Social media stocks have thrived amid the pandemic. An analyst at Citi Research warns not all of them are created equal.
In a note on Monday, Citi Research analyst Jason Bazinet lowered his rating on Pinterest to Neutral from Buy. He did raise his price target to $35 from $25. The analyst maintained a Neutral rating on Twitter and a Sell rating on Snap. He argued Facebook (FB) is still the social stock to buy of the group.
He notes that in the second quarter of 2020, digital advertising outperformed traditional ads. Within that, social media grew while non-social media advertising, like search and display, did not. He argues that it isn’t because there’s “anything magical about social media’s ability to grow during this recession.” Instead, he points to social media’s faster rate of growth prior to the recession.
“But, the buy side has decided that social is the future of Internet advertising,” he wrote, pointing to double-digit runs for shares of Pinterest, Snap, Facebook and Twitter—all outpacing Alphabet year-to-date.
Bazinet notes that Wall Street analysts expect U.S. social media firms to add $21 billion in revenue growth in 2021 and 2022—up from $16 billion of growth in 2018 and 2019. He calls such expectations for an acceleration in growth risky.
Another red flag for Bazinet is how consensus estimates compare to forecasts from media investment firm GroupM for non-search digital ad growth. If both GroupM’s forecasts, and consensus estimates are to be believed, he notes, Facebook, Pinterest, Twitter, and Snap will capture 100% of all non-search digital ad growth in 2021 and 2022.
Either other apps like TikTok and YouTube won’t grow, GroupM’s forecasts are low, or Street estimates are high. He leans toward the latter.
“Facebook captured ~90% of the U.S. social media ad revenue in every quarter since 1Q17,” he added. “Twitter, Snap and Pinterest seem to be vying for the 8-9% of marketer’s social media budgets not dedicated to Facebook. But, the Street expects these smaller firms to begin to capture a larger share of social media ad market in ‘22.”
He argues that Wall Street is paying higher valuation multiples now for similar growth rates. For Snap and Twitter, he expects estimates to be lowered. For Facebook, he believes in its “continued execution, its scale, and the sophistication of its ad platform and products should contribute to continued robust revenue growth.”
Snap stock (ticker: SNAP) fell 3.4% on Monday, while Pinterest stock (PINS) was down 3.8%. Shares of Twitter (TWTR) and Facebook rose 3.1% and 1.6%, respectively. The S&P 500 index rose 1%.
Write to Connor Smith at connor.smith@barrons.com
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August 25, 2020 at 05:44AM
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Social Media Stocks Have Thrived. They Are Not All Equal, One Analyst Says - Barron's
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