Ad-supported internet stocks have had a poor year in 2022, hurt by TikTok’s growing competition, Apple’s privacy regulatory revisions for tracking iPhone users’ actions, and the weakening consumer economy. Mark Zuckerberg, the CEO of META, reportedly informed his staff this week that the business was experiencing a severe downturn and would have to reduce employment and investment plans.
In a research note published on Tuesday, Ross Sandler stated that the group is facing “a perfect storm.” This includes “a step-down” in online advertising spending and conversions, escalating rivalry with TikTok and Apple (ticker: AAPL), and challenging year-over-year comparisons. All of the group’s price estimates were lowered by the analyst. He reduced his target prices for Meta (META) from $370 to $280 and Alphabet GOOGL to $3000 from $3200 (GOOGL), for Pinterest (PINS) to $20 from $42, for Snap SNAP (SNAP) to $20 from $42. For both the second quarter and the entire year 2022, Sander lowered the earnings and revenue projections for all four companies.
In his article, he predicts that this combination of events is likely to yield the lowest growth for the industry in years.” The good news, according to Sandler, is that values already reflect part of this, and estimated reductions following the quarter should pave the way for the group to stabilize. The three biggest ad sellers—Meta, Alphabet, and Amazon.com AMZN percent (AMZN)—have been capturing “more than 100 percent” of additional advertising spending, according to Sandler. In other words, the powerful have become more powerful. In 2022, the analyst predicts a different scenario.
He points out that TikTok is expected to triple its revenue from 2021 to at least $12 billion this year. And he notes that Apple is tiptoeing into the digital ad space, with a potential income of more than $7 billion for the year. According to Sandler, TikTok and Apple will each capture a third of every additional dollar spent on advertising in 2022. According to him, Alphabet, YouTube, Snap, and Meta are the losers in that scenario. For the group, the earnings multiple has already decreased by about 30%, according to Sandler. Comparing that to the 50% compression for large-cap internet names during the recession of 2009 suggests that “we are well over halfway there.”
On Tuesday, all four of the social media stocks were rising, with Snap and Pinterest rising 6%, Meta rising 3%, and Alphabet rising roughly 2% at the time of writing.
Featured Image: Megapixl @Andranik1990.
