US Digital Advertising Q1'26 Preview: Strong Direct Response Advertising Resilience, Lower Visibility for Brand Budgets

Overview

This report previews the Q1 2026 earnings season for the digital advertising subindustry covered by Goldman Sachs. The core view is that the industry backdrop is not uniformly strong, but instead shows a pattern of "strong direct response advertising, weak brand advertising, and differentiated platform performance." Channel checks and company discussions indicate that Q1 ad budgets were broadly in line with expectations set at the end of 2025, with March and early April providing clearer annual budget signals, but geopolitical and macro volatility are reducing visibility for Q2 and beyond.

Core views

Goldman Sachs remains selectively constructive, favoring two groups of stocks: first, large-cap platforms that already have scale and exposure to multiple long-term growth themes; second, mid- and small-cap names with a more asymmetric risk/reward profile to the upside. At the industry level, direct response advertising, AI/ML-driven programmatic systems, short-form video, retail media, CTV/AVOD, the creator economy, and high-intent monetization remain key destinations for incremental budgets. Brand advertising is more likely to be cut during economic or geopolitical volatility.

Analysis framework

The report combines industry channel checks, management discussions, third-party data, observations from recent industry events, and segment valuation analysis. Industry events include IAB NewFronts and ShopTalk; third-party data include SensorTower, Pathmatics, and Gupta Media; the valuation section uses methods such as EV/GAAP EBIT, EV/FCF-SBC, and sum-of-the-parts multiples.

Methodology notes

• industry_channel_checksAdvertising industry channel checks

  Assessing budget direction through feedback from advertisers, agencies, platforms, and industry events

  The report uses channel checks to identify the strength and weakness split in Q1 ad budgets, including direct response advertising, brand advertising, retail and e-commerce, online travel, automotive, and CPG verticals.

• Valuation methodsHybrid multiple and DCF valuation

  Combining EV/GAAP EBIT multiples with an adjusted DCF framework

  GOOGL's $400 target price is based on an equal-weighted mix of EV/GAAP EBIT multiples and EV/FCF-SBC multiples, and discounts forward estimates using a 12% discount rate.

• segment_valuationSegment valuation analysis

  Valuing YouTube, Google Cloud, Network, Other Google Services, and Search & Other separately

  The report derives the implied enterprise value and valuation multiple for GOOGL Search & Other by assigning sales or EBIT multiples to different business segments.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• META

  Core beneficiary platform and Buy-rated name

  Strengths

  Advertising momentum in Family of Apps remains strong, while Advantage+, generative creative tools, Reels, and creator monetization strengthen advertiser ROI and inventory monetization.

  Weaknesses

  Forward revenue visibility is affected by macro and geopolitical uncertainty, and capital spending outside Family of Apps remains a point of investor attention.

  Comparison

  Compared with smaller platforms, META has stronger scale, data, automated ad systems, and broader ad format coverage.

  Risks

  Brand advertising budget volatility, regulatory pressure, and uncertain returns on AI and non-core project capex.

• GOOGL

  Core beneficiary platform and Buy-rated name

  Strengths

  Search, YouTube, Google Cloud, and AI infrastructure all benefit from the AI theme; Google Marketing Platform and Gemini-related capabilities improve ad automation and high-intent monetization.

  Weaknesses

  Search advertising may face long-term challenges from answer engines and agentic commerce as user entry points.

  Comparison

  It has cross-business advantages across AI, search, video, cloud, and first-party data.

  Risks

  Migration to AI entry points, search monetization pressure, and intensifying regulation and competition.

• PINS

  A social discovery platform with relatively strong engagement growth

  Strengths

  SensorTower data show Pinterest posted standout usage time growth in both global and US Q1 data, with an advantage in combining visual discovery and commercial intent.

  Weaknesses

  Its ad scale and budget resilience are weaker than META's and GOOGL's.

  Comparison

  Smaller than the large platforms, but clearly differentiated in visual discovery and shopping inspiration use cases.

  Risks

  Ad budget volatility, insufficient proof of conversion efficiency, and competitors copying monetization tools.

• TikTok

  A key variable in short-form video, social commerce, and high-intent advertising competition

  Strengths

  It has launched new ad products such as Logo Takeover, Prime Time, Pulse Mentions, and Pulse Tastemakers, strengthening brand and creator use cases.

  Weaknesses

  Uncertainty remains around US and global growth, regulation, and monetization stability.

  Comparison

  It is strong in short-form video and cultural reach, but competes with META, YouTube, and retail media for experimental ad budgets.

  Risks

  Regulatory risk, budget reallocation, and user time spent peaking or declining.

• YouTube

  A beneficiary of short-form video, CTV, and monetization integration

  Strengths

  Average daily usage time is rising, and the platform has launched Creator Takeovers, creator partnership boost, Pause Ads, and first-party data integration with Kroger.

  Weaknesses

  It competes with TikTok, Instagram Reels, and CTV platforms for user time and advertising budgets.

  Comparison

  Compared with pure short-form video platforms, YouTube combines long-form video, short-form video, creator economy, and CTV ad use cases.

  Risks

  Ad pricing volatility, content costs, and shifting user habits.

Key data

• META Target Price$840The report maintains META's Buy rating and $840 target price.
• GOOGL Target Price$400The report maintains GOOGL's Buy rating and 12-month target price of $400.
• Google Marketing Platform ROAS Improvement76%At IAB NewFronts, it was noted that ROAS improved by 76% after advertisers added one GMP product to the tech stack.
• Meta US CPM ChangeQoQ about -20%, YoY about -12%Gupta Media data show that in Q1, average US CPM for Facebook and Instagram declined by about 20% quarter over quarter and about 12% year over year.
• Instagram Reels CPM ChangeYoY +10%, QoQ -15%In Q1, Instagram Reels CPM rose 10% year over year but fell 15% quarter over quarter.
• META Long-term CPM LevelAbout 1.5-2x in the US and about 3.5-4x globally versus Q1 2019Despite short-term pricing volatility, CPMs on META assets have risen significantly since 2019.
• Pinterest Usage Time GrowthGlobal YoY +13%, US YoY +30%SensorTower data show Pinterest's total usage time growth stood out in Q1.
• Instagram Usage Time GrowthGlobal YoY +14%, US YoY +15%SensorTower data show Instagram continued to maintain strong engagement trends in Q1.
• Instagram Average Daily Usage TimeAbout 56 minutes in the US, about 71 minutes globallyQ1 data were above about 38 minutes in the US and about 51 minutes globally in Q1'22.
• YouTube Average Daily Usage TimeAbout 82 minutes in the US, about 84 minutes globallyQ1 data were above about 58 minutes in the US and about 74 minutes globally in Q1'22.
• Instagram Reels ShareAbout 49% of user time and about 53% of ad impressions in the US in Q4'25SensorTower/Pathmatics data show Reels continued to increase its share of time spent and ad impressions within Instagram.
• GOOGL Search & Other Implied Enterprise ValueAbout $3.35trnBacked out from the $400 target price and segment valuation assumptions, or about 21.3x EV/'27 EBIT.

Impact & implications

The core investment implication of the report is that ad budgets are continuing to concentrate in measurable, automated, data-closed-loop, and high-intent commercial use cases. Platforms with massive user scale, strong AI ad tools, rich first-party data, and multi-channel monetization capabilities are more likely to gain budget share. In the near-term earnings season, conservative management guidance for Q2/Q3 may become a source of stock volatility.

Risks

• Geopolitical and macro uncertainty could make Q2/Q3 ad budgets more conservative.
• Brand advertising budgets are more easily cut in volatile environments, which could weigh on overall industry growth.
• High energy prices and consumer spending pressure may affect advertiser budgets over the next 4-8 weeks.
• Agentic commerce and answer engines have not yet generated meaningful advertising budgets, but they could reshape search, marketplace aggregation, and the consumer funnel over time.
• Platform ad pricing is under near-term pressure, with META's US CPM falling both quarter over quarter and year over year in Q1.
• If AI and non-core product investments do not translate into verifiable returns, valuation and capital allocation concerns could emerge.

What to watch

• How platforms frame Q2/Q3 ad revenue and budget conditions during Q1 earnings season.
• Follow-on industry and company events such as Cannes Lions, Google Cloud Next, Google Marketing Live, YouTube Brandcast, LlamaCon, and Meta Conversations.
• Adoption rates and ROAS performance for AI/ML ad automation products such as Performance Max, Advantage+, and Gemini-related ad capabilities.
• Whether agentic commerce, answer engines, and ChatGPT shopping strategies begin to generate actual advertising budgets.
• Changes in time spent, ad impression share, and CPMs across short-form video platforms, especially Instagram Reels, YouTube Shorts, and TikTok.
• Whether retail media, CTV/AVOD, creator monetization, and high-intent commercial ads continue to gain budget share.