Seek and REA Group downgraded on weaker earnings outlook

Macquarie analysts have finally shifted to a more bearish outlook for local tech darlings REA Group (ASX: REA) and Seek (ASX: SEK).

Both stocks are down around -30% year-to-date and prior price targets were both expecting positive gains.

According to data from FN Arena:

• Seek downgraded to Underperform from Neutral with a $19.00 target price

• REA downgraded to Underperform from Neutral with a $90.00 target price

Media headwinds

The decline in media sector valuations was viewed as a leading indicator for weaker earnings.

The analysts forecasts that the recent pullback in valuations could imply a -20% reduction in sector earnings.

The term ‘ad market recession’ has been thrown around in the US, after Snapchat said it will miss earnings estimates due to the fact that "the macroeconomic environment has deteriorated further and faster than anticipated."

Seek was viewed as the “most cyclically exposed”, with analysts slashing its price target from $32 to $19.

REA also faces property-related headwinds, but the broker noted that earnings and dividend forecasts appear stable. 

Other tech-media related names were also on the chopping block, including:

• Carsales (ASX: CAR)

• Domain Holdings (ASX: DHG)

Seek share price chart