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Mobile Ad Revenue: It’s The Only Fight Left

12 May 2013 in Trading Ideas

The proliferation of tablets and smartphones has not been lost on companies that peddle online advertising – nor on their shareholders, who have simultaneously rewarded and punished stocks in recent months according to how well they perceive companies are tackling the issue of generating revenue from placing ads on mobile devices.

Consider these numbers: A report from the Interactive Advertising Bureau and PricewaterhouseCoopers recently disclosed that Internet advertising revenue in the US rose 15% to a record $36.6 billion in 2012.1

That relatively solid growth figure, however, included the eye-popping revelation that mobile ad revenue doubled from a year earlier to $3.4 billion. In just one year, mobile ad revenue has climbed to 9% of all online ad revenue from 5%.

Online Ads MotifOK, 9% – not a particularly huge share of the market, and even if you grant that this ratio will surge up to near 20% by 2015 or so, why the big fuss for such a small share of the pie?

One main reason: It may be the only part of the market that’s still up for grabs.

Search ads, for example, account for nearly half of all online advertising revenue. The king of that proverbial hill, Google, hasn’t shown much weakness in its dominance there.

And where is Google focusing its efforts? Mobile ads. Indeed, the company’s stock has surged more than 12% since its April 19 earnings report, in part because a slowing decline in Google’s average ad prices suggests the company is figuring out better ways to make money as web surfers move from PCs to smartphones (It doesn’t hurt that Google takes in 93% US mobile search advertising dollars).2

Google’s jump also gave a lift to the Onward Online Ads motif, of which Google shares comprise more than 25% of the stocks in the portfolio. The motif is up 7.5% in the past month, 14.5% in 2013, and 9.6% in the past 12 months.

The same strategy is being pushed by that other online ad giant, Facebook. Its stock climbed last week after the company’s quarterly sales exceeded Wall Street estimates – and buoyed renewed hopes that the company was harnessing the power of online ads. Facebook said 30% of its revenue came from mobile advertising in its most recent quarter, up from 23% just three months ago.3

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Therein lies a possible dilemma regarding the mobile ad market. How much of this boom will ultimately serve just Google and Facebook? It’s worth noting that Pivotal Research analyst Brian Wieser said that overall ad revenue grew only 3.7% last year when you exclude those two companies – a rate not usually associated with a boom.1

With that pair of behemoths aggressively looking to soak up mobile ad dollars, it might be worth questioning how many boats will be lifted by the continuing jump in that market.

1“US Internet ad revenue grows 15 percent in 2012,” Associated Press, April 16, 2013, http://dailycaller.com/2013/04/16/us-internet-ad-revenue-grows-15-percent-in-2012/, (accessed May 7, 2013).
2“Google Q1 earnings rise 16%, mobile ads growing, Associated Press, April 19, 2013, http://articles.timesofindia.indiatimes.com/2013-04-19/hardware/38673368_1_google-plus-mobile-ads-facebook-inc, (accessed May 7, 2013).
3Brian Womack, “Facebook Revenue Exceeds Estimates on Mobile Advertising,” Bloomberg.com, May 2, 2013, http://www.bloomberg.com/news/2013-05-01/facebook-revenue-exceeds-estimates-on-mobile-advertising.html, (accessed May 7, 2013).