The logos of Google, Facebook, Instagram, Twitter, Snapchat and TikTok are displayed on a computer screen.
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According to analysts, the hot phase of digital advertising seemed to last into the first quarter when the journey returned and e-commerce spending halted.
Snap will be the first of the major internet ad-supported companies to report profits on Thursday, while Alphabet will follow Google, Facebook, Pinterest, Twitter and Amazon next week. These players have seen an overwhelming benefit as certain stay-at-home trends have been accompanied by massive shifts in digital advertising spending.
Bernstein analysts wrote that if the fourth quarter of 2020 was the “perfect storm” of digital advertising, then the first quarter of 2021 and perhaps the rest of the year will be a “hurricane season”.
“Undercurrents that support a strong digital advertising year include an accelerated picture-to-video upgrade cycle, television commercials ready to choose, and return of branded issues,” they wrote. “Investor expectations for 1Q prints are consistently high, if not without a little noise leading up to profits.”
Some digital advertising players had expected Apple’s privacy changes, which come into effect next week, to take effect in the first quarter. Bernstein analysts noted that “the IDFA boogeyman largely missed the first quarter, but an impending adoption of Apple guidelines could hamper second quarter commentary and management questions and answers.”
The quarter also marked a time when some consumers started spending on travel or getting back to work, while others were still in blackouts, still looking for “distraction and delivery.”
Industry analysts saw signs of strong growth in digital ads in the first quarter, in part due to increased e-commerce spending aided by recent economic reviews. In the meantime, searches are expected to steadily return throughout the year as travel brands expand their budgets.
However, the profits of digital ad-supported tech companies later this year will also show the likelihood of certain trends that helped them during the pandemic, such as e-commerce, be felt in the future.
Evercore analysts pointed out that June will be the tough first comp quarter for ecommerce names, and the ability of these “Covid winners” to sustain strong growth will help determine if demand is sustained for front pulls.
This is what else analysts say about major ad-supported tech players as they prepare to report their earnings for the first quarter.
Grab it
Some analysts view Snap’s revenue guidance for the first quarter as conservative, as the company’s management previously announced that Apple’s privacy changes are expected to have an impact in the quarter. JP Morgan analysts believe Snap’s revenue forecast of 56% to 60% should prove conservative.
Evercore analysts confirmed it, saying the 60% growth could potentially be conservative in the face of positive channel reviews and that the company said the growth could be in line with the fourth quarter if momentum continues. You mentioned that Snap’s acquisition of Fit Analytics, which enables consumers to choose the right size clothing when shopping online, is in line with Snap’s strategy of significantly accelerating monetization using augmented reality.
“Examples include Snap’s partnerships with Clearly (eyewear retailers), Levi’s and Estee Lauder, who all benefit from the ‘testability’ that AR uniquely offers,” they write. “While we believe FB and PINS are better games on the social commerce wave, we increasingly appreciate the potential of SNAP to participate.”
According to Wedbush analysts, Snap more than doubled its number of advertisers in the fourth quarter of 2020 year over year, marking a turning point for Snap as product investments bear fruit. But they still see room to grow.
“Snap has made significant improvements to its e-commerce offerings, but is still at the very early stages of what we consider a long-term opportunity in social commerce, particularly through its augmented reality offerings,” they write.
Analysts at Canaccord Genuity expect Facebook to see another quarter of the strong 33% year-over-year ad growth. They wrote that this would be in line with management’s expectations that ad revenue growth rate would remain stable in the first half of 2021 as easing e-commerce tailwinds are offset by simpler compensation.
Evercore analysts believe 33% year over year is potentially conservative and are anticipating 35% year over year growth. “As a side note, we believe the US has had the very robust small business start-ups over the past 6 years [to] 9 months was also a big new driver of ad revenue growth for FB, “they wrote.
Wedbush analysts recently started reporting for Facebook with a neutral rating, citing headwinds from stricter privacy standards.
“We are optimistic about the trading initiatives Facebook is building into its platform,” they wrote. “While we expect continued strength in these areas, a rebound in the overall ad market, and an ongoing shift towards integrating commerce into the platform, we are also balanced by our view that Facebook is the most exposed to privacy risks, particularly in relation to Apple’s App Tracking Transparency (ATT) effort restricting advertiser ID, or IDFA. ”
You wrote that Facebook’s greatest competitive advantage could become headwinds in the short term if the digital advertising world recalibrates itself to new data protection standards.
“We are not calling for Facebook’s imminent demise, but we believe that smaller digital platforms that also have strong trading functionality could make a relatively higher profit in the changing privacy landscape,” they write.
Analysts expect Google’s advertising business to see strong results in the first quarter as search and brand advertising rebound and the momentum for YouTube ads continues.
Bernstein analysts found that YouTube ended 2020 “phenomenally”, growing its ad business 46% year over year in the fourth quarter. With brand advertising spending rebounding and user engagement, “the party should continue into the first quarter and we forecast 50% year-over-year growth for the quarter.”
“The $ 60 [to] The US $ 70 billion TV advertising market is on the verge of final digitization, and channel checks also confirm this platform.
Analysts at Canaccord Genuity expect Google’s fourth quarter growth to continue into the first quarter as consumer activity normalizes and the launch of the vaccine likely increases interest in travel. Analysts expect total ad revenue to grow 24% year over year.
Evercore analysts also view the street’s advertising revenue growth expectations of 22% year over year as conservative. They expect advertising revenue to grow by 27% year over year.
“We believe that Google’s commitment to travel and its strong positioning in local (ie, physical stores) will provide tailwinds for ad revenue growth in a reopening scenario,” they write.
They added that online retail sales growth will mean positive numbers for ecommerce ad budgets, which is a top industry for Google. In addition, they wrote TSA data showing positive volume inflection from early March to April. Evercore analysts estimate that travel expenses were 10% and 15% of Google’s advertising revenue before Covid.
Mizuho said in a note that industry controls at a major agency showed that Google’s US search spend growth has accelerated. In particular, travel growth moved from -20% in the fourth quarter of 2020 compared to the previous year to 5% in the first quarter of 2021, the statement said.
Amazon
Evercore analysts expect Amazon’s ad growth to be 64% in the first quarter compared to the fourth quarter. Mizuho analysts agreed, saying that the rebound in discretionary categories will be offset by withdrawals on essential products.
“Although we expect an inline quarter, this year Amazon is concentrating on brand advertising with its DSP or Amazon Display network,” write analysts at Mizuho. “The potential seems compelling as Google generates 20% of advertising revenue from its display network.”
All eyes are on Amazon, which has just cracked 10% of the U.S. ad market this year and is expected to continue to have a stake. Amazon’s ad business is expected to continue growing if the adoption of ecommerce ad budgets remains stable.
Pinterest was another beneficiary of digital advertising for the power of e-commerce. The company has continued to develop its advertising tools and expanded worldwide. Guggenheim analysts cited third-party data showing the company is enjoying healthy momentum, even though the stay-at-home trends weakened in the first quarter and the privacy implications are uncertain.
“We see Pinterest as uniquely positioned as user intent is high and expect significant investor returns if the company continues to benefit from that value proposition,” they write.
Bernstein analysts expect Pinterest’s first quarter revenue to grow 78% year over year, with revenue estimated at $ 483 million.
“Management was expecting low revenue growth of 70% year-over-year for the quarter,” they write. “While large customers can always move the needle for PINS (positive or negative), we’ve had good feedback from D2C advertisers looking at shoppable Pins ads. The Shopify integration, which went live last year, should, too a touch more tailwind with the long, long tail. ”
With a return to branding spend, Bernstein analysts expect Twitter to beat forecast growth rates of 16% to 29% to hit 36% year over year.
In the past few months, the platform has launched new products and shared advances with others, including a shoppable tweets test and integration with Nielsen to help advertisers measure audiences and results on Twitter’s video ads.
“One of the main drivers for the company in making this happen will be to diversify its advertising revenue base to include a greater contribution from direct response, and management will likely receive an update on the performance of the newly built MAP platform over the past few months as well provide their efforts to attract. ” more SMEs on the platform, “wrote analysts from Canaccord Genuity. These analysts expect advertising to grow by 29.2% over the previous year.
CNBC’s Michael Bloom contributed to the coverage.
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