What the rise of digital advertising means for investors
- Digital advertising now outstrips TV advertising as mobile spending booms
- Companies face an increasingly competitive landscape to reach consumers
- We see opportunities for companies to innovate in promoting their products
What long-term trend are we observing?
The COVID-19 pandemic means we are all a lot more reliant on the online world, with one study suggesting that online content consumption has more than doubled during the pandemic.1
While the extent of the shift to online was significant last year, this is of course part of a wider trend. Global eyeballs have been moving online for some time now, with companies now spending more on digital advertising than traditional advertising. In 2018, we saw digital edge out TV as the leading destination for advertising spend globally.
Share of global advertising spend by media, 2018
Consumers are also increasingly shopping and purchasing on mobile, spending a record $10.8bn last Cyber Monday. 45% of consumers shop online via mobile devices now, compared to 30% before the pandemic.2 Mobile advertising will be increasingly important to ensure that companies are targeting customers in a way that reflects how they spend their day.
Overall, mobile advertising spending is expected to reach more than $240bn by 2022.3 Particularly interesting is the move away from TV, as advertisers see consumers moving from TV to on-demand services, many of which like Netflix are based on a paid-for subscription model rather than advertising. In the US, consumers are now more receptive to ads on social media than they are on television.4
What does this mean for investors?
Estimates vary, but the average consumer in a developed market can receive anywhere from around 2,500-5,000 advertising messages every day. Companies then face an enormous challenge in standing out in this highly crowded and competitive space for consumer awareness and engagement.
While choosing the right mix of advertising channels is essential, being able to develop creative and interesting advertising campaigns and content will be crucial for companies to develop meaningful interaction with their customers around products and services. Companies like Adobe, for example, aim to support businesses in this regard by providing them with both the market insight and creative tools they need to produce interesting digital content.
We therefore look closely at companies which help connect businesses promoting their products with the people searching for such goods and services. For example, platforms with large user bases like Facebook/Instagram or YouTube (owned by Alphabet, parent company of Google) have historically benefitted from the growth of advertising by offering tailored advertising solutions to businesses.
Follow the data
This seemingly irrevocable trend towards digital and mobile spending offers a rich universe of investment opportunities, as it impacts almost all companies whose products or clients are focussed on the end-consumer.
However, it is worth noting that while digital is one of the fastest-growing advertising segments, traditional advertising will by no means be relegated to history – companies will need to focus on the right blend of digital, mobile, outdoor, TV, print and other advertising as suits their business model, to ensure they connect with consumers consistently across multiple touchpoints.
Data in particular will play an increasingly important role – both for companies and advertisers to measure the effectiveness of advertising campaigns, but also to help make marketing more targeted and personalised.
The companies mentioned in this article are for illustrative purposes only and are not a recommendation to buy or sell individual securities.
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