By Sam Boughedda
Jefferies analysts downgraded both The Trade Desk (NASDAQ:TTD) and Snap Inc (NYSE:SNAP) to Hold from Buy in a note on the 2023 digital ad outlook on Thursday.
"In our view, the street is overly optimistic on digital advertising growth in '23 and '24," wrote Jefferies. "Accordingly, we lower our '23 revenue ests across our coverage by 3-7% bringing us 5-10% below consensus."
The analysts lowered the firm's price target on The Trade Desk to $55 from $65 per share, declaring it has "best-in-class fundamentals offset by a rich valuation multiple."
"We believe TTD is one of the best ways to play the shift of ad dollars to CTV from Linear TV (~$70B market in the U.S.). However, the valuation multiple at 34x FY23 EBITDA (vs. avg. 41x) is the highest in the peer group and likely already reflects these industry tailwinds. While we expect TTD to grow rev the fastest of any name in our coverage (9% in FY23), we are still well below the street's 20% growth. The stock could have upside if the shift to CTV more than offsets the expected ad budget cuts," they said.
Snap's price target was reduced to $10 from $12, explaining that a lack of catalysts causes concern.
"We believe that SNAP will continue to face several headwinds, including the iOS14.5 privacy changes, a worsening macro picture, and intense competition. While many of these factors are well understood, cons. rev ests still appear too optimistic, particularly given the lack of company specific catalysts," continued the analysts. "Accordingly, we lower our FY23 rev est and assume just 2% growth (vs. the street's 9%). The 80% YTD decline in the valuation multiple to a near all-time low could limit downside risk, but the lack of profitability and clear product catalysts bring us to Hold. A potential TikTok ban by the U.S. gov't remains an unknown, but could drive a re-rating if enacted."