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Alphabet, Facebook Cut to Neutral; Citi Sees Ad-Outlay Growth Slowing

Alphabet and Facebook depend on advertising for almost all their revenue, and Citi sees ad-spending growth decelerating.
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Alphabet  (GOOGL)  and Facebook  (FB)  shares fell Monday after Citigroup analyst Jason Bazinet downgraded the tech titans to neutral from buy.

The companies, based respectively in Mountain View and Menlo Park, Calif., depend on advertising for almost all of their revenue, and he see ad-spending growth decelerating.

Bazinet left his price targets unchanged, at $2,415 for Alphabet and $320 for Facebook.

“During [the] last 15 years, internet ads enjoyed three periods of accelerating growth: 2010 to 2012, ’15 to ’18 and today,” Bazinet wrote in a commentary. 

“But, they also exhibited three periods of decelerating growth: ‘08 to ‘10, ‘13 to ‘15 and ‘18 to ‘20.”

So “even if bullish sell-side forecasts are right, the next wave of deceleration begins in the third quarter of 2021 (when year-on-year comparisons are tough) or the second quarter of 2022 (when two-year stacked growth rates peak),” he said.

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“Recent shifts – from accelerating to decelerating growth – have typically not been bullish for multiples.”

Alphabet recently traded at $2,292, down 2.5%, and Facebook near $307, down 3.8%.

Strong ad sales in the first quarter lifted the stocks of both companies. In the past three months, Facebook shares have climbed 15% and Alphabet 11%.

Numerous analysts raised their share-price targets on Alphabet after its strong first-quarter earnings report last month.

Facebook also reported strong first-quarter earnings, with net income of $9.5 billion, or $3.30 a share, compared with $4.9 billion, or $1.71, a year earlier.

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