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UBS cuts targets on 4 Social Media Goliaths – 24/7 Wall St.

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Macroeconomic headwinds (inflation, war in Ukraine, fears of recession) are expected to reduce the growth of the online advertising industry in 2022 and 2023, according to a recent research note from UBS Global Research and Evidence Lab. Excluding China, ad spend growth is expected to increase 14.3% year-over-year in 2022 to $431.2 billion and 8.8% year-over-year in 2023 to reach $469.15 billion.

Using 2022 as a base scenario, UBS then estimates the impact of a macroeconomic downturn similar to the recessions of 2001 and 2008. In both cases, advertising spending falls sharply in 2023.

Analysts adjusted their price targets on four of the largest US companies funded by online advertising, while leaving targets unchanged on two other ad vendors. UBS researchers also noted that emerging market platforms like TikTok could end 2022 with a bigger ad market share than three of the U.S. companies.

Alphabet

Alphabet Inc.’s Google website (NASDAQ:GOOGL) is expected to account for 42% ($193.9 billion) of the online advertising market in 2022. Google’s market share declines slightly to 44.8% in 2023, before increasing to 45.4%. in 2024 and 46.9% in 2025.

UBS said Alphabet is relatively well positioned this year “given its performance advertising bias, insulation against privacy headwinds, a continued recovery in travel ads and at the Performance Max (PMax) scale”. Performance Max is the company’s goal-based campaign type introduced last year that uses machine learning to serve ads. Risks for 2023 include YouTube revenue and profits, Alphabet’s announcement of $9.5 billion in US office space and data centers, and increased competition from other media players social.

Analysts maintained their buy rating on Alphabet stock but lowered the price target from $3,600 per share to $2,650.

Metaplatforms

UBS analysts expect Meta Platforms Inc. (NASDAQ: META) to grow advertising revenue just 1.2% year-over-year in 2022, before jumping 15% in 2023. Meta’s market share is expected to grow from 30.5% last year to 27% this year. year, before climbing to 28.5% in 2023.

That said, the analysts continue:

We believe Meta has the best risk/reward in large-cap online advertising right now, despite continued uncertainty around privacy headwinds, TikTok competition, and timing of [R]monetization of eels.

However, the “macro backdrop for Meta is unfavorable”, and “further consumer weakness in retail/e-commerce may outweigh the positive near-term trends associated with the rise of Reels”.

UBS maintained its buy rating on Meta stock but lowered the price target from $310 to $215.