Ad Spend Could Be a Boon for These Big Tech Stocks

As earnings season heats up, we’re looking into a macro trend that may be able to move the needle for companies in 2024: ad spend.

According to three powerful firms in the business, Dentsu, GroupM, and Magna, spending on advertising is projected to grow an average of +5.7% in 2024 compared to +4.7% in 2023.

This should bode well for major players in the ad game, several of which are due to report earnings in the coming days…

Meta Platforms (META) reports this Wednesday, April 24, after the bell
Microsoft (MSFT) reports this Thursday, April 25, after the bell
Alphabet (GOOGL) reports this Thursday, April 25, after the bell
Amazon.com (AMZN) reports next Tuesday, April 30, after the bell

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While we can’t predict actual ad spend, we CAN predict where the spend may be allocated, based on which platforms consumers spend the most time using.

Advertisers are seeking eyeballs, after all.

And LikeFolio mention growth data gives us an “insider’s” view into which platforms consumers are engaging with most…

Leaders and Laggards in the Battle for Consumer Eyeballs

Check out the chart below, which compares the rate of mention growth for each of their media brands. You’ll see some clear leaders and laggards emerge:

Reels, META’s answer to TikTok, tops the engagement list, logging 94% year-over-year buzz growth, while Google and YouTube see 30% and 25% year-over-year growth, respectively.

Also on the list are Instagram (+20%), TikTok (+20%), Facebook (+19%), Amazon Prime (+15%), and MSFT’s Bing, which trails with a startling 73% decline.

In short, META and GOOGL are outperforming peers. But there’s more to this story.

While specific Earnings Scores and trade recommendations are reserved for our paid-up members, here’s a glimpse into how this battle for consumer eyeballs could play out in the weeks ahead…

The Potential Winners

Due to its narrower focus, META is likely to prove the ultimate ad spend leader of the bunch. (But we wouldn’t be surprised by near-term volatility around its earnings report this week… Earnings Season Pass members will know why.)

We also expect Amazon to benefit tremendously from digital ad spend. The company just added ads to its Prime Video offering in January, and we saw what that did for Netflix (NFLX).

The Potential Losers

Google may be in for another disappointing showing. YouTube ad revenue came in lower-than-expected last quarter (though to the tune of $9.2 billion).

Consumers are turning to platforms like Reels and TikTok for short-form video content – and this preference could be weighing on YouTube’s ad efficacy.

The YouTube growth number we have this quarter is exactly in line with what we measured last quarter, so we don’t see significant improvement there. (Though the bar may be lower now.)

The Wild Card

Microsoft is the clear laggard in this group, with consumers less than enthusiastic about using its search engine, Bing.

The company generated around $12.21 billion in revenue from search advertising in fiscal year 2023.

We also know Microsoft is restructuring how it leverages ad spend, thanks to early commentary from ad buying platform Perion Network (PERI):

“In the first quarter of 2024, Perion experienced a decline in Search Advertising activity, attributable to changes in advertising pricing and mechanisms implemented by Microsoft Bing in its Search Distribution marketplace,” read the April 8 press release.

Those “changes” were significant enough for Perion to slash its annual revenue forecast.

If those same ad changes are in Microsoft’s favor, however, it may well report an unexpected ad boost.

Still, we believe declining interest from consumers is more alarming, and ad spend may not prove enough to move the needle for this large tech name versus its other segments like Cloud, Business Processes (Microsoft Office Suite), and other elements of personal computing like Windows, Surface, and Xbox.

Bottom line: Increased ad spend is likely to benefit AMZN and META the most over the long haul. We are buyers of both names on dips.

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Until next time,