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Online Ad Market: Getting Massive and Going Mobile

8 August 2014 in Trading Ideas

As you might imagine, the online advertising market has become enormous – and stands to become even more so.

Research firm Markets and Markets recently projected that the global online ad market will grow to $220.4 billion by 2019 – a compound annual growth rate of nearly 12%.1

While that represents all forms of web-based advertising – search, display, video – the real growth is in mobile. Another research group, EMarketer, believes mobile ad spending will jump 84.7% this year to $32.7 billion.2

Ironically, that will make up less than 10% of total ad outlays at a time when consumers use devices for 23% of their time with media, according to the Financial Times. It seems that for many advertisers, mobile marketing is within the realm of hesitation and experimentation.

 

For larger companies, however, the future seems clear: figure out mobile, and figure it out now.

Last month saw the acquisition by Yahoo of app analytics firm Flurry in an attempt to push growth in its mobile business. The value of the deal wasn’t disclosed, but the acquisition was thought to be Yahoo’s largest in two years, according to the FT.

Of course, the clearer evidence of the new importance of mobile advertising is in the financial performance of the companies who are doing well at it.

Late last month, Facebook more than doubled its second-quarter earnings as it continues to drive market-share growth in mobile. According to EMarketer, the social network is expected to account for 22.3% of the global mobile advertising market in 2013.3

Meanwhile, Twitter’s profit report last month was also well-received by investors after the company beat analysts’ earnings expectations and reported accelerated user growth in the second quarter.4

Twitter introduced mobile app install ads at the end of the quarter, which have proven lucrative for Facebook.

Shares of both companies have rallied in the wake of the strong earnings report. Facebook’s stock is up 12.6% in the past month, while Twitter has gained 8.1%.

In addition to those two companies, shares of Chinese search engine Baidu have rallied in the wake of its earnings report, which revealed that for the first time ever, mobile constituted more than 30% of the company’s revenue.

Combined, those three companies comprise a 48.1% weighting in the Onward Online Ads motif, which is up 1% in the past month. In that same time, the S&P 500 has lost 2.8%.

Over the past 12 months, the motif has gained 24.3%; the S&P 500 is up 15.5%.

As online advertising continues to grow, investors will be forced to consider whether the market has already been locked up by the sector’s current big players.

1Press release, “Online Advertising Market Worth $220.38 Billion by 2019, Aug. 6, 2014, http://www.prnewswire.co.uk/news-releases/online-advertising-market-worth-22038-billion-by-2019-270151201.html.

2Shannon Bond, “Marketers hope to bridge mobile ad spending gap,” FT.com, July 29, 2014.

3Hannah Kuchler, “Facebook doubles earnings on mobile ads boom,” FT.com, July 23, 2014.

4Hannah Kuchler, “User growth accelerates at Twitter,” FT.com, July 29, 2014.

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