Editor's Note: Our Communications analyst Andrew Freedman is hosting a call today at 12:30 PM ET to run through our short thesis on FB and GOOG. If you are an institutional investor interested in accessing this call or related materials email email@example.com.
Short FB and GOOG; 20-30% Downside
We are moving Facebook (FB) and Alphabet (GOOG) to active shorts in the Hedgeye Communications Position Monitor (previously long bench). We see downside to 1H20 consensus growth estimates as the spread of COVID-19 weighs on global growth and pushes the U.S. deeper into #Quad4 in Q2.
We believe investors don't fully appreciate the cyclical nature of these businesses, with advertising budgets often the first to get cut in periods of weak demand. FB and GOOG represent 66%* of worldwide digital ad-spend (digital ~50%* of total ad spend) and have significant exposure to Europe and Asia ex-China. We expect both companies to report disappointing Q1 results and provide cautious Q2 guidance in the coming months.
Andrew Freedman, CFA