Internet companies generally over-delivered, at least on a relative basis, with their first-quarter earnings, according to analysts at Canaccord Genuity (TSX:CF, LSE:CF).
Nearly 80% of the companies in the firm’s coverage sphere exceeded revenue expectations in the quarter, according to a note published Friday.
That said, macro challenges kept that progress largely in check on an absolute basis, the analysts wrote.
“Many of our covered companies exhibited tempered growth on an absolute basis as inflation, rising interest rates, and tightening consumer discretionary spend were compounded by difficult comps,” analysts wrote. “On a more positive note, with many companies having implemented cost reduction initiatives in recent quarters and increasingly emphasizing the need for efficiency gains, profitability was largely better than expected, with over 50% of companies exceeding our expectations.”
Looking ahead, there are some signs that internet companies could pick up momentum, particularly regarding digital advertising.
“There is some cautious optimism that Q1 may have been the bottom for ad budgets, which could also portend some back-half momentum for eCommerce, while service-oriented names like Uber, Vivid Seats, and Rover should remain more insulated from ongoing macro pressures relative to eCommerce,” analysts wrote.
“Our view heading into earnings was that budgets had likely bottomed and that macro pressure on advertisers should gradually alleviate throughout 2023 given less economic turbulence and progressively easing comps, and Q1 results largely reinforced that expectation.”
Case in point, Alphabet’s results were in-line with the firm’s expectations, and Meta’s results were better than anticipated. Canaccord expects momentum to pick up for both companies as the year goes on, thanks in part to their investments in artificial intelligence.
The firm also pointed to strong demand for services bolstering the gig economy.
“Demand for gig economy services remains largely robust, with travel momentum persisting and live event demand showing no signs of weakening,” analysts said. “While Vivid Seats is facing a competitive marketing environment, we think ongoing brand investments and the company's loyalty program should support steady growth over time, and Uber's valuation remains attractive following another quarter of steady execution and broad-based outperformance.”
Contact Andrew Kessel at andrew.kessel@proactiveinvestors.com
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