Ahead of 4Q18 earnings we are modifying price targets on companies across our coverage universe and establishing price targets on a year-end 2019 basis. In this note we review stocks we cover related to internet advertising and marketing technology.
Concerns about an economic downturn are worth considering in looking at the sector, although not explicitly incorporated into our models at this time, which implicitly assume growth into the foreseeable future. We think that marketing technology companies (ADBE and CRM in particular) would hold up best in a downturn given the predictable revenue streams and bookings made well in advance (as well as secular trends supporting marketing tech which has a very long runway, in our view). Although AMZN's AWS probably holds up well for similar reasons, its retail business might face risks because of the relative maturity of e-commerce and likelihood that consumer spending trends would probably have a negative impact on the company vs. the last recession. As well, overall digital advertising budgets would be cut in a recession. Small businesses cut ad spending more significantly than large ones in the last downturn, and if this occurred again in the same way, it would disproportionately impact GOOGL and FB given their heightened exposures to SMBs. To the extent that concerns around economic weakness in China play out or the current trade war with the US continues, most of the companies we cover would not be directly impacted. However, we note that Facebook likely generated $5-7bn from Chinese advertisers on its platform, whose spending trends might be impacted by economic trends in China or changes in postal regulations. Amazon might also be negatively impacted to the degree that many of the companies using its marketplace and advertising products are also based there.
Additional commentary related to these stocks follows in this note.
RISKS. Core risks for digital advertising companies relate to: 1) high degree of rivalry given an absence of barriers preventing new competition from emerging 2) overly high and increasing capital needs to remain competitive and 3) government regulations and consumer pushback related to management of consumer data and respect for privacy.
FULL REPORT INCLUDING RISKS AND DISCLOSURES CAN BE FOUND HERE: Internet Advertising 1-7-19.pdf
Click the social buttons above or below to share this story with your friends and colleagues.
The opinions and points of view expressed in this content are exclusively the views of the author and/or subject(s) and do not necessarily represent the views of MediaVillage.com/MyersBizNet, Inc. management or associated writers.