When recession strikes, the advertising and media sectors are the first ones to see a noticeable impact. Companies tend to reduce their advertising budgets when the going gets tough. As a result, media companies that rely heavily on advertising spending fail to hit their revenue targets. So, if investors want to look at red flags for recession, advertising and media stocks offer good insights.
While media companies across the board feel the heat of reduced advertising budgets, some companies tend to fare better. These are mostly the ones that have diversified their income streams to reduce reliance on advertising.
In this post, we look at stocks that are likely to struggle if ad spending goes down. To come up with our list of top 10 advertising and media stocks that could tank if recession hits, we only looked at stocks that had a market cap of at least $5 billion.
A large movie theatre filled with people enjoying a film streaming on a smart TV.
10. Netflix, Inc. (NASDAQ:NFLX)
Netflix, Inc. operates as an entertainment service provider. It provides TV series, games, documentaries, and feature films across different languages and genres in over 190 countries. Owing to its strong subscription-based business model, the stock is the least likely to be affected if ad spending goes down.
The streaming giant was upgraded last month by Moffett Nathanson with an increased price target of $1,100. The upgrade was based on Netflix’s potential to boost profits through better monetization and ad expansion. Moffett predicts continued advertising expansion and subscription growth to boost profit margins to 40% by 2030.
Moffett Nathanson highlighted the company’s growth potential by saying:
We now forecast Netflix will generate over $6 billion in advertising revenue in 2027 and almost $10 billion by 2030
Similar sentiment was shown by Morgan Stanley as it maintained its Overweight rating for the entertainment firm last week. MS named the stock as its top pick in entertainment and media stocks. Analysts predict the company to show flexibility in a challenging global macroeconomic situation, replacing stocks like Disney.
After reporting Q1 results three weeks ago, the management reaffirmed its 2025 guidance. The streaming firm plans to invest in growth strategies and return excess cash to shareholders in the form of share buybacks. It aims to generate free cash flow amounting to $8 billion in 2025. Despite the clouds hanging over ad spending, Co-CEO Greg Peters highlighted plans to double advertising revenue by utilizing their proprietary ad-tech platform to improve targeting capabilities and advertiser flexibility.
9. The Walt Disney Company (NYSE:DIS)
The Walt Disney Company is a global entertainment company. The company operates in Sports, Experiences, and Entertainment segments. It distributes and produces television and film content under Disney, Fox, Freeform, National Geographic, ABC Television Network, FX, and Star brand television channels.
The entertainment firm announced the launch of its new streaming service for ESPN. The streaming service will combine content from Disney’s SVOD ESPN+, potentially user-generated content, and the ESPN linear television channel.
The service costing around $25 – $30 per month could reach 30 million subscribers over the next few years, adding $7.5 billion in revenue. If the company’s ESPN turnaround succeeds, it could add significant revenue, helping the company survive an ad spending slowdown.
The firm’s pricing strategies and strategic investments set it up for long-term growth, mainly in the Experiences segment. Theme park admissions, one of the most significant revenue sources so far, grew its revenue from $8.60 billion to $11.17 billion from 2020 to 2024. The company’s domestic parks attendance significantly improved by more than 114%.
In case of a recession, DIS still remains a risky stock. However, the earnings announced this week have forced analysts and investors to rethink their thesis on the stock. DIS jumped 10% after posting strong earnings, then doubled down with the announcement of a $30 billion theme park and an Abu Dhabi resort! The diversification could help Disney withstand any slowdown in ad spending.