(Bloomberg) -- Smaller social media stocks are slowly winning over analysts as the outlook for the advertising industry improves.
Brokers are searching beyond big names like Meta Platforms Inc. for potential beneficiaries from a recovery in the digital advertising market. As clients look to redeploy their dollars following post-pandemic cutbacks, stocks such as Snap Inc. and Pinterest Inc. are gaining favor.
“With investors thirsty for non-megacap ideas for 2024, Pinterest stands out,” RBC Capital Markets analyst Brad Erickson said in a note, upgrading the image-sharing platform to outperform from sector perform.
For Pinterest, 27 of the 39 analysts covering the company have a buy or equivalent rating on the stock, bringing its buy ratio close to 2021 highs, according to data compiled by Bloomberg. The shares rose 1.3% on Monday following RBC’s upgrade.
While Snap may not be as loved as its peer, Wells Fargo expects the Snapchat app-owner’s revamp efforts will boost growth. The stock gained 4.4% on Monday, closing at its highest level since July 2022.
“We see advertising positively inflecting at Snap for the first time since Apple’s privacy initiatives in April 2021,” Wells Fargo analyst Ken Gawrelski wrote in a note. He upgraded the stock to overweight from equal-weight and raised its price target to the highest among analysts tracked by Bloomberg.
The upgrades follow recent hikes from Jefferies, with sentiment on smaller stocks starting to improve amid bullishness on bigger peers like Meta.
Still, the industry faces risks given an uncertain economic backdrop. While Wells Fargo’s new price target of $22 predicts a 46% rally for Snap’s shares from Friday’s close, the majority of brokers expect a decline over the next 12 months. And both Snap and Pinterest have a long way to go before they can reclaim 2021 record levels.
--With assistance from Subrat Patnaik and Ryan Vlastelica.
(Updates to market close.)
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