A Respected Analyst Ups His Traditional Media Ad Forecast


“This doesn’t happen that often!”

That’s how MoffettNathanson Senior Analyst Michael Nathanson begins his analysis of the state of U.S. advertising now that first-quarter earnings reports have been released by media companies of all types and digested by Wall Street observers and pros such as him.

With the numbers crunched, Nathanson is raising his firm’s traditional media ad forecast.

At the same time, he is lowering MoffettNathanson’s digital ad estimate.

“While by no means a catastrophe, our online advertising growth estimate is cut by 70 bps to a still excellent 21.5%,” Nathanson noted in an investor note distributed Thursday (6/6).

But, that compares to a prior growth estimate of 22.2%.

Why? He sees “significant downsides” to Snap Inc.‘s current valuations and maintains its Sell rating on Twitter. At the same time, MoffettNathanson is neutral on Facebook and maintains its Buy rating on Google/YouTube parent Alphabet.

“We are lifting our traditional ad forecasts almost across the board due to a better than
expected start to the year,” he added.

Overall, traditional media looks a tad better — or, as Nathanson clarifies, “less worse” — than he had anticipated. Concurrently, the digital outlook “is just tad less rosy as we had expected.”

That’s driven by a Q1 2019 miss at Alphabet, which MoffettNathanson expects to persist across the fiscal year.

While there’s an improved outlook for television and radio, that won’t erase downward trends from 2018 — an election year. Still, it’s great news for the publicly traded and privately held companies that own radio and TV stations across the U.S.

“All in, we expect traditional media – including Olympics and Political compares – to be down 5.1% in 2019 vs. 6.3% previously,” Nathanson said.

As a result of these adjustments, MoffettNathanson is increasing its 2019 total ad growth estimate by 40 bps to 5.8%.

The one exception — and an important one — is National Broadcast Networks. Nathanson’s revised forecast now shows ad growth to be down 5%, compared to prior 2019 estimates of 3.5%. The culprit? “Tough compares at NBC” during the first quarter.

“As we dig through current advertising market trends we are impressed by three recent
data points that surprise us and may be indicative of future outcomes,” Nathanson said. “For starters, while digital ad demand is more than healthy, the unexpected first-quarter miss at Google remains an unsolved mystery. As we dig into industry trends, we wonder if the collapse in desktop ad spend (and consumer engagement), which has plagued legacy online companies, is having an effect at Google. Both Facebook and the IAB are finally showing negative ad growth in desktop-related businesses and perhaps Google’s operations are being impacted.”

Meanwhile, National TV advertising “remains a highly concentrated market where the top 100 advertisers source more than 50% to 70% of the revenue base,” Nathanson said. “Given the fall in linear viewing among younger demos, growth is driven less by new ad clients and audience growth, but more by CPM inflation and increases in commercial volumes. Despite continual worries, this quarter’s results and early signs from the current upfront market shows that pricing power, due to the lack of GRPs, remains quite strong.”


For 2020, MoffettNathanson “slightly tempered” its expectations for U.S. advertising growth. It now estimates 9.5% growth (vs. 10% prior) around 370 bps higher than its 2019 estimate of 5.8%, driven by the Summer Olympics as well as the U.S. presidential election.

Excluding Internet, the firm forecast traditional media to increase by 1% in 2020.


Stepping back and taking a look at the bigger picture over the last four years, digital’s growth has not come entirely at the expense of TV, Nathanson concluded. “During this period, the total ad market grew from $170 billion in 2014 to $215 billion in 2018 – an increase of $45 billion,” he noted.


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