Citi analyst Jason Bazinet maintained his price target for Facebook stock.
Alastair Pike / AFP via Getty ImagesCiting growing concern that investors are too bullish on the outlook for online advertising, Citi analyst Jason Bazinet cut his ratings on both Facebook and Alphabet to Neutral from Buy, while trimming his target prices for Twitter, Snap, and Pinterest.
Bazinet said that over the past two quarters, internet ad growth has been robust, given an improving economy and higher web traffic for retailers. Still, three things make him nervous about the sector.
One, he noted that sell-side analysts expect twice as much annual growth from 2021 to 2025 for the top 10 internet ad sellers as the group experienced from 2018 to 2020. “The sell side has taken Q4 2020 and Q1 2021 strength and extrapolated it over the next five years,” he wrote. “Indeed, the sell side expects $75 billion of annual growth per year through 2025 versus $40 billion of annual growth in 2018 to 2020.”
Two, he said that while many investors believe “ad intensity per dollar of economic activity is rising”—that advertisers are increasing their ad budgets per transaction—there is little evidence of this. Bazinet said that for the past six years, U.S. ad spending across all mediums has been flat at about 1.6% of spending for personal consumption.
“We see little evidence of ‘below the line’ ad spend moving up to advertising,” he wrote.
Finally, he warned that growth is likely to decelerate after the second quarter because comparisons with the year-earlier figures will be harder. “Historically, that usually isn’t bullish for multiples,” he wrote.
Bazinet said he now isn’t recommending any large-cap ad-supported internet stock other than the streaming-video company Roku (ticker: ROKU). Amazon.com (AMZN) remains his favorite internet stock, given its growth in business-to-business services other than ads—areas such as Amazon Web Services, fulfillment, commissions, and logistics.
Bazinet maintained his targets for Facebook (FB) and Alphabet stock (GOOGL) at $320 and $2,415, respectively. He reduced his target for Pinterest (PINS) to $65 from $85, while he cut his call for Twitter (TWTR) to $58 from $80. The analyst rates both stocks at Neutral.
For Snap, which Bazinet rates at Sell, he reduced his target price to $42, from $47.
In early trading Monday, Facebook was off 2.8%, to $310.17; Alphabet had fallen 1.9%, to $2,308.50; Twitter declined 2.7% to $52.35; Pinterest slid3.7%, to $57.67; and Snap was down 4% to $52.50.
Write to eric.savitz@barrons.com
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May 10, 2021 at 10:18PM
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