Our theme of Digital Advertising Stocks – which includes Internet platforms players and ad technology players – has declined a bit since our last update in late July. The theme has returned about 16% year-to-date, underperforming the broader Nasdaq-100, which is up by about 22% over the same period. However, this is probably a good time to look at the theme, as the secular trend of marketers shifting ad budgets from traditional channels to digital channels is likely to only pick up following Covid-19, as people spend more time online. Moreover, with Covid proving more difficult to contain the initially thought due to the emergence of new variants, the trend of working, learning, and shopping from home could continue, boding well for digital ad stocks.
Within our theme, Google owner Alphabet (GOOG) – the Internet’s largest search and video ad vendor – has been the strongest performer with its stock rising by about 64% year-to-date. Social media titan Facebook (FB) has also done well, with its stock up by 38% year-to-date. Both stocks have benefited from a surge in online ad spending and also from the broader shift to value stocks, as both names trade at low multiples relative to their growth rates. On the other side, higher multiple growth names such as Roku (ROKU) and The Trade Desk (TTD) have underperformed declining by about 3% and 11%, respectively.
[7/28/2021] Google’s Record Quarter Bodes Well For Digital Advertising Stocks
Our theme of Digital Advertising Stocks – which includes digital ad platforms and ad technology players – has returned about 26% year-to-date, outperforming the broader Nasdaq-100, which is up by just about 18% over the same period. The theme should come back into focus, following a blowout quarter from Alphabet (GOOG) – the Internet’s largest search and video ad vendor – which saw revenue rise 62% year-over-year to $61.9 billion, with net income soaring 266% to $18.5 billion over Q2, as marketers doubled down on digital ad spending to target consumers who’ve been spending more time online through the Covid-19 pandemic. Social media titan Facebook (FB) is also slated to report its numbers Wednesday and we could see similar trends.
Alphabet remains the strongest performer within our theme, with its stock up about 56% year-to-date. On the other side, Magnite (MGNI), an ad technology company focused on the connected TV space, has seen its stock decline by about 1% year-to-date.
[7/28/2021] Will Digital Ad Stocks Continue To Outperform?
Our theme of Digital Advertising Stocks – which includes digital ad platforms and ad technology players – has returned about 23% year-to-date, outperforming the broader Nasdaq-100, which is up by just about 13% over the same period. The theme is also up by a solid 184% since the end of 2019.
Unlike high-growth software and cloud stocks which have seen a correction this year, advertising players are faring well as companies are likely to scale up ad budgets as the economy continues to open post-Covid. Moreover, marketers are likely to accelerate the shift of their ad budgets from traditional channels to digital channels as customers are possibly more receptive to digital ads following the pandemic, which saw people go online to work, learn, shop, and entertain themselves. The global digital advertising market is expected to grow by around 20% this year to over $450 billion in 2021, per eMarketer. Digital ad spending is expected to account for over 60% of overall media ad spending worldwide, up from just 46% three years ago.  Below is a bit more about the stocks in our theme and how they have been faring this year.
Alphabet (GOOG), Google’s parent company, has been the best performer within our theme, with its stock rising 45% year-to-date. The gains have been driven by increasing usage across Google properties through the lockdowns and by the robust performance of the YouTube ads and cloud computing businesses.
Roku (ROKU), a vendor of streaming hardware, software, and services, has been another big pandemic winner, with its stock rising by 30% year-to-date. Roku saw its user base and engagement rise through the lockdowns as people were forced to stay home and rely on streaming and home entertainment options. Roku’s platform business – which includes its ad business and media sales – saw revenue double year-over-year during Q1 2021 to $466 million.
Facebook (FB) stock has gained about 25% year-to-date driven by a higher number of active users across its social media sites and an increasing shift to e-commerce, which is benefiting Facebook’s ad revenues. Revenue grew by a solid 48% over Q1 2021 to about $26 billion.
Magnite (MGNI), an ad technology company focused on the connected TV space, has seen its stock rise by about 19% year-to-date, driven by robust quarterly results and an increasing shift of advertising from linear TV to digital streaming services.
The Trade Desk (TTD), a major demand-side advertising platform, has seen its stock decline by about 5% year-to-date. The underperformance is partly due to Google’s plan to end the use of third-party tracking cookies in its market-leading Chrome browser – a move that investors believe will temporarily impact ad tech players.
Looking for reasonably valued software stocks with big room to grow? Check out our theme on Mid-Cap SaaS Stocks