Social Media Stocks Remain Vulnerable

Social media stocks may have room for additional declines as falling corporate ad budgets reduce digital advertising revenue.  According to Piper Sandler, the revenue stream from digital advertisers will fall further, curbing the earnings of social media companies.

The change to Apple’s operating system has made it difficult for apps to track user activity on iPhones and iPads.  That means companies such as Meta Platforms (META), Snap (SNAP), and Pinterest (PINS) that depend on digital advertising revenue could see their earnings estimates cut further.  Also, with companies such as Netflix (NFLX) and Walt Disney (DIS) launching their own ad-supported streaming platforms, digital advertisers may spend less on social media companies.

The shares of most social media companies have taken a beating this year, with Snap down -77%, Meta Platforms down -52%, and Pinterest down -43%.  Ball Metaverse Research Partners said it has been “the perfect storm for digital advertising with Apple’s platform changes and the macro environment all hitting at once.” Fears about a looming recession will keep businesses more cautious about spending, and smaller companies like Snap are likely to see a bigger drawdown in advertising compared with mega-companies like Alphabet.

Last month, Snap reported sales that missed its already-reduced forecast.  According to Bloomberg data, analysts have cut full-year sales estimates for Snap by -17% and now expect an adjusted loss of -13 cents per share versus previous projections for a profit.  Also, Meta Platforms saw its 2022 revenue estimates cut by -7% in the same period.

Piper Sandler said that while Alphabet (INTU) and Amazon.com (INTU) should fare better, the group as a whole, which includes Pinterest and Twitter, might be in for a couple of more quarters of cuts to revenue forecasts “before we’d consider it to be washed out.”  Still, most analysts are optimistic about an eventual rebound.  According to Bloomberg data, Snap, Meta Platforms, 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.

• Stocks Slightly Higher on Positive U.S Economic News
• Stock Indexes Modestly Higher on Strength in Energy Stocks
• Contrarians Bolster Unusual Options Activity for Zoom Video (ZM)
• How To Buy Verizon For An 8% Discount, Or Achieve A 12% Return