Our theme of Ad Tech Stocks – which includes Internet platform players and more specialized ad technology players – has underperformed considerably over 2022, declining by a massive 30% year to date. This compares to the broader S&P 500, which remains down by about 9%. There are a couple of factors driving the sell-off in the theme. Firstly, investors have been reducing exposure to high-growth sectors and pandemic winners in anticipation of a rising interest rate environment and tighter monetary policy. Moreover, computing behemoth Apple’s recent privacy changes to its iOS mobile operating system, which prevents advertisers from tracking iPhone users without their consent across other apps and websites, is making it harder for many companies to target ads, impacting growth rates and increasing costs for some digital ad players. For perspective, Facebook (NASDAQ:FB) estimates that Apple’s changes could cost its business an estimated $10 billion in 2022, causing its stock to decline by close to 40% year to date in 2022.
So what’s the outlook like for the theme? Now, the recent underlying financial performance has actually been pretty strong, with sales rising by about 50% on average for the companies in our theme over the last twelve months. While there could be temporary headwinds, such as Apple’s privacy changes and the easing of Covid restrictions, which could cause people to spend less time on online shopping and content consumption, we think the longer-term outlook for the stocks looks strong given the secular shift from tradition channels to digital channels. For example, eMarketer estimates that U.S. digital ad spending will grow to over $315 billion by 2025, up from around $210 billion in 2021. Within our theme, Google’s parent company Alphabet (GOOG) – the Internet’s largest search and video ad seller – has fared better than the rest, with its stock declining by just about 10% year-to-date in 2022. On the other side, Roku (NASDAQ:ROKU) has been the worst performer, with its stock down by about 47% year-to-date.
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|S&P 500 Return||-5%||-10%||92%|
|Trefis MS Portfolio Return||-3%||-12%||242%|
 Month-to-date and year-to-date as of 2/22/2022
 Cumulative total returns since the end of 2016