Facebook (FB) periodically infuriates advertisers for whatever shenanigans it is deemed to have crossed the line with, but despite the short-term impact, that has never really impeded its spectacular growth rate.
However, in the changing digital advertising landscape, there are now better positioned companies ready to siphon away ad spend, so says Rosenblatt Securities analyst Mark Zgutowicz.
In CY21, Facebook’s US digital ad spend growth is expected to hit 31%, while growth amongst the “emerging competition” is anticipated to be 38%. However, the gap is expected to widen next year, as Facebook’s ad spend growth slows down to 26%, but the combined competitors’ rate accelerates to 49%.
“In aggregate,” says Zgutowicz, “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.”
So, who are these entities which make up the “emerging competition?”
Some of FB’s tech giant peers, for starters. With its “accelerating ad growth trajectory,” Zgutowicz expects Amazon to pick up “an incremental +470 bps of share on Facebook in '21E-'22E.” Apple too, whose IDFA policy change has taken away its “trump card," and where 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).”
There's also Roku, whose CTV platform “continues to draw social media ad budgets,” and Gen Z favorites Snap, TikTok and YouTube Shorts. Add in names in the AVOD and SVOD ad-supported sector which are set to “capture the vast majority of linear TV ad dollar shifts to digital,” and it looks like everyone but Facebook is readying for a digital ad feast.
“Net-net,” the 5-star analyst summed up, “While the Street optimistically focuses on Facebook's ecommerce opportunity, the loss of its historical digital ‘DR’ scale advantage (a.k.a. share protection) is overlooked, in our view.”
Accordingly, Zgutowicz thinks this shift merits a new rating, and downgrades FB from Buy to Neutral (i.e., Hold), although the $400 price target remains, suggesting upside of 5% over the coming months. (To watch Zgutowicz’ track record, click here)
Zgutowicz is not the only analyst sitting on the FB fence and 3 other Holds join him on the sidelines. The rest of the recent reviews, however – all 24 – are positive, culminating in a Strong Buy consensus rating. The average price target clocks in at $424.89, implying one-year gains of 11%. (See Facebook stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.