Online advertising feels the weight of macro concerns – MKM (NASDAQ:GOOGL)

Online advertising names – the well-known internet giants including Alphabet (GOOG) (NASDAQ:GOOGL), Metaplatforms (NASDAQ:FB), Twitter (NYSE:TWTR), snap (NYSE:SNAP) and Pinterest (PINS) – face rough macroeconomic seas ahead, MKM Partners says, and it’s slashing estimates going to Q1 reports accordingly.

“We believe that online advertising companies face four increasing macroeconomic headwinds: (1) direct impact of the war between Russia and Ukraine; (2) indirect impact and potential contagion of the war to Europe; (3) soft spending on branded advertising, particularly around geopolitical content; and (4) likely impact of weak consumer spending in Europe, driven by inflation and higher oil prices,” analyst Rohit Kulkarni said.

The outlook for the home ad market could moderate by 1% based on the conflict in Ukraine, and MKM may see more impact on the European ad market, Kulkarni noted.

Ad spend increased globally in 2021 amid reopening and continued secular penetration of online ads, the analyst says. For 2022, there should be a slowdown, especially in the first half, driven by difficult year-over-year comparisons – and US spending should slow to 9-11% growth. (In the second half, as comparisons get easier, that should accelerate — and midterm elections should add about 2% of incremental spending, the company says.)

Industries expected to spend more on advertising this year include technology, telecom, media and entertainment and travel; Industries that are expected to retreat (based on supply chain/inflation justification) are auto, real estate and consumer products.

Accordingly, MKM cuts 2022-2023 revenue expectations for Alphabet (GOOG) (GOOGL) by 1% and operating profit by 2%. For Meta (FB), it cuts revenue estimates for 2022 by 3% and for 2023 by 8%, and earnings per share by 6% and 15%, respectively. And for Pinterest (PINS), it will reduce 2022 revenue/EBITDA by 1% each, and 2023 revenue and EBITDA by 7% and 8%, respectively.

It also lowers the price targets for a few names. On GOOGL, it is a small cut from $3,300 to $3,375, which represents a 30% upside potential. For Meta (FB), it lowers the target from $365 to $315, which is a 50% increase from here. And for Pinterest (PINS), it lowers its target from $42 to $38, which represents a 71% upside potential.

The company has buy ratings on all names except Twitter (TWTR), where it is neutral. It leaves its SNAP price target unchanged at $47, which represents upside potential of 42%. And the Twitter target is also unchanged, at $49, which is a 9% increase.

The Twitter (TWTR) takeover drama continues: Billionaire Elon Musk is reportedly considering signing partners for a hostile bid for the company.