Facebook: Investment in Platform Key as All Advertising Goes Digital, Says Monness Crespi
The following is an excerpt from Tiernan Ray | November 23, 2015 | Barrons.com |
Monness, Crespi & Hardt’s Internet analyst James Cakmak today reflects on a four-hour presentation on the state of advertising last week by ad giant WPP that “was a fascinating discussion of what to expect along with implications on the Internet universe,” and in particular, positive trends for the December quarter.
Cackmak, who has Buy ratings on Alphabet (GOOGL) and Facebook (FB), draws several conclusions, including one chief one, that companies such as Facebook that invest in their platform technology will benefit, even as online ad spending as a proportion of budgets will remained constrained because of greater efficiency in online targeting:
New media is poised to benefit, even expected to climb to 40%-45% of WPP’s business within five years. This efficiency, however, may keep ad spend as a proportion GDP – historically in the 1%-2%-range – at the lower end in developed markets, offset by more rapid growth in emerging ones. In terms of which platforms will see the migration of dollars, we consistently hear about the time versus dollar spent delta, but for brands it’s more about meeting objectives and changing consumer behavior by facilitating engagement, regardless if the dollars correspond with time or not. Ultimately, this helps us draw several conclusions: (1) the time spent metric, such as Facebook’s, is likely less relevant than targeting capabilities; (2) efficiency of ad dollars may keep the proportion of ad budgets in check, and (3) platforms overinvesting in the tech ad stack today are best positioned to benefit tomorrow.
In India and China, which combined make up 25% of global GDP, it will be important to invest, especially for global brands:
First, just as with the ad stack, we believe it’s critical to overinvest in these markets. Second, while we say overinvest, we say so with caution for China, because the areas of opportunity are with less affluent demographics where local brands have built strong relationships. Meanwhlie, for the upper echelon, there is growing desire for national brands to globalize.
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