On Wednesday, Bank of America analysts said in a report that with the continuous promotion of the new coronavirus vaccine in the first half of 2021, when the global economy begins to recover and gradually emerge from the state of suspension, Alphabet stock will benefit more than online advertising peer Facebook.
This report outlines the development prospects of Alphabet’s major online media stocks such as Google, Facebook, Twitter, Snap and Pinterest in 2021. Factors such as vaccines, regulatory changes, and changes in the privacy of Apple’s advertiser identifier (IDFA) will have different effects on these companies.
Bank of America stated that in 2021 that they will “shift from commodities to services, from the public sector to private businesses, and from virtual markets to face-to-face transactions.” Analysts are optimistic about those stocks that are under the greatest pressure on economic growth in the third quarter of 2020, and those that have benefited the most from economic recovery.
Google vs Facebook
Bank of America analysts said that Alphabet’s performance in 2020 lags behind its FANG peers. The sluggish vertical industries such as tourism and local entertainment industry gradually ushering in recovery. So Alphabet should feel the accelerated growth of its search business.
As YouTube shopping tools become more and more sophisticated, Bank of America analysts expect its advertising revenue to grow substantially. Among them are tools for adding product images under advertisements, which can direct traffic to brand product pages.
Analysts wrote: ‘Google has a more diversified advertiser base than some of its social peers. So it saw a bigger deceleration in ad growth in 2Q. We think exposure to travel (roughly 10%), and other local activity (including retailers and local businesses) could make up over 30% of search advertising revenues, and these sectors could come back in 2021.’
Facebook failed to take full advantage of growth drivers. They include instant messaging, shopping, video, and augmented reality/virtual reality. But the time to improve revenue visibility and expansion in these areas is not determine.
The report said: ‘If Facebook shows material progress with shopping initiatives, we think the stock could have stronger 2H′21 performance.’
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Analysts believe that continuing lawsuits against Facebook and Google will pose a threat to the growth of these stocks. But in 2021, the business fundamentals of these two companies will be more important.
The report also stated: ‘Both companies will likely fight any efforts to regulate their core business practices or break up the companies up in court. Our legal experts calls have suggested Facebook has a few solid defenses vs regulatory actions, including the fact that Instagram and WhatsApp were fairly insignificant platforms at the time of the acquisition. For Google, we see distribution deals as less important to search traffic at this stage in the company’s development.’
Changes in Apple’s privacy
Apple’s IDFA privacy rules will take effect this year. They will have an impact on the advertising industry. Bank of America analysts said that Facebook and Snap face the greatest risks. This move may bring a 3% negative revenue to Facebook and Snap, and a 5% negative revenue to Snap.
They believe that Twitter has a certain risk exposure in mobile application downloads. But compared with Facebook and Snap, this exposure is relatively small. Bank of America analysts said that Pinterest and Google are least affected by IDFA.
Twitter, TikTok and Snap
Analysts believe that for medium-sized companies, Twitter’s growth in the first half of 2021 will be the largest among its peers. They said that Twitter stock is most likely to benefit from brand advertising spending, live events and product launches in 2021.
The SMS feature introduced by Snap will help prevent users from abandoning their ship and turning to TikTok. But analysts warned that in the future, TikTok may begin to compete for more professional content. Moreover, with the growth of its advertising business, TikTok’s advertising pricing may become more attractive considering the overlap of demographics.
Analysts also paid attention to the marketers’ boycott of ad spending earlier this year. This does not seem to have much impact on Facebook’s growth in the second or third quarter of 2020.
They wrote: ‘But advertisers did appear to increase their dialog with Snap and Pinterest, which have had less content controversy. Looking forward to 2021, Facebook and Twitter have the most uncertainty and risk from additional user content related issues given their user generated content focus, while Snap and Pinterest may be continued beneficiaries from ad spend diversification advertisers plan their 2021 spend.’
