Advertising stocks are ripe for digital disruption.
Long-term investors are always on the lookout for industries being disrupted by technology, and the advertising business is a perfect example. There has been explosive growth in online advertising in recent years, while traditional print and TV advertising have struggled. Pivotal Research analyst Brian Wieser recently compiled an in-depth report on his outlook for internet advertising and marketing technology stocks. According to Wieser, online advertising leaders will likely continue to experience impressive growth, despite investor fears about an economic slowdown. Here’s a look at nine online advertising stocks to watch in 2019.
Buy: Adobe (ticker: ADBE)
Wieser says he has a favorable outlook for marketing technology companies like Adobe. In particular, he says Adobe is a leader in marketing automation and has a unique ability to bundle related and integrated marketing products. Acquisitions have brought down Adobe’s near-term earnings expectations and share price in recent months, including a $1.68 billion buyout of software company Magento and a $4.75 billion buyout of marketing automation software company Marketo. However, Wieser says both those acquisitions have improved Adobe’s long-term earnings outlook. Pivotal has a “buy” rating and $262 price target for ADBE stock.
Thanks to the Google search engine, Alphabet remains the king of global digital advertising. Wieser says he sees little risk from regulatory crackdowns, such as Europe’s new General Data Protection Regulation. He also says potential antitrust actions are also not a concern, and Alphabet’s various divisions might actually be valued higher by the market in the event of a breakup. Wieser says Google is better managed than its leading competitor Facebook (FB), and regulatory crackdowns would likely help Google by disproportionately hurting Facebook. Pivotal has a “buy” rating and $1,230 price target for GOOGL stock.
Buy: Amazon.com (AMZN)
Amazon is the global leader in e-commerce and cloud services, and its next target for major disruption may be advertising. Wieser says Amazon’s long-term track record of successfully capitalizing on consumer spending and technology trends bodes well for its fledgling advertising business. Wieser says Amazon faces some near-term risk to its online retail business due to a potential slowdown in consumer spending, but its cloud business would hold up relatively well in the event of an economic downturn. Pivotal has a “buy” rating and $1,920 price target for AMZN stock.
Buy: Criteo (CRTO)
Criteo is an online advertising re-targeting company that specializes in using internet users’ online behavior to create targeted advertisements. Criteo is the largest independent ad technology company in the world. Wieser says Criteo is a well-respected pioneer in advertising. However, re-targeting is no longer at the cutting edge of online advertising technology, and Criteo’s double-digit revenue growth days are likely over. Regardless, Wieser says Criteo has been aggressively innovating and could return to revenue growth in 2019. He says the stock’s valuation implies an overly pessimistic outlook. Pivotal has a “buy” rating and $38 price target for CRTO stock.
Buy: Salesforce.com (CRM)
Like Adobe, Salesforce is a leader in marketing technology software. Most marketing technology revenue is booked in advance and is not subject to short-term economic fluctuations. Wieser says Salesforce is even more dependent on long-term contracts than Adobe, which give investors confidence about the stability of its business in an unstable market. Wieser estimates the overall marketing technology industry is growing at roughly a low single-digit pace. However, Salesforce has consistently outperformed that growth rate despite being the single largest company in the business. Pivotal has a “buy” rating and $164 price target for CRM stock.
Hold: Snap (SNAP)
Wieser says Snapchat owner has plenty of growth opportunities, but the stock remains a high-risk proposition for long-term investors. He says Snap could ultimately establish itself as a niche social media platform, and its recent user trends in the U.S. are relatively solid. Modest growth has resumed following a period of decline in early 2018 after the company redesigned its app. However, Wieser is concerned over the impact of management churn at the company, and Snap still has a lot to prove after a disastrous 2018. Pivotal has a “hold” rating and $6 price target for SNAP stock.
Sell: Facebook (FB)
Despite a disastrous year for Facebook and its investors in 2018, Wieser says 2019 could be even worse. Wieser says Facebook has a unique and extensive set of potential public relations and legal problems, including its complicency during genocide in Myanmar, its role as a tool for creating global political instability, its mishandling of user data and its lack of transparency regarding privacy breaches. Wieser says Facebook’s reputation is tarnished, and it will likely be a primary target for regulators in coming years. Pivotal has a “sell” rating and $113 price target for FB stock.
Sell: Trade Desk (TTD)
The Trade Desk has successfully reinvented itself from a company that relied exclusively on TV advertising revenue seven years ago to one at which non-TV ad revenue makes up 70 percent of its total business. With TTD stock up more than 165 percent in the past year, Wieser says investors have become too optimistic about the company’s long-term outlook. He says competition in the ad tech business and limited opportunities in connected TV advertising and Chinese ad tech will eventually create growth headwinds for Trade Desk that could contract the stock’s earnings multiple. Pivotal has a “sell” rating and $69 price target for TTD stock.
The prospects of nine internet advertising stocks.
Should you buy, hold or sell? Experts rate the following stocks:
Buy: Adobe (ticker: ADBE)
Buy: Alphabet (GOOG, GOOGL)
Buy: Amazon.com (AMZN)
Buy: Criteo (CRTO)
Buy: Salesforce.com (CRM)
Hold: Snap (SNAP)
Sell: Facebook (FB)
Sell: Trade Desk (TTD)
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Buy, Hold or Sell: The Outlook for 9 Internet Advertising Stocks originally appeared on usnews.com
