'Perfect Storm is Here': Barclays Cuts Price Targets on U.S. Internet Stocks

By Senad Karaahmetovic

Barclays analyst Ross Sandler has slashed the price targets on U.S. internet stocks as a “perfect storm is here”.

Sandler believes investors have a reason to worry about the trajectory of digital advertising growth in 2022. This is because of the 3 key constraints:

1) A step-down in spend and conversions across the whole internet ecosystem (ex-travel) in 2Q;

2) Ascending trajectory from new challengers like TikTok and Apple (NASDAQ:AAPL), which are taking share at a time when macro is weakening materially, and

3) The obvious tough comps which are well documented.

The combination of these factors will likely generate the lowest growth rates for the sector in years, according to Sandler.

“Valuations already reflect some of this we think, and hopefully the 2Q cuts coming out of earnings set the stage for estimates to be in the right place going forward, allowing these digital ad stocks to stabilize. We don’t see much potential for outperformance into the print, but if we had to pick one that might trade up T+1 it would be FB whose consensus EPS is closest to the right level and who has telegraphed a lot of the weakness already,” Sandler told clients in a note.

TikTok, in particular, is estimated to increase its ad revenue generation from $4 billion to upwards of $12 billion, excluding China. Sandler added that the Chinese company may even exceed the forecasts.

Ultimately, the analyst slashed EPS estimates, which then prompted him to lower price targets as follows:

1. Alphabet (NASDAQ:GOOGL) from $3,200 to $3,000;
2. Meta Platforms Inc (NASDAQ:META) from $370 to $280;
3. Pinterest (NYSE:PINS) from $24 to $20; and
4. Snap (NYSE:SNAP) from $42 to 20.

“Following SNAP’s guide down and recent consensus cuts, we think buyside estimates are closer (but not quite all the way) to reality, and coming out of 2Q earnings are likely in the right place,” Sandler concluded.