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Are We Entering the Golden Age of Mobile Ad Revenue?

3 August 2013 in Trading Ideas

Some major players may finally be cracking the code of mobile advertising revenue.

We saw two possible pieces of evidence last week: First, Facebook saw its shares jump to their highest level since May 2012 after the company said ads on smartphones and tablets made up 41% of its recent quarter’s revenue, up from 14% a year earlier.1

The news signaled to many investors that the longstanding pessimism surrounding the company’s mobile-ad performance was now outdated. Wedbush Securites analyst Michael Pachter noted that Facebook’s mobile application has gained support from advertisers because it more closely ties ads to the activities of its users.

That’s helped Facebook post higher growth in mobile ads than Google, which controls half of the global mobile-ad market but suffers from having its key strength in web-search ads operate less effectively on mobile than on desktops, according to S&P Capital IQ analyst Scott Kessler.

Facebook is also apparently making more traction with its Facebook Exchange offering, which lets advertisers target users based on their Web-browsing history.

Last week also gave us a similar don’t-count-us-out-of-mobile-yet earnings performance from Chinese search engine Baidu.com, which coincidentally had seen its shares fall by nearly 40% from April 2012 because the company was seen as losing the mobile-ad revenue fight in China to rival Qihoo 360 Technologies.

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Baidu, which has been investing heavily in its products and recently bought a third-party app store to compete with Qihoo, struck back with results that showed its mobile ad revenue alone in its most recent quarter eclipsed all of Qihoo’s revenue in the first quarter.2

onward online ads The strong showings by Baidu and Facebook have not only helped their respective stocks, but have also been a boon to investors in mobile-ad revenue investment alternatives. The Onward Online Ads motif has gained 24.7% in the past month. During that same period, the S&P 500 has increased 6.0%. In 2013, the motif has gained 41.3%, and the S&P 500 is up 18.3%.

china internet Baidu’s results have also given Chinese Internet stocks a boost, as has the decision by Qihoo to take on Baidu directly by purchasing Sohu.com’s search engine. The China Internet motif, which has a 37% weighting of Baidu and Qihoo shares, has climbed 31.0% in the past month. The S&P 500 has gained 6.0% in that same period. In 2013, the motif is up 51.4%, and the S&P 500 has gained 18.3%.

Naturally, investors would do well to keep in mind that with some companies winning the mobile-ad revenue battle, others won’t fare so well. For all its market share, Google posted quarterly results last month that missed analysts’ estimates in part because advertising tied to mobile devices crimped average prices.

1Callie Bost, “Facebook Rises to Highest Since May 2012 on Mobile Gains,” Bloomberg.com, July 29, 2013, http://www.bloomberg.com/news/2013-07-29/facebook-rises-to-highest-since-may-2012-on-mobile-gains.html.

2Paul Mozur, “Baidu Trumps Qihoo in Mobile,” WSJ.com, July 25, 2013.