Internet Stocks Seen at Risk as a Recession May Threaten Ad Spending

(Bloomberg) -- The prospect of a recession has been floated on Wall Street for some time now, and internet stocks may be at larger risk as a potentially volatile macro environment could threaten advertising budgets.

According to equity capital markets firm B. Riley FBR, “advertisers are likely to shift their non-walled garden ad budgets towards transparent and scaled platforms, potentially pressuring sub-scale less single-product focused companies.” This projection comes as analyst Lee Krowl reviewed similar downturns in 2001 and 2008, finding that GDP and trends in digital ad spend are correlated.

And while the connection has diminished over the years, “we believe this is due to the underlying adoption curve by sectors from offline to online marketing in addition to the introduction of new ad formats,” Krowl wrote in a research note. Still, pressure on margins for internet stocks may lead to some consolidation for the smaller, independent tech companies.

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