5 Stocks to Buy If You Want to Win the Internet

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internet - 5 Stocks to Buy If You Want to Win the Internet

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Last year, total media advertising in the United States was a nearly $200 billion market. Respectably, it is growing about 10% a year. Television advertising represents about a third of the overall market, making it one of the largest ad markets out there. However, it is only growing a couple of percent a year.

5 Stocks to Buy If You Want to Win the Internet

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Print, radio, and directory-related (think the Yellow Pages, which is at risk of eventual extinction) make up another third, but are about as far from growth markets as you’re likely to find.

Digital advertising, or ads that run on computers and mobile devices, has represented the fastest-growing segment in the industry for at least five years now. By next year (2017), it is expected to finally exceed TV advertising and represent a nearly $80 billion annual opportunity. Digital video from the likes of Alphabet Inc‘s (NASDAQ:GOOGL, NASDAQ:GOOG) YouTube and Yahoo! Inc. (NASDAQ:YHOO) are growing gangbusters, though still a small overall market closer to $10 billion.

The growth of the internet plays in nicely with digital advertising. The vast majority of internet sites make their money through either e-commerce, or media content to drive advertising.

Perhaps surprisingly, digital advertising is dominated by only a couple of key players. A group of smaller niche players represents most of the rest of the market. Below is an overview of the top players for investors seeking exposure to this fast-growing space.

Internet Stocks to Buy: Alphabet Inc (GOOG, GOOGL)

Internet Stocks to Buy: Alphabet Inc (GOOG GOOGL)The two largest players in digital advertising control an astounding 64% of the market. The largest by far is Google, which itself controls half of the total market.

Google dominates because of its search business. If you’re like most web surfers you “Google” an idea and a list of hotly contested URLs are generated by Google’s nearly unrivaled search engine algorithm.

Google’s search engine has migrated over rather effortlessly to mobile devices. Its popular Google Maps app also spits out local businesses and results that keeps users firmly tied to its content. Advertisers are willing to shell out impressive sums for “key words” that best ensure it will be found by those surfing the web for products and services.

GOOGL is the bona fide leader in digital advertising, and Alphabet itself is growing very respectably. Second-quarter sales jumped over 20% to $21.5 billion. The forward price-to-earnings ratio of approximately 19 is pretty reasonable given the growth trajectory.

Internet Stocks to Buy: Facebook Inc (FB)

Internet Stocks to Buy: Facebook Inc (FB)Facebook Inc (NASDAQ:FB) is the second-largest player in digital advertising.

Its 14% market share is dwarfed by Google, but no other competitor really stands close to either Alphabet or Facebook.

Facebook is growing much faster than GOOGL right now and, logically trades at higher P/E of nearly 25.

Facebook first went public in May 2012 at $38 per share. The stock has now more than tripled from its IPO price, but the firm may just be getting warmed up.

Second-quarter revenue jumped 59% to $6.4 billion and earnings nearly tripled to $2 billion, or $0.71 per share.

Internet Stocks to Buy: Microsoft Corporation (MSFT)

Internet Stocks to Buy: Microsoft Corporation (MSFT)Microsoft Corporation (NASDAQ:MSFT) lays claim to 4.5% of the digital ad market. This places it a very respectable third, but it obviously pales in comparison to Google and Facebook.

Its share is also set to rise another percentage point when it fully acquires LinkedIn Corp (NYSE:LNKD), the ninth largest digital advertiser.

The drawback to looking at Microsoft in this industry is its ad revenue is a very small subset of its dominant Windows and Office software franchises. Its Bing search engine has grown somewhat impressively from nothing several years ago, but growth outside of acquisitions is not likely to impress.

Internet Stocks to Buy: Verizon Communications Inc. (VZ)

Internet Stocks to Buy: Verizon Communications Inc. (VZ)Mobile phone service provider Verizon Communications Inc. (VZ) has also turned to acquisition to diversify its revenue stream into digital advertising. It recently acquired AOL, the number six player, with 2% total market share.

More recently it announced its intention to acquire Yahoo!, the fourth largest player at 4.4%.

The combination of AOL and Yahoo! will push Verizon ahead of the Microsoft/LinkedIn marriage and into third place.

But like Microsoft, this will represent a small percent of Verizon’s overall business.

Internet Stocks to Buy: Twitter Inc (TWTR)

Internet Stocks to Buy: Twitter Inc (TWTR)Twitter Inc (NYSE:TWTR) is the fifth largest player at 2.2%. Its fortunes are steadily declining, but at fifth it is still a leader in digital advertising.

Twitter posted respectable second quarter revenue growth of 20% to $602 million, but continues to see a deceleration in its top-line growth. 89% of its advertising stems from mobile sources, which was encouraging. Yet the company lost $107 million, or 15 cents per share, during the quarter.

TWTR is the true wild card in the space. It has failed miserably given the lofty expectations placed on it. Its forward P/E is rather high at close to 32, but it does have some growth potential and could present a nice acquisition target for other companies.

As of this writing, Ryan Fuhrmann was long shares of Twitter, but did not hold a position in any of the other aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2016/08/stocks-to-buy-internet-googl-msft-twtr-vz-fb/.

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