Digital advertisements have been gaining widespread popularity since some time now. This can be primarily attributed to low costs and an algorithmically narrowed target audience compared to television advertisements. Per a recent report by Magna Global, digital ad spending will constitute almost 50% of total spending for advertisements in the United States in 2018.
In such a scenario, companies offering digital advertisement platforms have been witnessing a surge in demand for their offerings eventually adding to their top-line growth.
Google & Facebook’s Waning Dominance in Digital Ad Spending
The most prominent names in this space are Alphabet Inc’s (NASDAQ:GOOGL) Google division and Facebook Inc (NASDAQ:FB), given their market share in digital advertising spending, which surpasses that of the other players combined together.
However, it is important to note that the combined market share is expected to witness a decline in 2018 per a recent report by eMarketer. The share of the two companies in the digital advertising spending, which was recorded at 58.9% in 2017, is expected to decline to 56.8% in 2018 and to 55.6% in 2020.
eMarketer also forecasts digital ad spending to reach $273.29 billion in 2018 and $357.31 billion by 2020 from $232.27 billion in 2017.
Notably, Facebook generated around 98% of its total revenues from advertising in 2017. In comparison, , Google’s ad revenues contributed to 86% of its total revenues during the same period. Both the companies registered year over year growth in advertising revenues.
However, in a situation where spending for digital advertisements is poised to increase, declining share of Facebook and Google is an area of concern for these Zacks Rank #3 (Hold) companies. This is all the more true as the advertising segment is the largest revenue contributor for both the companies.
Is Amazon Stealing Share?
Amazon.com, Inc. (NASDAQ:AMZN) seems to be the underdog in this domain and can turn into an indomitable force given its huge base of online shoppers.
In first-quarter 2018, Amazon recorded revenues of $2.03 billion at its “Other” segment, which primarily consists of sales of advertising services. This figure marked a whopping year-over-year increase of 130%, much higher than Facebook’s 50.1% and Google’s 23.5%.
Per eMarketer’s Monica Peart, senior director of forecasting, Amazon, currently fifth among the digital advertisement platform providers in the United States, is on track to reach the third position by 2020.
Management is counting on this comparatively higher margin segment as a potentially strong contributor. Reportedly, Amazon has been testing the standing of its advertising offerings against Facebook and Google.
Notable marketing firm Omnicom Group Inc.’s (NYSE:OMC) CEO John Wren stated that Amazon is “coming over the hill” and posing a bigger threat to Google and Facebook.
We believe Amazon’s ad initiatives will be a major driving force to achieve the growth projected for digital ad spending through 2020 and beyond.
Amazon currently sports a Zacks Rank #1 (Strong Buy).
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