Wall Street analysts continue to ratchet down their estimates for ad-supported web-based services as advertisers pull back on spending amid the coronavirus-triggered economic slowdown. In fact, as more data emerges on the severity of the impact of the virus on business activity, some analysts are cutting estimates for the second or third time in recent weeks.
On Monday, for instance, J.P. Morgan analyst Doug Anmuth made his second round of post-virus estimate cuts on companies tied to online advertising. (He cut estimates on the group less than two weeks ago.) Anmuth wrote in a research note that marketers are cutting spending on brand campaigns and launches, as well as performance-based marketing. He noted that digital accounts for about half of overall ad budgets, and is easier to adjust than TV and other media.
Anmuth pointed to news last week that the advertising firm
cut its projection for 2020 U.S. ad spending to down 2.8% from up 6.6%. He said that may still be too optimistic.
As Barron’s reported on Friday, an Internet Advertising Bureau survey of ad buyers found that 74% believe Covid-19 will have a bigger impact on advertising than the 2008-09 financial crisis. Seventy percent of respondents have already adjusted or paused their planned ad spending through the second quarter. Respondents indicated that their online spending through June will be 33% below their original plans.
Anmuth wrote that the categories where spending will fall the most include travel, physical retail, automotive, media, and entertainment. He says spending should be more resilient for e-commerce, streaming media and health and wellness.
Anmuth noted that ad spending tends to exaggerate moves in global gross domestic product. His analysis suggests that if 2020 global real GDP drops 2.4%, global ad spending could fall 11.5%.
Anmuth notes that he cut his estimates on Alphabet on March 18, but that since that time, “more drastic social distancing policies have been implemented,” with many businesses shut down and many small businesses facing bankruptcy risk. He sees a particular risk for Alphabet in travel ads, which he estimates are 10%-15% of its total ad revenue.
“Overall, we think more than 25% of Alphabet’s ad revenue could be at risk over the next few months,” he wrote. Since the company reported first-quarter results, Anmuth has now reduced his 2020 earnings-per- share estimate by 29%, while trimming his 2021 view by 7%.
He’s taken similar action on Facebook shares, noting that 75% of the company’s revenues come from small and medium-size businesses. Anmuth has now brought down estimates by 27% for 2020, and by 11% for 2021.
He noted, though, that Facebook is less exposed to travel exposure than Alphabet, and said he thinks the company will be less affected by the ad- spending downturn than smaller players like
Snap, and Twitter.
On Monday, Facebook is up 3.5% to $162.28, while Alphabet is up 2.4%, to $1,136.64.
Write to Eric J. Savitz at firstname.lastname@example.org
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