The problems facing businesses that depend on broadcast television are unrelenting.
That goes for whether you’re the Walt Disney Co. DIS, +0.47% that is seeing pressure on “retransmission fees” for pricey properties like ESPN or a traditional cable provider like Comcast CMCSA, -0.40% that charges end users for service.
Here’s another one: Online advertising has eclipsed TV advertising spend to notch $88 billion in total marketing spend, according to the annual IAB Internet Advertising Revenue Report.
That milestone is noteworthy not because it lays bare the challenge faced by TV-related businesses in the age of cord-cutting, which is a well-worn topic. Rather, it highlights the massive growth potential of online advertising — potential evidenced by a 21% increase year-over-year in 2017, an enviable growth rate for any industry.
So how can investors share in the fast-growing marketplace for online advertising and marketing? Here are five big players worth watching:
Alphabet Inc. GOOG, -1.91% GOOGL, -1.96% is the 800-pound gorilla of online advertising. Its dominance in search, its variety of venues such as YouTube and Gmail, and its seemingly limitless inventory via its AdSense platform make it a force to be reckoned with.
Google sucked up 44% of global online ad spend in 2017. That’s even more impressive when you consider it’s basically a bit player in the booming consumer market of China given a fraught relationship that including the temporary blocking of its services there in 2010.
The tech giant has tried to smooth things over in the region lately, such as plans to launch a curated (read: censored) version of its Play Store to sell apps in the country via a partnership with Chinese software and videogame giant NetEase NTES, -1.19%
There’s admittedly speculation about how regulations or privacy controls may hamper online advertising in general, and Alphabet’s stock specifically since the vast majority of its revenue comes via ads. However, the massive scale of its digital offerings — not to mention its cutting-edge presence in mobile thanks to its in-house Android smartphone operating system — means advertisers will still see this company as their go-to choice.
The natural pivot after Alphabet, then, is to a Chinese company that is making a lot of hay in the one region it has not yet dominated: Alibaba Group Holding BABA, -1.02%
Alibaba will lay claim to more than one third of all digital ad revenue in China this year, according to projections by industry group eMarketer. Furthermore, the group expects total Alibaba revenue to surpass TV advertising spend in the region for the first time in 2018 — and forward-looking ad technologies continue to point to growth for the company.
“Alibaba repeatedly uses the word ‘relevant’ when explaining their success with advertising,” said Chris Bendtsen, senior forecasting analyst at eMarketer. “Personalization technology has succeeded in delivering relevant content, search results and ads to mobile users on Taobao and Tmall, and this will only improve in the future. “
Alibaba is a digital behemoth much like Amazon.com, with its fingers in many pies from cloud computing to e-commerce. But this only makes it more formidable in the online ad space since it can tie up its many properties and platforms to squeeze out the competition — and ensure entrenched Western advertisers like Google never get a foot in the door.
Regardless of the push and pull in Asia, one truly global advertising platform that is only getting bigger is Facebook Inc. FB, -1.24% While No. 2 to Google, Facebook is still way ahead of the rest of the field with roughly 20% of online ad spend globally.
This is sure to grow, too, given past trends; just five years ago, FB had less than 7% total share and it now has roughly three times that figure. Furthermore, Facebook doesn’t’ just rely on its flagship social media portal that’s ubiquitous worldwide, but also is leveraging a number of hot properties with growth potential including Instagram and WhatsApp.
That latter property is particularly attractive, given both the move toward more secure messaging platforms and the success of competitors like WeChat from Tencent TCEHY, -3.80% 0700, -0.45% that have found in-app monetization via ads, games and online payment functions.
Facebook undoubtedly has the biggest hill to climb after the Cambridge Analytica scandal, and is doing its best to show it’s taking the situation seriously. Mark Zuckerberg was willingly grilled by legislators a month ago, and just this week it suspended hundreds of apps it suspected of violating users’ privacy.
The future remains uncertain, but if the past year is any indication, Facebook has what it takes to find continued growth. Shares climbed 25% in the last 12 months despite all the talk about bad actors in Russia abusing its platform during the 2016 elections, among many other things, while the S&P 500 SPX, -0.68% rose about 14% in the same period.
And given that senior ad buyers expressed preference for Facebook over Google just a few months ago as their ad platform of choice for 2018, it’s likely even Alphabet can’t keep this advertising giant down.
You may not think much about Verizon VZ, -1.44% when the conversation moves away from low-risk dividend stocks and toward more forward-thinking technologies. However, with the recent roll-up of Yahoo! in 2017 and AOL in 2015, the telecom company has a massive ad platform in its properties that operate under the Oath umbrella.
In fact, Oath sites suck up some 215 million unique visitors, according to the latest comScore rankings of U.S. websites. And while companies like Alphabet and Alibaba worry about global growth potential, those sites are laser-focused on the prime cut of all advertising targets: U.S. consumers with disposable income.
Beyond this web audience, Verizon is also using its status as the No. 1 wireless network in the U.S. and a key provider of landline services to further its advertising goals. Consider a loyalty program called Verizon Up that was launched late last year. The program outwardly looks to connect customers with free concert tickets and phone upgrades — but in the words of The Wall Street Journal, “comes with a catch: Customers must give the carrier access to their web-browsing history, app usage and location data.”
This shows how Verizon is looking to marry all those digital signals with its Oath content network, and ultimately serve up hypertargeted advertising that it can charge marketers big bucks.
Verizon may not be top of mind in the advertising wars now, but it is increasingly positioning itself to be a player in this industry going forward.
One company none of these giants can afford to count out, however, is tech titan Amazon.com AMZN, -1.59% While founder and CEO Jeff Bezos started out trying to disrupt how people buy books, his now-dominant company has branched out into just about every retail category, is ahead of all competitors with best-in-class voice assistant Alexa, dominates cloud computing and web hosting with its Amazon Web Services arm, and does way too many other things to even try to mention in this column.
One of those newer efforts worth highlighting, however, is advertising. In many ways it’s a natural evolution for the firm, given its love of automation and brutal efficiencies to drive out competitors. So-called “programmatic” advertising, where artificial intelligence draws from a massive pool of potential ads to serve the most profitable advertising in front of individual users, sounds like just the kind of thing Bezos would love to dabble in.
The challenge has always been inventory, however, since Amazon may have a great marketplace — and happily charges merchants for promotion there — but doesn’t have a convenient place to serve up ads unrelated to its e-commerce operation. However, the company is rumored to be looking at leveraging its extensive content network that includes Amazon Prime videos. That may not exactly give it reach like a Facebook news feed or Huffington Post article pages, but is a big step in that direction.
Furthermore, AdAge has reported that Amazon just yanked a core element of its advertising from Google search results — hinting that Amazon is either unwilling to enrich soon-to-be-competitor Alphabet, or that it is working on a better and more effective way to operate advertising in-house.
Either way, it’s a development worth watching. Because when Amazon comes to town, it’s time to start looking over your shoulder and wondering how long it will take Bezos & Co. to take a bite out of your business.