The World's 10 Biggest Digital Advertising Stocks

The shift in advertising budgets from traditional media like television and newspapers to digital is well underway. Analysts expect that U.S. Digital advertising spend will surpass TV advertising next year by $5 billion.

Overall, eMarketer expects digital advertising spend is expected to double from 2014 levels by 2020. The growth rate in China is even faster, with digital ad spend growing 3.5 times over the same period.

That’s great news for companies on the receiving ends of those ad budgets. And investors could do well for themselves if they chose the right digital advertisers to invest in.

7 A-Rated Stocks to Buy and Hold for Q2 and Beyond!

Here’s a quick rundown of the 10 biggest digital advertisers in the world, from smallest to largest 2016 digital ad share, and how they’re taking advantage of this huge shift in ad budgets.

Digital Advertising Stocks: Verizon Communications Inc. (VZ)

Digital Ad Share: 0.7%

Verizon Communications Inc. (VZ) enters the list of top 10 digital advertisers thanks to acquisitions of AOL and Millennial Media. The company also controls the former display advertising business of Microsoft Corporation (MSFT) by virtue of the deal between Microsoft and AOL last year.

As Verizon builds its advertising technology warchest, it’s also looking to expand on AOL’s existing content channels to deploy its advertising. Still, in 2016, eMarketer expects Verizon’s share of digital advertising to total just 0.7%. That’s actually down from AOL/Millennial Media’s combined share last year of 0.8%.

Verizon picked up lots of ad tech in the AOL acquisition as well as a few big content sources like Huffington Post. But Verizon is looking to expand with its recently launched Go90 video service. Early indications are that it has yet to attract a significant audience, but Verizon continues to explore content deals for streaming video.

Meanwhile, Verizon is looking to improve the monetization of existing properties by leveraging its subscriber data and the acquired Millennial Media ad network.

The combination allows Verizon to target users across all different media and devices, leading to improved monetization. Still, the company’s bread and butter comes from its wireless service and FiOS.

Digital Advertising Stocks: IAC/InterActiveCorp (IAC)

Digital Ad Share: 0.7%

IAC/InterActiveCorp (IAC) is the company behind more than 150 Internet brands, including Match Group Inc (MTCH) and its portfolio of dating websites, as well as Vimeo and other video websites. It’s mostly in the business of acquiring web properties and growing their audiences and monetization.

Growth at the company has been relatively slow, and it’s not expected to keep up with the market. Analysts expect its share of digital advertising sales to fall to 0.7% this year from 0.8% last year.

One factor for investors to consider is that IAC signed a new revenue sharing contract with Alphabet Inc (GOOG, GOOGL) subsidiary Google for its publishing properties (About.com, Ask.com, Dictionary.com, etc). The new deal lowers IAC’s revenue share on mobile, but it’s non-exclusive, which means IAC will be able to shop around for a better deal. The new contract goes into effect at the start of the second quarter, and should have a negative impact on digital advertising revenue.

4 3D Printing Stocks Rising From the Ashes

In the meantime, IAC continues to shop around for acquisition targets. It failed to acquire Angie’s List Inc (ANGI) last year, and has since announced a stock buyback authorization to appease investors. IAC would likely rather invest in another web property than buyback its own shares, but either way investors should see its money go to use in the near future.

Digital Advertising Stocks: Twitter Inc (TWTR)

Digital Ad Share: 1.4%

Twitter (TWTR) was once a high-flying revenue growth machine, but a lack of user growth over the past year has dampened expectations. Just two years ago it was doubling its ad revenue year over year. This year analysts expect revenue growth in the low 30% range. Its share of the digital ad market is expected to climb ten basis points to 1.4%.

Last quarter, Twitter saw its first ever decline in active users, falling from 307 million to 305 million (excluding SMS Fast Followers).

Twitter said active users returned to third-quarter levels by the time it wrote its letter to shareholders, but with slow to no growth, Twitter needs to start figuring out how to maximize its revenue per user.

CFO Anthony Noto has mentioned in the past that there’s still plenty of room to increase the ad load in the timeline. Additionally, the company announced that it’s starting to test showing ads to logged-out visitors, of which it has about 500 million.

Management says that it believes it can monetize those visitors at a rate of one-half its regular users, but that seems optimistic as advertisers appear to be exploring other social media options, like Facebook Inc (FB), Instagram and Snapchat before looking to Twitter.

Digital Advertising Stocks: Yahoo! Inc. (YHOO)

Digital Ad Share: 1.5%

Yahoo! (YHOO) continues to fall down this list as its search and display ad businesses lose ground to better search businesses like Google and Bing, and to social media companies like Facebook.

CEO Marissa Mayer has been unable to right the ship via various social and mobile-focused acquisitions, and that’s reflected in its advertising revenue growth (or lack thereof). Yahoo’s share of the digital advertising market will fall to 1.5% this year.

Yahoo got a boost in 2015 thanks to signing a deal with Mozilla to become the default search engine in its FireFox web browser. However, that deal came with a hefty cost, requiring Yahoo to share a portion of its revenue with Mozilla.

Traffic acquisition costs ballooned to $877 million last year from $218 million the year before, negating any positive impact from the Mozilla deal. Ad revenue, excluding TAC, actually declined.

10 Blue-Chip Stock Charts to Watch in Q2

Yahoo is reportedly exploring the sale of its core business, which is currently propping up its stock value. The real value of the company comes from its holdings in Alibaba Group Holdings Ltd (BABA) and Yahoo! Japan.

Digital Advertising Stocks: Microsoft Corporation (MSFT)

Digital Ad Share: 1.6%

Microsoft still ranks relatively high up on this list even after selling off its display ad business, which mostly powered MSN, to AOL, now owned by Verizon — in the middle of last year. Microsoft’s digital ad revenues now come from Bing, and have been able to keep pace with market growth. This year, Microsoft is expected to take 1.6% of the digital advertising market.

Microsoft’s decision to sell off its display advertising business had been a long time coming. It wrote down almost its entire purchase price of aQuantive, an advertising analytics company it purchased for $6.3 billion in 2012. It later sold some of those assets to Facebook. When Satya Nadella took over as CEO in 2014, display advertising was clearly way down on his list of priorities.

But Bing has finally become profitable with the help of integration in Windows 10. The company reported Bing turned a profit in the first quarter of fiscal 2016, and 20% of search revenue came from Windows 10 devices.

As Windows 10 proliferates to more computers, Bing may be able to maintain Microsoft’s share of digital ad spend, but investors shouldn’t expect it to grow any faster than the market. Microsoft has much bigger revenue sources anyway.

Digital Advertising Stocks: Tencent Holdings Ltd (TCEHY)

Digital Ad Share: 2.4%

Tencent (TCEHY) built its success as China’s biggest online games company, but it started pushing heavily in advertising in the last year or so.

During the company’s fourth quarter, ad revenue more than doubled year over year to 5.73 billion yuan ($885 million), accounting for 19% of the company’s total revenue. In 2016, Tencent is expected to attract 2.4% of digital advertising budgets.

The big driver behind Tencent’s ad growth is its decision to place ads in WeChat. It added banner ads in 2014, and last year it added in-line ads on its Moments section, which looks similar to Facebook’s News Feed. Last month, Tencent opened Moments to everyone by allowing ad purchases to be made online. Previously, it only dealt with large companies using a sales team.

Facebook Inc: Will FB Sell Its Soul to Win China?

Tencent believes it has a long runway ahead for its advertising business. It plans to grow slowly in order to get things right for the nearly 700 million people using WeChat every month.

Digital Advertising Stocks: Alibaba Group Holdings Ltd (BABA)

Digital Ad Share: 5.9%

As a result of being one of the world’s largest retailers, Alibaba owns a lot of prime advertising real estate. Anytime a user searches for a product on one of Alibaba’s websites, the company displays sponsored results alongside organic results.

Considering product searches produce some of the highest ad prices for search companies, Alibaba is able to make a significant amount even with its limited scope. Alibaba is expected to take 5.9% of the digital advertising market this year.

But that growth may be short lived. In Alibaba’s fiscal third quarter, the company’s gross merchandise volume grew just 22% year-over-year, a significant slowdown from the prior year.

Alibaba was able to beat revenue and earnings expectations thanks to improved advertising revenue on mobile, particularly on TMall.com and Taobao.com. That growth is not sustainable beyond this year, as ad placement has been optimized.

Alibaba has some of the best platforms to advertise on, but investors thinking that last quarter’s ad growth is a sign of better things to come may need to look elsewhere for ad revenue growth in China.

Digital Advertising Stocks: Baidu Inc (ADR) (BIDU)

Digital Ad Share: 6.1%

The Chinese search giant has grown quickly as China’s Internet population expands beyond the major metropolitan areas. But after several years of huge growth, Baidu (BIDU) now finds itself in a similar position as Google.

Search advertising is being overtaken by display and social advertising, and while Baidu is expanding well beyond search, it’s growth is expected to slow. Still, Baidu is expected to expand its share of digital ad spend from 5.6% this year to 6.1%.

Baidu warned investors that it expects revenue growth to slow further in the first quarter to 27.8% to 32.5%. In the same period last year, Baidu grew revenue 34%. Baidu is facing increasing competition on mobile from Alibaba and Tencent.

Product searches on Alibaba are drawing a larger share of ad budgets, and Tencent’s WeChat is taking up an increasing amount of time on mobile.

10 Dividend Stocks to Buy for the Second Quarter

With Chinese Internet users spending more time in apps and strong competition from Alibaba, Baidu must work hard to maintain its dominant footprint in China.

Digital Advertising Stocks: Facebook Inc (FB)

Digital Ad Share: 12%

Facebook has gone from zero to 60 in just a few years. In 2009, the social network generated just $764 million in advertising revenue, and the idea of generating revenue from its mobile website was just a pipe dream. Last year, Facebook generated nearly $18 billion in advertising revenue, 77% of which came from mobile.

More importantly, Facebook is still growing its revenue rapidly. EMarketer expects it to take a 12% share of the digital advertising market this year. The company just opened Instagram’s advertising API about six months ago, and it’s already attracted 200,000 advertisers. Additionally, Facebook is exploring ways to monetize Messenger and WhatsApp.

Investors also shouldn’t discount growth of its flagship product. Average ad prices continue to climb even as Facebook increases total users and ad engagements per user.

Facebook’s ability to grow its ad pricing through new products and improved targeting should enable it to grow ad revenue even as it comes increasingly close to saturating the market.

Digital Advertising Stocks: Alphabet Inc (GOOG, GOOGL)

Digital Ad Share: 30.9%

Google is far and away the largest digital advertiser. But Google’s hold on the market is slipping as display advertising and mobile outstrip search advertising — its crown jewel.

Google has certainly held its own, but its share of digital ad spend is expected to fall from 33.3% last year to 30.9% this year, according to eMarketer.

Google’s control over Android and the Google Play Store certainly plays well into the shift to mobile. The company started advertising in the Google Play Store last year, and it recently started allowing users to stream apps directly from search ads. These kinds of new products take full advantage of Google’s strengths, and ensure that it won’t find itself completely overtaken anytime soon.

Google also owns YouTube, which continues to grow its total watchtime and ad engagements year after year. The growth of YouTube on mobile is impressive, with management noting total watchtime doubled year-over-year in the second quarter of last year.