By Senad Karaahmetovic
Piper Sandler analyst Thomas Champion updated the firm’s Digital Ad research coverage by cutting the recommendation on Pinterest (NYSE:PINS) and Snap (NYSE:SNAP) to Neutral from Overweight.
Although a major selloff has significantly reduced the group multiple, the analyst believes it still may not improve “anytime soon.”
“The composite EV/NTM sales multiple for our Digital Ad cohort at ~4.4x is now ~40% off the recent peak. As we put the current period in context, it's possible the '11-'12 period is a useful compare, when the group multiple remained dormant at ~4x EV/NTM sales for about a year (following an uneven period of ad market growth out of the GFC). Numerous macro factors are currently flashing caution, suggesting a measured near-term market growth outlook most appropriate,” Champion told clients.
The lowered ratings also reflect a more cautious stance on Digital Ad growth with the 2022 YoY growth revised to 11% from 15%. The analyst is mostly concerned about Snap.
“Last week's pre-announcement was indicative of deteriorating conditions. Our checks suggest slowing spend in SNAP’s two largest verticals (Media & Entertainment and Apparel). We further weigh Snap's Brand exposure, loss of signal from ATT, and more challenging competitive environment. Our April Teen Survey showed TikTok is now the favorite app among teens. We lower '22/'23 revenue by 4%/11%.”
On the other hand, Champion remains most bullish on Google (NASDAQ:GOOGL) as checks suggest the internet giant “may be taking share and has made differentiated product improvements.”
New price targets on PINS and SNAP are $23.00 and $18.00, down from $35.00 and $30.00, respectively.