Facebook (FB) Downgraded to Neutral at Rosenblatt on Emerging Competition

Shares of Facebook (NASDAQ: FB) are down half a percent in pre-open Wednesday after Rosenblatt analyst Mark Zgutowicz downgraded to Neutral from Buy.

The analyst says emerging competition for digital ad dollars could hurt Facebook, especially in 2022.

“We estimate ad revenue of its emerging competition will represent nearly 50% of CY22E digital ad industry growth, nearly double Facebook's '22E contribution and well above the +20% estimate level in '20-'21E on average,” Zgutowicz said in a client note.

The analyst believes emerging Facebook competition could represent an incremental $30 billion in CY'21E-'22E US digital ad spend compared to about $20 billion at Facebook.

“It's important to note Amazon's still accelerating ad growth trajectory, which we estimate picks up an incremental +470 bps of share on Facebook in '21E-'22E. Shifting to Apple, our industry discussions continue to indicate accelerating growth in App Store search ads and SKAdNetwork participation since enforcement of iOS 14.5/IDFA policy restrictions. In other words, Apple advertising is no longer dead, but rather revived and taking over app publisher spend previously directed to Facebook (now that its SDK is essentially void in iOS apps). Our $2.4B incremental '21E-'22E Apple revenue could be characterized as unanticipated by Facebook until recently,” Zgutowicz adds.

The analyst argues that the spotlight on ad share momentum shift to Gen Z is even brighter. The problem is that other social media apps are extremely strong in that area.

“Gen-Z favored short-form video apps Snap + Spotlight, TikTok, Instagram Reels, and YouTube Shorts has a long runway ahead with Snap and TikTok alone comprising only ~2% of '21E US ad spend, by our estimates. And we put Roku in that same "long runway" category with its video ads representing less than 1% of US ad spend, while its competitive relative ROAS (return on ad spend) continues to draw social media ad budgets to the CTV platform. Lastly, our Top 6 AVOD and SVOD ad-supported category representing Hulu, Peacock, Paramount+ and Pluto and Discovery+ and Tubi continues to capture the vast majority of linear TV ad dollar shifts to digital, which is largely a miss for Facebook, in our view,” Rosenblatt analyst concludes.

Zgutowicz maintained his $400.00 per share price target on FB.

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