RBC Cautious on Meta (FB), Snap (SNAP) and Alphabet (GOOGL) Into 4Q Earnings Following Ad Checks

January 26, 2022 10:14 AM EST
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RBC Capital Markets analyst Brad Erickson is cautious on major digital ad beneficiaries following recent industry checks.

The overall spending trends have made Erickson feel cautious, especially about Meta (NASDAQ: FB) and Snap (NYSE: SNAP). The analyst feels upside for these two companies is less likely to be seen when it comes to March quarter estimates.

“While spending commentary was mostly in-line with expectations for the qtr overall, we did hear a few call-outs that the quarter closed with a whimper with Google's pricing auction in particular having softened more than expected late in the quarter. Obviously this generally squares with the linearity of reported Q4 3P E- commerce trends but adds to our caution in front of Q4 prints where we think a unlikely upside to Q1 guidance vs. expectations is to come. The easy explanation is tougher comps with underlying drivers like lapping delta variant, elevated 1H21 new business formation levels and the last of stimulus dollars that drives our thinking,” Erickson said in a client note.

Erickson lowered the price target on Meta to $400.00 per share from the prior $415.00 given the rising TikTok challenge.

“Rising number of conversations indicated that with Tiktok content being geared around topical interests or activities (vs. SNAP’s messaging & personal sharing centric content), Tiktok's appeal is rising for SMB's in particular given smaller advertisers desire targeting for their products & services that could be at least partially correlated or directly related to that user-generated, subject-specific content. We believe this rising appeal has put Tiktok in the same consideration bucket as FB (Instagram) vs. conventional wisdom SNAP (heavy perceived demo crossover).”

On GOOGL, Erickson sees a positive related to YouTube share gains while the auction pricing fell off more than expected in 2H December. Microsoft’s (NASDAQ: MSFT) LinkedIn is also “showing up positively with some of the strongest growth rates we've heard.”

On SNAP, the company is in a challenging position given little to no progress on the IDFA front and rising challenges from TikTok.

By Senad Karaahmetovic | [email protected]

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