Wall Street continues to ratchet down estimates for Facebook parent Meta Platforms and Google parent Alphabet on growing conviction that a slowing economy is going to affect online advertising growth.
The drumbeat is quickening with the wave of June quarter earnings reports now just a few weeks away.
On Tuesday, Barclays analyst Ross Sandler warned that the ad-supported internet companies faced "a perfect storm," with slowing ad spend, growing competition from TikTok and tougher year-over-year comparisons. Analysts at Monness Crespi Hardt, Loop Capital, and Morgan Stanley all recently made similar cautionary comments.
On Wednesday, the baton was passed to Guggenheim Securities analyst Michael Morris, who maintains Buy ratings on both Meta (ticker: META) and Alphabet $(GOOGL)$, while trimming his target prices on both stocks. For Meta, he goes to $205, from $250; for Alphabet, to $2,700, from $3,000.
He cut earnings estimates for Meta, Alphabet, and Neutral-rated Pinterest $(PINS)$.
Morris writes in a research note that "industry discussions continue to reflect incremental softness in ad demand." He thinks total 2022 ad spend will drop from the 2021 level, and warns that TikTok is taking a greater share of the overall digital advertising pie.
Morris thinks Alphabet will be more resilient than peers, driven by a diverse set of ad inventory and a broad base of advertisers, but cautions that YouTube ad revenue is likely to slow materially.
For Meta, he sees slowing near-term ad growth as the company shifts focus to Reels, the company's TikTok clone, which has lower pricing than other Facebook and Instagram content streams.
Meta will report June quarter results on July 27. Alphabet hasn't announced a date yet, but there is high probability it will be the same week as Meta.
On Wednesday, Meta was off 0.8%, while Alphabet was 0.3% lower.
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