Alphabet and Meta Have an Ad Revenue Problem. What It Means for Their Stocks.

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Alphabet, Meta Platforms, and other big tech companies have seen their valuations undergo a significant correction over the last few months, as fears of a recession and rising interest rates have cooled investor appetite for growth stocks.

Internet companies that rely on advertising for a large chunk of revenue have been hit especially hard given that advertising tends to decline during recessionary periods.

That expectation has led Loop Capital analyst Rob Sanderson to lower his price targets for several large internet advertisers, including Google parent company

Alphabet

(ticker:

GOOGL

), Facebook parent

Meta Platforms

(

META

), and

Twitter

(

TWTR

).

Sanderson’s new price target for Alphabet is $2,765, down from $3,400. His new target price for Meta is $180, down from $230. He trimmed his price target for Twitter to $43 from $51.

“Whether we are actually in a recession or simply in an economic slowdown, given the limited visibility, continued supply-chain issues and ongoing Ukraine crisis, we expect very muted guidance from the digital companies during the upcoming round of earnings calls and would not be surprised if a few choose not to provide guidance,” Sanderson wrote in a research note on Thursday.

The analyst foresees a $25 billion advertising demand erosion from the current consensus, suggesting that 2024 revenue could be anywhere between 4% and 5% below current consensus across the internet companies he covers.

Sanderson maintained a Buy rating on Google, despite the significant price target reduction. He believes Google thus far has fared better within the challenging macroeconomic environment. But the company still faces risks, including rising competition, regulatory scrutiny, and the inability to turn profits on Google Cloud Platform.

The analyst retained Hold ratings on Meta and Twitter.

Alphabet stock was little changed on Thursday, while Meta had risen 1.2%, and Twitter rose 0.4%.

Write to Sabrina Escobar at [email protected]