(Bloomberg) -- A bad year for digital advertisers may not be done yet.
The likes of Snap (NYSE:SNAP), Pinterest (NYSE:PINS) and Meta Platforms (NASDAQ:META) have seen both estimates and their stock prices slide this year amid mounting competition and falling corporate ad budgets.
Yet according to Piper Sandler analyst Thomas Champion, the final cut to forecasts may still be to come. A change to Apple's (NASDAQ:AAPL) operating system making it difficult for apps to track user activity on iPhone and iPads means the likes of Snap and Meta will continue to lag, he wrote in a note.
Analysts also fear the impact of new entrants as TikTok Inc. gains traction and Netflix Inc (NASDAQ:NFLX) and Walt Disney (NYSE:DIS) launch their ad-supported streaming tiers.
Against such a tough backdrop, shares of most social media companies have taken a beating. Snap is down 77% for the year, followed by Meta’s 52% slide. Pinterest is down 43%.
It’s been “the perfect storm for digital advertising with Apple’s platform changes, the macro environment and TikTok’s growth hitting all at once,” said Matthew Kanterman, director of research at Ball Metaverse Research Partners.
With a recession looming, businesses will be more cautious about spending and opt for the “highest value platforms and not blast out across multiple platforms,” Kanterman said. The likes of Snap will see bigger drawdowns compared with Alphabet's (NASDAQ:GOOGL) Google as “you’re seeing quality outperform the smaller players,” he added.
The Snapchat owner, which last month reported sales that missed its already lowered forecast, has seen the biggest estimate cuts over the last quarter. Analysts have reduced full-year sales estimates by 17% and now expect an adjusted loss of 13 cents a share versus previous projections for a profit, according to Bloomberg data. Meanwhile, Meta saw 2022 revenue estimates cut by 7% in the same period.
While Alphabet and Amazon.com Inc (NASDAQ:AMZN) should fare better, the group, which also includes Pinterest and Twitter (NYSE:TWTR), might be in for a couple of more quarters of cuts to revenue forecasts “before we’d consider it to be washed out,” Piper’s Champion said.
New entrants are a threat to an industry that has been dominated by Alphabet, followed by Meta and social media companies that are able to target ads at the billions of users they draw onto their platforms.
“New mediums could amplify competitive intensity” in the second half of 2022 as many firms compete for ad budgets against “an uncertain backdrop,” Goldman Sachs analyst Eric Sheridan wrote in a note.
To be sure, most sell-side analysts appear optimistic of a rebound. Snap, Meta and Pinterest all have at least four times more buy recommendations than sell ratings and offer at least 30% return potential based on average price targets, according to Bloomberg data.
Tech Chart of the Day
Hedge funds ramped up bets on megacap US tech stocks and whittled down overall holdings to concentrate on favored names last quarter, with conviction growing to levels last seen before the pandemic, according to Goldman Sachs (NYSE:GS) strategists. Amazon.com supplanted Microsoft (NASDAQ:MSFT) as the most popular long position, a timely call this quarter with the stock rising 26% versus the latter’s 7.6% gain.
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