Why the Trade Desk, Meta Platforms, Roku and Other Digital Advertising Stocks Crashed Today

What happened

Instantaneous (INSTANTANEOUS -43.08%) issued a warning after the market closed on Monday, suggesting the economic situation was rapidly declining, sending its shares down as much as 41.7%. As a result, many digital advertisers and social media stocks plunged in unison.

pinterest (PINS -23.64%) was the hardest hit, with shares down about 22% as of 1:30 p.m. ET. Shares of The trading post (TTD -18.51%) and Roku (ROKU -13.74%) fell by 19.8% and 18% respectively. Metaplatforms (FB -7.62%) was down 9.6%, while PubMatic (PUBM -15.85%), magnite (MGNI -13.15%)and Criteo (CRTO -6.46%) fell 15.4%, 14.2% and 5.4%, respectively.

This sell-off seemed to indiscriminately wipe out nearly every business that depends on digital advertising for their livelihood, fearing a recession was imminent. Advertising is one of the top P&L cost items that companies seek to reduce during an economic downturn, but not all digital advertisers are created equal.

Image source: Getty Images.

So what

In a regulatory filing late last night, Snap, the parent company of social media site Snapchat, said: “The macroeconomic environment has deteriorated further and faster than expected. As a result, we believe it is likely that we will report revenue and adjusted EBITDA below the low end of our guidance range for the second quarter of 2022.”

It sent many analysts rushing to sharpen their pencils, quickly revising their projections for the quarters ahead, and in many cases what they had to say was disheartening.

Morgan Stanley Analyst Brian Nowak appeared to capture the gloomy mood, saying the “surprisingly bearish guide” was “notable”, particularly in regards to the rate at which Snap’s business has deteriorated, adding that he believes that the weakness reported by the company is likely widespread across geographies and verticals. Additionally, Nowak thinks all digital advertisers will feel the pain to one degree or another, especially smaller-scale platforms, including Pinterest.

Jefferies analyst Brent Thill discussed the issues ahead for Meta Platforms, saying the deteriorating economy “will likely impact the entire advertising industry.” JP Morgan analyst Doug Anmuth took a similar stance, noting that “Snap’s cautious tone creates additional risk for other online ad estimates.”

However, KeyBanc’s Justin Patterson had a different view, suggesting that while Snap’s update put the entire industry on the defensive, big digital advertisers including Meta Platforms, The Trade Desk and Roku would hold up much better. than those without scale – which could include platforms such as Magnite, Criteo and PubMatic.

Now what

With apologies to Thomas Paine, “These are the times that try the soul of investors.”

Wall Street has been plagued by economic uncertainty for months, with the specter of a recession lurking behind the scenes. So it shouldn’t be too surprising that the likelihood of a full-fledged economic downturn has gone up a notch.

That said, The Trade Desk, Meta Platforms and Roku are leaders in their respective industries and while they could be hit in the short term, the future looks bright and the trio are much better positioned to take on any storm than their little digital advertising. counterparts.

That puts these three companies at the top of my shopping list today.

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