A bad year for digital advertisers may not be over yet. Companies like Snap Inc., Pinterest Inc. and Meta Platforms Inc. have seen their estimates and stock prices drop this year amid growing competition and shrinking corporate advertising budgets.
Still, according to Piper Sandler analyst Thomas Champion, the latest version of the forecast may still be forthcoming. A change to Apple Inc.’s operating system making it difficult for apps to track user activity on iPhone and iPad means Snap and Meta will continue to lag behind, he wrote in a note.
Analysts also fear the impact of new entrants, as TikTok Inc. gains traction and Netflix Inc. and Walt Disney Co. launch their ad-supported streaming tiers.
In such a difficult environment, the shares of most social media companies have taken a hit. Snap is down 77% for the year, followed by Meta’s 52% drop. Pinterest is down 43%.
It’s been “the perfect storm for digital advertising with Apple’s platform changes, macro environment and TikTok’s growth all hitting at the same time,” said Matthew Kanterman, director of research at Ball Metaverse. Research Partners.
With a recession looming, companies will be more careful about spending and opting for the “most profitable platforms and not going cross-platform,” Kanterman said. Snap will see larger pullbacks compared to Alphabet Inc.’s Google because “you see the quality outperform smaller players,” he added.
The owner of Snapchat, which reported sales last month that fell short of its already lowered forecast, saw the largest estimate declines in the latest quarter. Analysts cut full-year sales estimates by 17% and now expect an adjusted loss of 13 cents per share from previous earnings projections, according to Bloomberg data. Meanwhile, Meta has seen its revenue estimates for 2022 reduced by 7% over the same period.
While Alphabet and Amazon.com Inc. should fare better, the group, which also includes Pinterest and Twitter Inc., could suffer a few more quarters of revenue forecast cuts “before we consider it wiped out, the champ said to Piper.
Alphabet, Meta Risk Margin Munch as Revenue Growth Ends
The new entrants are a threat to an industry that has been dominated by Alphabet, followed by meta and social media companies who are able to target ads to the billions of users they attract to their platforms.
“New media could amplify competitive intensity” in the second half of 2022 as many companies compete for advertising budgets amid “an uncertain environment,” Goldman Sachs Group Inc. analyst Eric Sheridan wrote in a note.
Granted, most sell-side analysts seem optimistic about a rebound. Snap, Meta and Pinterest all have at least four times more buy recommendations than sell ratings and offer the potential for a return of at least 30% based on average price targets, according to data compiled by Bloomberg. .
Goldman Sachs strategists say hedge funds increased bets on US megacap tech stocks and reduced their overall holdings to focus on favored names last quarter, with conviction hitting levels last seen before the pandemic. Amazon.com supplanted Microsoft Corp. as the most popular long position, a timely call this quarter with the stock up 25% from the latter’s 7.3% gain.