Shares of digital advertising giants Alphabet(NASDAQ: GOOG)(NASDAQ: GOOGL), Meta Platforms(NASDAQ: META), and Netflix(NASDAQ: NFLX) were plunging on Friday, falling 4.6%, 3.5%, and 4.5%, respectively, as of 1:30 p.m. ET.
At first, the downturn may seem extreme. These companies are each large, financially strong, and leaders in their respective fields. Moreover, there wasn't much in the way of company-specific news today. So, what gives?
Basically, the market continues to be plagued by uncertainty regarding the size and scope of the Trump administration's tariff policies and their potential residual effects on the state of the economy. Today, two additional pieces of economic data were released, with each disappointing and adding to the downbeat mood. That sent the market another leg lower, as there appears to be growing anticipation of a slowdown in consumer spending, which would likely take ad spending down along with it.
Uncertainty is enough to pause ad spending
Today, the Federal Reserve's preferred measure of inflation, the Personal Consumption Expenditures Index (PCE) from February was released, with the "core" reading stripping out volatile food and energy prices, and coming in at 2.8% year over year and 0.4% month over month. Those figures were higher than expected.
Additionally, the much-watched University of Michigan consumer sentiment reading from March was also released and also worse than expected. The survey showed a reading of 57, down 28.2% from a year ago and below the already-pessimistic 57.9 reading economists had forecast.
What was more worrying about the consumer sentiment reading was that the downbeat mood appeared to stretch across political groups, even including Independents and Republicans. Some market forecasters have brushed off recent negative consumer sentiment surveys as politically biased, with Republicans' or Democrats' moods declining immediately when a new party takes power. So, to see the sour mood stretching across all political parties was particularly worrisome.
A slowdown in the economy combined with still-persistent inflationary pressures could lead to the dreaded stagflation scenario, which is usually really bad for asset valuations.
Before everyone panics, it's not a sure bet the economy will roll into a recession. The effects of tariffs are still unknown, and the administration could also roll back some of its tariff policies in response to the market downturn. While consumer sentiment is deteriorating today, the "hard data" around the economy hasn't yet shown significant cracks.
Still, the mere widespread fear, uncertainty, and doubt could very well cause companies to reduce their advertising budgets in the near term. That would certainly affect Alphabet's Google Search business and Meta Platforms' core ad business, as these two giants are the No. 1 and No. 2 digital advertising platforms, respectively, on a global basis. For all of the recent enthusiasm over both companies' generative artificial intelligence (AI) efforts, those efforts are funded through each company's massive core advertising profits.
Meanwhile, Netflix has more recently turned to digital ads, introducing a lower-priced, ad-supported tier in late 2022 to maintain its subscriber and revenue growth. In its recent 2025 outlook, Netflix anticipated it would double its advertising sales year over year. So, Netflix is also increasingly dependent on digital advertising dollars, not to mention subscriptions, which could also slow in an economic downturn.
Is it time to buy the dip?
As the economy remains highly uncertain, it's also unclear whether we are at or near the bottom of this pullback. However, of the three companies listed, Alphabet trades at just 17.5 this year's earnings expectations. That below-market multiple seems quite cheap and is the cheapest of the Magnificent Seven by a wide margin.
While there are some concerns over generative AI eating into Search traffic and revenues, that doesn't appear to have happened yet in Alphabet's financial results. Moreover, Alphabet's cloud-computing unit is now profitable and growing fast, hosting many generative AI companies, and Alphabet itself is competing hard in the AI races with its Gemini models, which have seen improving reviews and better competitive benchmarks.
While much uncertainty swirls around all three companies at the moment, Alphabet seems to have gotten particularly cheap today. But whether the bottom is in or approaching, nobody really knows.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Billy Duberstein and/or his clients have positions in Alphabet, Meta Platforms, and Netflix. The Motley Fool has positions in and recommends Alphabet, Meta Platforms, and Netflix. The Motley Fool has a disclosure policy.
