- Bank of America analysts see Google's stock as the bigger recovery stock than online ad peer Facebook in the first half of 2021.
- An analyst note Wednesday outlined the outlook for major online media stocks like Alphabet's Google, Facebook, Twitter, Snap and Pinterest in 2021.
- Factors like the vaccine, regulatory changes and Apple's IDFA privacy change will all impact the companies differently.
Bank of America analysts said in a note Wednesday that Alphabet stock will benefit more than online ad peer Facebook when the world starts recuperating and emerging from shutdowns as the vaccine continues to roll out in the first half of 2021.
The note outlined the outlook for major online media stocks like Alphabet's Google, Facebook, Twitter, Snap and Pinterest in 2021. Factors like the vaccine, regulatory changes and Apple's Identifier for Advertisers (IDFA) privacy change will impact the companies differently.
Bank of America said in 2021 we'll move "back to services from goods, to private from public, and to in-person from virtual." The analysts have a favorable view on stocks that have seen the most pressure in the third quarter of 2020 on growth and those that stand to benefit most from an economic reopening.
Google vs. Facebook
Bank of America analysts said Alphabet will be a "better 'vaccine' recovery stock" than Facebook in the first half of 2021. They argued Alphabet has underperformed its FANG peers in 2020, and should see the benefit of accelerating search growth as verticals that have been depressed — like travel and local entertainment — rebound.
YouTube ad revenue is expected to rev up as its shopping tools become more sophisticated. That includes tools to add product images under ads that drive traffic directly to brands' product pages.
"Google has a more diversified advertiser base than some of its social peers, and saw a bigger deceleration in ad growth in 2Q," the analysts wrote. "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."
Analysts said Facebook has under-monetized growth drivers like Messaging, Shopping, Reels and augmented reality/virtual reality but said timing on increasing revenue visibility and expansion for those areas is less certain than a search recovery.
"If Facebook shows material progress with shopping initiatives, we think the stock could have stronger 2H'21 performance," the note said.
Amid regulatory scrutiny, analysts said they believe ongoing cases against Facebook and Google will be overhangs on the stock, but that the fundamentals of their businesses are going to matter more in 2021.
"Both companies will likely fight any efforts to regulate their core business practices or break up the companies up in court," the note says. "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."
Apple's privacy changes
Apple's upcoming IDFA privacy rules, which are set to go into effect this year, will impact advertising. Bank of America analysts said Facebook and Snap are most at risk of the changes, potentially creating a 3% revenue headwind for Facebook and a 5% headwind for Snap.
They argue Twitter has some modest exposure to mobile app downloads, but the exposure is relatively small compared to Facebook and Snap. Pinterest and Google are the least exposed to IDFA, they said.
Twitter, TikTok and Snap
For the middle-cap players, analysts see Twitter as having the most upside of its peers in the first half of 2021. They said Twitter stock has the most negative sentiment and is best positioned to benefit from a return of brand advertising spend and live event and product launches in 2021.
Bank of America said Snap's messaging functionality will help prevent users from abandoning ship in favor of TikTok. But analysts warn TikTok could start to compete for more professional content and could, as its ad business grows, start to have more attractive pricing given the demographic overlap.
Analysts also looked at the marketer boycotts to ad spend earlier this year, which they noted didn't appear to have much impact on Facebook's growth in the second or third quarters of 2020.
"But advertisers did appear to increase their dialog with Snap and Pinterest, which have had less content controversy," they wrote. "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."
CNBC's Michael Bloom contributed reporting.