Back to top

Image: Bigstock

5 Stocks to Tap Solid Rebound in Digital Advertising Spend

Read MoreHide Full Article

2020 was a tumultuous year for advertising industry. Cancellation and postponement of various events including sports tournaments, concerts, conferences, religious services, or any public gatherings, which constitute major portion of an advertiser’s income, weighed on the companies operating the advertising space in 2020.

Nevertheless, coronavirus crisis induced shelter-in-place guidelines promoted website sales, which led to an e-commerce boom.

Further, small businesses and “Direct-to-consumer” brands, alike, increasingly embraced the use of social media platforms, contactless payment and online delivery solutions, driven by stay-at-home trend. This, in turn, opened up new business avenues for companies in the digital marketing and advertising domain.

Moreover, the pandemic bolstered digital media consumption with consumers spending more time indoors on various media platforms and streaming video services. Thus, several local stores and restaurants began to opt for advanced search and social marketing to effectively advertise delivery, or “click-and-collect” with an aim to survive the crisis and keep their business operational while stores remained closed.

This rapid change in customer preference is a boon for agencies offering digital marketing services. Also, there has been a growing inclination toward lower-funnel marketing tools among consumer brand marketers, over branding campaigns, given the recessionary crisis.

In fact, MAGNA in its most recent forecast, expects the market share of digital media to reach 68% in 2024 and 70% in 2025, as coronavirus impact on lifestyles and broad-based business models is expected to accelerate the digital evolution in a lasting manner. It must be noted that one year ago, MAGNA had predicted the share of digital formats to reach 64% by 2024.

Markedly, the share has had grown by 3-4% per year, priorly, to reach 52% in 2019, which surged by 7% in 2020 to hit 59%.

Besides, per an eMarketer update, increasing investments in mobile, video ads, connected TV (CTV) and programmatic transactions are expected to facilitate a recovery in 2021, with U.S. programmatic digital display spending set to hit $79.61 billion.

Also, the reopening of theaters, parks and event spaces, and return of live sporting events, following the easing of lockdowns is anticipated to drive a robust 20.7% rebound in entertainment digital ad spending to $8.48 billion in 2021, per another eMarketer report.

Furthermore, massive demand for digital transformation and cloud-computing services, courtesy of the work-from-home, online learning and remote health diagnostic trends, and the optimism stemming from vaccine approvals, bolsters confidence.

The increasing usage of Internet-of-Things-based services, robotics, high user engagement across social media platforms and online gaming, music and video streaming services, in a bid to contain the virus spread, are tailwinds.

5 Best Bets

Ongoing momentum in digitization and overall shift to online-based business platforms have triggered demand for advanced digital advertising solutions.

Given the promising backdrop, we zero in on five stocks that are well-poised to grow in 2021 courtesy of strong fundamentals.

One Year Price Performance

Facebook, Inc. (FB - Free Report) continues to witness significant traction in online and mobile advertising spending. The company intends to capitalize on the opportunity presented by ever-increasing video viewing on social media platforms.

Notably, online video is the most lucrative component of digital advertising. As video ads generate more revenues than its photo and text-based substitutes, Facebook is trying to incorporate more and more video-oriented content to bring in more ad dollars. The company has launched Watch, a dedicated tab for video viewing, to achieve its goal.

Also, Instagram has emerged as an important cash cow for Facebook after introducing its ad platform to worldwide advertisers. To attract more advertisers, the social media giant has unveiled tools to promote posts and evaluate business performance directly on Instagram.

Further, a recovery in ad demand on an improving spending scenario and momentum in Facebook for Business, is expected to drive the top line for this Zacks Rank #2 (Buy) company. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for its 2021 earnings has been revised upward by 8.8% in the past 30 days to $11.28 per share.

TEGNA Inc. (TGNA - Free Report) is gaining from increasing streaming consumption, which is driving demand for Premion, its OTT advertising solution.

Premion allows local, regional and national customers to place advertising on long-form programs across a broad array of services, such as streaming devices, smart TVs and web browsers. The availability of Data Management Platform (DMP) on Premion helps agencies and publishers better target the highly coveted OTT audiences.

Further, TEGNA’s partnership deal with Gray Television is noteworthy. Gray acquired a minority ownership interest in Premion and is currently serving as a reseller of Premion’s services across all its 93 television markets.

Moreover, the company, currently carrying a Zacks Rank #2, is anticipated to gain from the recent acquisition of Locked On Podcast Network, a local sports podcast network that produces daily shows for every NBA, NFL, MLB and NHL team, and above 30 college sports programs.

The Zacks Consensus Estimate for its 2021 earnings has been revised upward by 8.2% in the past 60 days to $1.72 per share.

J2 Global, Inc. (JCOM - Free Report) is poised to gain from strength in its display business. The company’s advertising business has low exposure to local, travel, food and automotive — industry verticals that have been most affected by the coronavirus outbreak — which is beneficial for top-line growth.

In fourth-quarter 2020, the company’s Digital Media segment performed impressively with revenues up 26% year over year. The company, currently carrying a Zacks Rank #2, anticipates robust advertising business in the Gaming and Streaming Service categories to act as a tailwind through 2021.

The Zacks Consensus Estimate for its 2021 earnings has been revised upward by 5.4% in the past 30 days to $9.10 per share.

Pinterest, Inc. (PINS - Free Report) is benefiting from user base expansion and improving advertiser demand. Moreover, Average Revenue Per User (ARPU) increased driven by a rise in advertising demand on the platform.

Also, enhanced product offerings, new conversion insights, growth in product-only searches, wider Pinner and advertiser base, simplified ad systems through Verified Merchant Program and Pinterest Partners Program for small businesses, and improved advertisers’ ability to measure the effectiveness of their ad spend are expected to drive advertising revenues in the near term for this Zacks Rank #2 company.

The Zacks Consensus Estimate for its 2021 earnings has been revised upward by 48% in the past 30 days to 74 cents per share.

The Interpublic Group of Companies, Inc. (IPG - Free Report) specializes in consumer advertising, digital marketing, public relations, communications planning and media buying, and specialized communications disciplines.

It provides multi-channel advertising and communications and marketing services such as meeting and event production, public relations, sports and entertainment marketing, corporate and brand identity, and strategic marketing consulting to a broad list of customers in more than 110 countries. The company focuses on point-to-point client interaction, which enables accurate decision-making and enhanced customer focus.

The company, currently carrying a Zacks Rank #2, continues to look for strategic investments and buyouts to expand in high-growth regions and key world markets. It has opportunities to expand in the emerging and developing markets. The company's consistent dividend payments and share buybacks boost investors' confidence and positively impact earnings per share.

The Zacks Consensus Estimate for its 2021 earnings has been revised upward by 2.6% in the past 30 days to $1.96 per share.

Biggest Tech Breakthrough in a Generation

Be among the early investors in the new type of device that experts say could impact society as much as the discovery of electricity. Current technology will soon be outdated and replaced by these new devices. In the process, it’s expected to create 22 million jobs and generate $12.3 trillion in activity.

A select few stocks could skyrocket the most as rollout accelerates for this new tech. Early investors could see gains similar to buying Microsoft in the 1990s. Zacks’ just-released special report reveals 8 stocks to watch. The report is only available for a limited time.

See 8 breakthrough stocks now>>