Digital advertising stocks in focus as global ad sales surge

GroupM forecasted global ad sales to jump 19% in 2021 — up from the predicted 12%. Digital ads are expected to grow the fastest at 26%, putting digital advertising stocks in focus.

What’s the big deal? Advertising is rebounding quickly and digital ad platforms are positioned to win big.

• At the start of the pandemic, advertising fell sharply but digital ads recovered as it increasingly became the default method for reaching customers.
• Many digital businesses launched in the pandemic, likely contributing to the growth in digital ad spend.

Digital is expected to continue to grow from 57% of total US advertising to 69% by 2026.

Where’s the industry headed? In 2020, Alphabet, Facebook, Amazon, Alibaba and Tencent collected 66% of global ad spending. Over the next 3 years, that total is expected to grow to 72%.

The big are getting even bigger but despite their dominance, stock returns have skewed towards smaller digital advertising stocks. In the past year:

• Smaller platforms like Twitter is up 78%, Pinterest is up 224% and Snap is up 206%
• Bigger platforms like Alphabet, Facebook, Amazon, Alibaba had an average return of 37%

But don’t count the big guys out. In the first 3 months of 2021, digital ad platforms became a favorite trade among hedge funds. Facebook was the top position held amongst 630 of the largest funds — with Amazon, Alphabet and Alibaba also making the top 5.

Where else to look? Connected TV (CTV) ads — the delivery of TV ads via the internet — is on track to grow 25% this year.

• See how CTV is disrupting the traditional TV advertising industry. For starters, TV ads are declining from an increase in cord-cutting.
• Who’s playing in the CTV space? Roku (NASDAQ:ROKU), Magnite (NASDAQ:MGNI), Trade Desk (NASDAQ:TTD).