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3 Stocks to Watch As Digital Ad Spending Looks Set to Shoot Up

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As coronavirus rattled the United States last year, companies had to withhold spending on advertisements to manage the impact of the pandemic. The situation, however, seems to be improving now and ad spending looks ready to make a comeback this year. According to a report by GroupM, media ad revenues in the United States, excluding political spending, are estimated to grow 22% in 2021. GroupM further stated in its report that total media company ad revenue is expected to total $279 billion in 2021 and reach $388 billion by 2026.

Digital Ad Spending Momentum to Continue

Digital advertising has become the preferred option for companies to reach out to more customers. This is because, with the emergence of social media and the rising availability of the Internet worldwide, companies are finding it easier to engage with more people online. Besides that, digital advertising is also more affordable when compared to conventional forms of advertising.

Adding to the positives, digital ads have a target audience and are not shown to every available online user. This is because such ads are designed after studying the preferences and behaviors of users online and are shown to those who might be searching for a relevant product or service. Such users have a higher chance of converting to potential customers. With digital advertising, several analytics tools are also provided to companies to track the impact of their ads among online users.

Such positives led to digital advertising growth in 2020, even when other forms of advertising took a hit. In fact, in the United States, digital advertising rose 10% last year, per the GroupM report. The momentum is expected to continue this year too as the report stated that excluding political advertising, digital advertising in the United States is estimated to increase 33% in 2021 and account for 57% of all advertising that GroupM tracks in the United States. By 2026, GroupM expects digital advertising to account for 69% of the industry.

Television Advertising Poised to Turnaround

Apart from digital advertising, television advertising in the United States is also expected to make a comeback this year. GroupM predicted in the report that advertising on National TV is set to rise 8.7% this year, following a decline of 6.9% in 2020.

3 Stocks to Watch Out For

Advertising revenues in the United States looks set to turn around this year following the pandemic-induced slump in 2020. Digital advertising is set to lead the way again and expected to account for a major portion of total advertising revenues. Such a situation makes it prudent to look at stocks that can benefit from this potential. We have selected three such stocks that carry a Zacks Rank #2 (Buy) or 3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Interpublic Group of Companies, Inc. (IPG - Free Report) provides advertising and marketing services worldwide, offering consumer advertising, digital marketing, communications planning and media buying, and so on. The company is focused on increasing its digital capabilities and has been consistently making strategic acquisitions to expand its product portfolio. On Jul 7, the company announced the launch of Performance Art, which is a global agency bringing together deep data, technology and customer relationship management expertise.

Shares of Interpublic have risen 51.2% year to date and the company currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings increased 14.6% over the past 60 days. The company’s expected earnings growth rate for the current year is 40.5%.

Facebook, Inc. (FB - Free Report) seems to be benefiting from the rapid increase in digital advertising and is looking to incorporate more video-related content on its platforms as video watching remains a significant component of digital advertising. The company’s advertising revenues in second-quarter 2021 also increased 56% year over year.

Share of Zacks Rank #3 Facebook have risen 28.8% year to date. The Zacks Consensus Estimate for its current-year earnings increased nearly 4% over the past 60 days. The company’s expected earnings growth rate for the current year is 37.8%.

Alphabet Inc.’s (GOOGL - Free Report) Google provides Google Ads services as well as YouTube Advertising and the rapid shift to digital advertising is sure to benefit the company. In fact, in second-quarter 2021, YouTube advertising revenues rose 83.7% year over year while total Google advertising revenues increased 68.9% year over year.

Shares of Alphabet have gained 53.9% year to date. The Zacks Consensus Estimate for its current-year earnings increased 10.8% over the past 60 days. The Zacks Rank #3 company’s expected earnings growth rate for the current year is 68.2%.

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