Advertising blip expected to hit social media stocks

*Sound switches suddenly from air raid sirens to “Chicken Fried” by the Zac Brown Band*. Terrible timing and placement.

Applebee’s ad in February serves as a lesson for advertisers and a warning on the ad market’s outlook this quarter.

A war and supply chain crisis has caused advertisers to pull back spending — which could have repercussions on ad-reliant social media platforms.

2021 was another strong year for advertising

Digital ad revenue rose 35% to $189B in 2021 (vs. 12% growth in 2020) — the highest increase since 2006.

• New businesses contributed to the growth — with a record 5.4M new business applications.
• In a separate report, Insider Intelligence forecasted Google, Facebook and Amazon to make up 64% of ad budgets in 2021.

One fast-growing platform is missing from this list — TikTok. Advertising is the business of capturing attention, and TikTok is succeeding.

• The average time spent daily on TikTok was 93 minutes — 69% above Instagram and 4x more than Snapchat (WSJ).
• TikTok’s 2022 ad revenue is expected to pass Snapchat and Twitter combined (AdAge).

TikTok’s growth will negatively impact Meta, Snap and Alphabet-owned YouTube — all competing with short-form videos. It’s a shame TikTok’s parent company, ByteDance, isn’t public.

Analysts are cautious about the sector

…expecting a tough quarter ahead while reducing advertising sales forecasts for 2022 by 1-2%:

• Analysts expect war and supply chain impacts to reduce ad budgets — with advertisers avoiding ads next to negative content.
• AAPL’s iOS changes — which reduced advertising performance — have also impacted spending.

RBC analyst Matt Swanson expects to see these challenges stabilize in the second half of the year. But a recession could derail those plans — advertising being one of the first business expenses cut when the economy goes south.

2022 estimates: Media investment firm Magna expects ad spending to grow at 11.5% this year — reduced from 12.6% considering war impacts.

Investors: Earnings will provide more clarity

In 2022, Twitter is the only major ad platform with positive returns, and investors can thank Elon Musk for that.

• $FB down 35%, $GOOGL down 11%, $PINS (Pinterest) down 38%, $SNAP down 28%
• Among these platforms, trading and research firm MKM Partners sees the largest upside in Pinterest — a price target of $42 (85% upside).

Research firm, MoffettNathanson, sees Google being “the strongest and safest part of the marketing funnel” — benefiting from iOS changes (WSJ). But $GOOGL hasn’t been safe from market downturns — falling 10% this year.

How many negative impacts are priced into stocks, and will upcoming earnings surprise investors? Find out Thursday — with $SNAP first to report.

Question: Did the CNN/Applebee’s commercial top this Applebee’s Twitter exchange?

Elsewhere: Meta’s metaverse has no traction or legs — and its core ads business should worry investors.