Proactive Investors - The outlook is improving for the digital sector, including key industry players like Alphabet (NASDAQ:GOOGL) Inc's (NASDAQ:GOOG)'s Google and Instagram and Facebook (NASDAQ:META) owner Meta Platforms Inc (NASDAQ:META, ETR:FB2A, SWX:FB), according to UBS.
The Swiss bank's Evidence Lab research points to low double-digit growth for 2024, which contrasts with the low single-digit growth rates observed in December.
"This uptick is due to a confluence of factors including stronger consumer demand and increased [ad] spending across key verticals such as pharma and healthcare," UBS analysts wrote in a note to clients.
Online advertising budget growth is seen slowing in the first quarter for Alphabet, to 11.2% from 13.4% in Q4, while for Meta it is seen inching up to 12.9% from 12.8%. For the year as a whole Alphabet is forecast to see 10.2% growth in 2024, up from 9.2% in 2023, while Meta is predicted to enjoy 14.3% growth, up from 10.3%.
Furthermore, technical hiring at major technology companies is experiencing a slower pace in the first quarter of 2024, indicating ongoing operational expense controls at Google and measured investments at Meta, aligning with their respective guidance.
Google 'needs to cut more costs'
Google's earnings are "poised to stagnate" unless it announces significant cost reductions or introduces a new, substantial revenue stream that could elevate earnings per share to approximately $9.00 or more, the Swiss bank reckons.
"The stock may remain in a neutral position unless these changes are implemented," the UBS US internet team said.
Currently, Google's stock is trading at around 21 times its projected 2025 earnings per share of $7.50. The focus for the current quarter is expected to be on capital expenditure, which will provide insights into the company's directional strategies for 2024 and beyond.
Google's Search and YouTube segments have seen adjusted forecasts for first-quarter year-over-year growth, now expected at 13% and 17% respectively, slightly ahead of prior estimates.
Meta drivers are many
Meta, meanwhile continues to see various growth drivers including the expansion of its Reels feature, Advantage+ program, and Click to Message advertisements.
"Additionally, the expected influx of advertising dollars from Chinese companies aiming to reach international markets could provide a significant tailwind," the analysts said,
UBS projects Meta's advertising revenue to grow by 23% to $34.6 billion in the first quarter of 2024, with total revenues potentially reaching $35.7 billion. These figures are at the higher end of investor expectations, which range from $34.5 billion to $37 billion for the quarter, with second-quarter revenues expected to approach $39 billion.