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Digital Ads Will Get Crushed in a Recession. Here’s How to Play Them.

Jefferies analyst James Heaney says Street estimates for the digital-advertising market are too high. He downgraded Trade Desk and Snap stock.

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As the U.S. heads into an economic downturn, consensus estimates for spending on digital advertising for the next two years are too high, Jefferies analyst James Heaney said in a research note Thursday.

Picking up coverage of the digital-advertising companies, Heaney said that he slashed the firm’s estimates for industrywide digital-ad spending for both 2023 and 2024, leaving his forecasts 5% to 10% below Street consensus estimates. The analyst said his view is based on the fact that ad spending and gross domestic product are highly correlated, and Jefferies is projecting a recession that will start in the third quarter of 2023 and continue through the third quarter of 2024.

Heaney adds that he expects another round of estimate cuts from the ad sector when the companies report fourth-quarter earnings, with “more negative than expected guidance” for both the March quarter and all of 2023. One offset, he says, is that valuations in the group have already fallen by 40% to 80%, “likely providing downside protection for the stocks.”

Heaney cut his ratings on shares of both
Trade Desk
(ticker: TTD) and
(SNAP) to Hold from Buy, cutting the respective price targets to $55 and $10, down from $65 and $12. 

On Trade Desk, the analyst writes that the company has “best-in-class fundamentals,” offset by a rich valuation. Heaney considers Trade Desk to be one of the best plays on the shift of ad dollars to connected television, and away from linear TV, but he notes that the stock’s valuation is among the highest in the group, and already reflects industry tailwinds. He thinks Trade Desk will grow revenue 9% next year—well below the Street consensus for 20% growth.

Heaney also thinks consensus estimates look too high for
projecting 2% growth next year, below the Street consensus view at 9%.

The analyst maintains a Hold rating on
stock (PUBM) but trims his target to $15 from $16. He warns that he sees no growth for the company in 2023, pointing to the company’s high exposure to the display-advertising market.

His one Buy rating in the group is
Integral Ad Science
(IAS), which he says trades at a 50% valuation discount to its nearest peer,
DoubleVerify Holdings
(DV). Heaney says that Integral is not immune to a recession, but adds that he views their ad verification and measurement products “as more of a ‘must-have’ than a ‘nice-to-have’.”

Trade Desk stock is down 7% to $47.25. Snap stock is 8% lower to $8.77, while Integral stock is off 4%, and Pubmatic stock is 5% lower.

Write to Eric J. Savitz at


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