Artur/iStock via Getty Images
Earnings season has arrived for the Internet advertising names, and KeyBanc is expecting another volatile pass through the numbers, this time with the new macroeconomic pressures and high inflation putting negative pressure on ad budgets.
Analyst Justin Patterson revised models for four companies – but overall, his outlook is below Wall Street’s on revenue and EBITDA/earnings per share.
“Our view is that advertisers with diverse vertical exposures, high U.S. mix, low SMB (small/medium business) concentration, and proven [return on investment] should hold up better in this environment,” Patterson writes.
That argues for diversified advertising names like Alphabet (GOOG) (NASDAQ:GOOGL) and The Trade Desk (NASDAQ:TTD), which screen as facing the least negative fundamental impact, he says.
He’s raising estimates for Alphabet’s revenue, slightly (to $55.1 billion) and earnings per share (to $24.17 from $22.90), but remains below consensus on both, by about 2%. But KeyBanc’s revenue outlook is “effectively unchanged” as headwinds from Europe and YouTube are offset by a slightly better forecast in higher-margin Search revenue (12.5% growth this year, and 13.5% for 2023).
With some more conservative multiples, though, it trims its price target on GOOGL to $3,075 (implying 29% upside). Alphabet is set to report April 26, with consensus estimates for normalized earnings per share of $25.56 on revenues of $67.8 billion.
The Trade Desk (TTD), meanwhile, is diversified across verticals, has (less than) 10% Europe exposure, and had not seen ad pullbacks,” Patterson writes. With some below-normal seasonality coming in Q2, Patterson expresses some comfort with his current revenue estimates for $305 million and $369 million for Q1 and Q2 respectively.
Again with downward pressure on multiples, though, he’s cutting his price target to $90, trimming implied upside to 51%. Consensus expectations for The Trade Desk (TTD) are for normalized earnings per share of $0.14 on revenue of $304.2 million.
The story isn’t the same for Meta Platforms (NASDAQ:FB) or Pinterest (NYSE:PINS), where Patterson expects e-commerce end product will be a headwind. On Meta, he’s given a 1% haircut to revenue estimates for Q1 and Q2; for this year and next, “we expect the continuation of macro (e.g., Europe, FX) headwinds and shift to Reels monetization will weigh on revenue growth, causing us to reduce revenue by 4%.”
The negative there is that KeyBanc’s estimates for Meta’s earnings per share are 13% below the Street for 2022, and 12% below for 2023. The company is set to report April 27, with consensus expectations for EPS of $2.51 on revenues of $28.24 billion.
Pinterest (PINS) is facing a “tough” first half and Patterson is cutting estimates there as well. “We believe the combination of monthly active user headwinds and pressure in consumer spending create downward pressure to revenue growth,” he writes, noting the bank is now 3-4% below Street estimates for 2022 and 2023.
On the other hand, “While negative, we believe shifts in the pace of monetization initiatives and/or reductions in expenses could improve sentiment (shares are trading near-historic lows on an EV/S basis),” he says. Cutting revenues leads to cutting the price target to $36; that still implies 84% upside. Pinterest (PINS) will report on April 27 as well; consensus expectations are for earnings per share of $0.04 on $572.5 million in revenue.
MKM Partners took on the online advertising sector last week, and made its own cuts to expectations, citing four macro headwinds for all the companies.
