Social media company Snap (SNAP) has reduced its growth forecast due to several macroeconomic headwinds and a global economic slowdown. These headwinds, coupled with increased regulations, will likely affect other companies in the digital ad space. Thus, we think the stocks of digital ad companies Meta Platforms (FB), Alphabet (GOOGL), PubMatic (PUBM), The Trade Desk (TTD), and Integral Ad Science (IAS) are best avoided now. Read on.
Social media companies, which generate most of their revenue from digital advertising, have been witnessing a slowdown lately due to concerns about an impending recession and a potential reduction in digital ad spending. Social media giant Snap Inc.’s (SNAPCEO Evan Spiegel warned of slow growth recently. SNAP stated that it might report revenue and adjusted EBITDA below the low end of its previous guidance range due to macroeconomic headwinds and geopolitical instability.
Over the top, big tech’s digital advertising practices are facing possible regulations. The bipartisan Competition and Transparency in Digital Advertising Act introduced earlier this month intends to increase competition by prohibiting companies that earn more than $20 billion per year in ad revenue from ownership of more than one part of the digital ecosystem and by increasing transparency.
According to Jefferies equity analyst Brent Hill, the macro-conditions might impact other digital ad companies, namely Meta Platforms, Inc. (FB), Alphabet Inc. (Google), PubMatic, Inc. (PUBM), The Trade Desk, Inc. (TTD), Integral Ad Science Holding Corp. (IAS). Hence, we think these stocks are best avoided now.
Meta Platforms, Inc. (FB)
FB in Menlo Park, Calif., is the biggest social media company in the world. As the owner of WhatsApp, Instagram, and various other companies, FB has operations in numerous fields.
On May 10, Algonquin Power & Utilities Corp. (AQN). the parent of Liberty Utilities, announced its collaboration with FB on Michigan’s new 112 MW Deerfield II wind project. The long-term power purchase agreement is expected to align with FB’s sustainability objectives. However, the project is expected to achieve commercial operations in 2023.
For its fiscal first quarter, ended March 31, FB’s total revenue increased 6.6% year-over-year to $27.91 billion. However, its net income decreased 21.4% from the prior-year quarter to $7.47 billion. Its EPS declined 17.6% from the same period the prior year to $2.72.
The $2.68 consensus EPS estimate for the quarter ending June 30, 2022, indicates a 25.8% year-over-year decrease. The $2.79 consensus EPS estimate for the next quarter (ending Sept. 30, 2022) reflects a 13.4% decline from the prior-year period.
The stock has declined 40.6% in price over the past year and 42% year-to-date to close Friday’s trading session at $195.13.
FB’s POWR Ratings reflect this bleak outlook. The stock has a Growth and Momentum grade of D. In the 69-stock Internet industry, it is rated #8. The industry is rated F. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
Click here to see the additional POWR Ratings for FB (Value, Stability, Sentiment, and Quality).
Alphabet Inc. (Google)
The parent company of Google is one of the largest tech companies in the world. The Mountain View, Calif.-based company offers popular platforms such as Search, Maps, Ads, Gmail, Chrome, and YouTube.
On May 27, BlackBerry Limited (BB) announced the launch of Chrome Enterprise Management, which offers the complete Unified Endpoint Management (UEM) support for the growing number of devices running GOOGL’s Google Chrome OS and Chrome browser in enterprises. Chrome OS management with BlackBerry UEM is not expected to be globally available before July 2022.
GOOGL’s revenues increased 23% year-over-year to $68.01 billion in its fiscal first quarter, ended March 31. However, its net income and EPS of its class A, class B, and class C stock have decreased 8.3% and 6.4% from the prior-year period to $16.44 billion and $24.62.
Analysts expect GOOGL’s EPS for the quarter ending June 2022 to decrease 2.6% year-over-year to $26.55.
Over the past year, the stock has declined 4.7% and 22.5%, respectively, year-to-date to close Friday’s trading session at $2,246.33.
GOOGL has a D grade for Momentum. It is ranked #9 in the Internet industry.
To see the additional POWR Ratings for Growth, Value, Stability, Sentiment, and Quality, click here.
PubMatic, Inc. (PUBM)
PUBM is a Redwood City, Calif.-based cloud-infrastructure platform provider that allows real-time programmatic advertising transactions. The company’s solutions include header-bidding solution Openwrap, header-bidding OTT management solution Openwrap OTT, and in-app developers’ header-bidding solution Openwrap SDK.
On March 22, PUBM announced its intention to make significant investments in its platform and engineering team; it intends to build an engineering hub in Pune, India. However, there might still be some time before substantial gains can be realized from this investment.
For the fiscal first quarter, ended March 31, PUBM’s operating income decreased 31% year-over-year to $4.58 million. Its net income and net income per share attributable to common stockholders came in at $4.78 million and $0.08, respectively, down 2.8% and 11.1% from the same period last year.
The Street expects PUBM’s EPS to decline 55.6% and 45.8%, respectively, year-over-year to $0.08 and $0.13 for the respective quarters, ending June and September 2022.
The stock has declined 29.4% in price over the past year and 38.7% year-to-date to close Friday’s trading session at $20.88.
PUBM has an F Growth grade and a Stability grade of D. In the 156-stock Software – Application industry, it is ranked #75. The industry is rated F.
Click here to see the additional POWR Ratings for PUBM (Value, Momentum, Sentiment, and Quality).
The Trade Desk, Inc. (TTD)
TTD in Ventura, Calif., is a technology company that operates in the United States and globally. The company offers a cloud-based self-service platform that enables its clients to create, manage, and optimize data-driven digital ad campaigns.
On May 5, TTD announced that more publishers had joined its proprietary product OpenPath, which is designed to provide advertisers direct access to premium digital advertising inventory. The company is not expected to enter the supply side of digital ads and is not likely to provide services such as yield management.
TTD’s income from operations decreased 319.1% year-over-year to a negative $17.05 million in its fiscal first quarter, ended March 31. Its net income and EPS stood at negative $14.60 million and a negative $0.03, registering a 164.5% and 160% , respectively, from the prior-year quarter.
The Street’s $1.00 EPS estimate for its fiscal 2022 indicates a 9.9% year-over-year increase.
TTD’s shares have declined 10.8% in price over the past year and 42.7% year-to-date to close Friday’s trading session at $52.49.
TTD has an F grade for Value and a D grade for Stability. It is ranked #66 in the Software – Application industry.
To see the additional POWR Ratings for Growth, Momentum, Sentiment, and Quality for TTD, click here.
Integral Ad Science Holding Corp. (IAS)
New York City-based IAS is a digital advertising company that operates in several countries. Its offerings include IAS Signal, a cloud-based technology platform, and its digital media quality solutions that provide ad fraud detection and prevention.
On May 26, IAS announced that IAS Signal would incorporate the Total Visibility solution through a new dashboard. The enhancement is expected to allow its clients to access critical insights into their supply paths in one platform. However, gains from this venture might be stretched over a long period.
For the fiscal first quarter ended March 31, IAS’ revenue increased 33.3% to $89.24 million. However, its total operating expenses rose 34.8% from the prior-year quarter to $85.83 million. This can be attributed to a 39.4% rise from the prior-year period in sales and marketing expenses to $23.06 million.
The $98.07 million consensus revenue estimate for the quarter ending June 30, 2022, indicates a 30.6% year-over-year rise.
The stock has declined 43.8% in year-to-date price and 30.6% over the past three months to close Friday’s trading session at $12.49.
IAS has a Value grade of D. In the 21-stock Advertising industry, it is ranked #16. The industry is rated D.
In addition to the grades we have stated above, one can see IAS Ratings for Growth, Momentum, Stability, Sentiment, and Quality here.
FB shares were trading at $193.90 per share on Tuesday morning, down $1.23 (-0.63%). Year-to-date, FB has declined -42.35%, versus a -12.88% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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