added.
In the case of Meta Platforms, the changes mean boosts to revenue and profitability estimates along with a higher price target. Ongoing traction in Reels, the company's short-form video TikTok rival feature, along with stability at Facebook and Instagram, lead to "modestly" raising first-quarter ad revenue estimates (to $28B, near the high end of management guidance).
The company should show ad outperformance vs. peers in the second half as Reels monetization catches up to other ad "surfaces," and Meta has "largely overcome" the hefty challenges posed by Apple's IDFA iOS privacy changes, Morris said.
Meanwhile, the rollout of paid verification should boost "other" revenues in Meta's Family of Apps accounting, he added.
Lower expenses with layoffs are also part of the calculus Guggenheim is using to boost estimated 2023 EBITDA to $58B from $54B. Morris boosted Meta's price target to $240 from $210, now implying 19% upside.
On Snap (SNAP), the focus is on long-term cash generation. Morris isn't changing 2023 revenue estimates and sees some underperformance this year, but raises ad revenue expectations for 2024 and beyond to account for infrastructure changes.
"We see key strengths as industry-leading community growth and the companyâs positioning to capitalize on the long-term augmented reality opportunity while key challenges and opportunities relate to ad monetization and advertiser adoption of new tools," Morris said.
A focus on cash discipline leads to raised free cash flow estimates this year and beyond, and Morris has raised Snap stock's (SNAP) price target to $12 from $9, vs. a current $11.79. The stock was up 2% at midday Monday in catching up with Guggenheim's new target.
As for The Trade Desk (TTD), Morris is still bullish but some incremental costs lead to a lower free cash flow forecast.
The company's workforce grew by 803 full-time employees last year, and along with hiring, the company will take on additional return-to-office expenses, he noted.
The firm expects TTD to return to 40%-plus margins in adjusted EBITDA in 2024, and it's leaving top-line estimates unchanged, "reflecting our view that the company will benefit from being a main player in large [total addressable market], early-stage [connected TV], and shopper marketing industries." He's cut that price target to $70 from $75, trimming implied upside to 17%.