Our theme of Ad Tech Stocks – which includes Internet platforms and ad technology players – has had a tough year declining by around 40% year-to-date, compared to the Nasdaq-100, which remains down by roughly 22% over the same period. While tech stocks, in general, have seen a sell-off, as investors moved out of high-multiple growth stocks and pandemic winners due to surging inflation and rising rates, there are some specific factors that have hit digital advertising stocks, as well. Firstly, there are concerns about the U.S. economy, with GDP contracting over the last two quarters, forcing companies to revisit their advertising budgets. Q2 earnings from advertising players including Meta, the parent of Facebook, Roku, and Snap have also been disappointing with revenue growth falling short of estimates and this has also weighed on the sector in recent weeks. Meta, for instance, saw its first-ever year-over-year revenue decline, as sales fell 1%. Separately, there are lingering issues from mobile device behemoth Apple’s changes to its iOS operating system that prevent advertisers from tracking iPhone users without their consent. The move hurts the ad targeting abilities and revenue growth rates for many digital advertising players.
That said, we think the current underperformance of the theme presents a buying opportunity, as the secular trend of marketers shifting ad budgets from traditional channels to digital channels is very likely to hold up over the long run. Roku (NASDAQ:ROKU) has been the worst performer within our theme, with its stock down by about 70% year-to-date. On the other side, Google’s parent company Alphabet (NASDAQ:GOOG) – the Internet’s largest search and video ad seller – has fared a bit better, with its stock remaining roughly flat year-to-date.
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