Since 2000, as we recovered from the dot-com bubble, the most important trend in our economy has been the rapid growth and expansion of digital technology. We see it in many sectors, from retail to banking to marketing, with the latter becoming a superpower for leaders in the technology industry.
That doesn’t mean digital advertising isn’t facing headwinds. Inflation remains high in the United States, hurting consumer spending, and ongoing wars in the Middle East pose economic risks of their own. But despite this, an analysis by Interpublic Group Magna predicts that global advertising revenue will increase by 7.2% this year.
Looking at Wedbush’s situation, five-star analyst Scott Devitt, who ranks in the top 3% of Street equity professionals, has this to say about the world of digital advertising: (1) Recent positive estimate revisions from industry sources/advertising agencies (particularly Magna), and (2) 200 US-based marketers surveyed in the Q1 2024 Digital Advertising Survey. Strong feedback from.
David is specifically considering Alphabet (NASDAQ:GOOGL) and Meta Platforms (NASDAQ:META) as stocks to buy. These are the Magnificent 7 tech stocks, powerhouse companies that will show the strength of digital advertising to get through this year. In fact, using TipRanks’ database, we found that the analyst consensus rating for both is a Strong Buy. Let’s take a closer look.
alphabet
First up is Alphabet, the parent company of some of the most famous companies on the internet, Google and YouTube. Alphabet has leveraged its dominance in online search and the power it has in its digital advertising business to become one of the world’s largest publicly traded companies. With a market capitalization of $1.97 trillion, Alphabet is the fourth-largest company traded on Wall Street and one of only six companies valued at more than $1 trillion.
The company’s main business is digital advertising. According to last quarter’s report, his Google Ads segment of the business brought him $65.5 billion in revenue in the fourth quarter of 2023, a figure that accounted for more than 75% of his overall sales and increased year over year. He increased by 11%.
The fourth quarter numbers were strong on other fronts as well. Total revenue came in at $86.3 billion, exceeding expectations by more than $1 billion and increasing 13.5% year over year. The revenue resulted in GAAP-measured EPS of $1.64 per share, an increase of 59 cents, or 56%, from the fourth quarter 2022 results and 4 cents more than expected. For the full year 2023, Alphabet realized its revenue of $307.4 billion, an 8.7% increase over the previous year. Alphabet is scheduled to release its first quarter 2024 financial results on April 25th. After that, we’ll see how the company continues to grow.
For top analyst Scott Devitt, the key takeaways here are the high potential of Alphabet’s advertising business and the current relative value of the stock compared to its peers.
“We believe Alphabet’s near-term setup is the most attractive within our digital advertising scope.” ) since then, the stock has gained ~5%, underperforming its peers. We believe the market has not fully priced in the strength of the underlying demand environment for Google, for three main reasons: (1) Google has not provided quarterly guidance, and the strength hinted at by Meta et al. earlier in the first quarter has not yet materialized in Google’s reported numbers or management commentary. 2) the company is seen as a laggard compared to Meta, in part due to its dynamics, which have exaggerated its recent growth divergence; and (3) generative AI search (which we believe has gone too far). Despite the near-term strength in the advertising business, some investors are raising their expectations for the first quarter due to the perceived structural risks associated with , we now expect revenue growth to be +14% year-over-year, approximately 140bps above consensus,” said David.
David gives the stock an Outperform (i.e. Buy) rating based on his earnings expectations, and a price target of $175, implying an upside of up to 11% over the next year. (Click here to see David’s track record)
Like its large-cap peers, Alphabet has featured a number of analyst reviews in recent weeks, with a total of 37 reviews ranging from 30 buys to 7 holds with consensus ratings of Strong Buy. The company’s stock is currently trading at $157.73, and the average price target of $165.98 suggests an upside of 5% over the next 12 months. (look GOOGL stock price prediction)
meta platform
Next up is Meta Platforms, another company that most of us are familiar with. While Alphabet is the leader in the global search engine niche, Meta is the leader in social media. The company’s main subsidiaries are Facebook, Instagram, WhatsApp, and Messenger, and these popular apps have made Meta a top 7 stock and brought the company into the $1 trillion market cap. Meta has a market capitalization of $1.3 trillion, making it the world’s sixth largest publicly traded company.
Meta’s social media business is all about reach, building an audience, keeping people engaged, and creating apps that people use to keep people connected. The company has proven successful in this regard, and its success can be easily measured by raw audience numbers. Looking at Meta’s viewer numbers, the company had a DAP (Daily Active Number of Family Members) of 3.19 billion at the end of the fourth quarter of 2023, and a MAP (Monthly Active Number of Family Members) of 33 for the same period. You can see that they report 40 million people. These are the total numbers across all of Meta’s platforms and show that the company has reached almost half of the world’s total population of 8.1 billion people.
The company’s primary platform, Facebook, accounts for the majority of its audience. As of December 31, FB had 2.11 billion daily active users (DAU) and 3.07 billion monthly active users (MAU). These numbers may exaggerate the difference between Facebook and its sibling social media apps, as there is significant audience overlap between them.
Such strong viewership will certainly support Meta’s digital advertising business, which generates the majority of its revenue. In his fourth quarter of 2023, the last reported quarter, Meta reported his ad revenue of $38.7 billion out of total revenue of $40.1 billion. Advertising revenue for the quarter increased 23.6% year-over-year and total revenue increased 24.5% year-over-year, with solid increases indicating strong annual growth. The company’s earnings resulted in earnings per share of $5.33, which was 39 cents per share better than expected.
Checking back with Wedbush’s David, we see that the analyst is optimistic based on his predictions of the strength of the meta in the coming months. “Meta has provided particularly strong forward guidance for the first quarter (up 20% to 29% year-over-year) and has revised its forecast at the high end of the range given the positive conditions,” David said of the social media giant. (up to 2% above consensus).” Advertiser feedback in our research efforts and sound underlying demand trends with particular strength in the social space. The Company is primarily focused on (1) the expected pace of growth in the second quarter and second half of the year against more challenging competitions, (2) continued monetization improvements across Reels, Click-to-Message and Advantage+ campaigns; ) focuses on potential changes in demand from China. (4) the progress of AI initiatives and related capital expenditures, and (5) the pace of operating margin expansion in 2024 and changes in management’s full-year total expense outlook. ”
These comments support David’s Outperform (i.e. Buy) rating on META stock. His price target is set at $570, indicating room for the stock to rise 11% within a year.
This isn’t the only bullish view on Meta stock. The 43 recent analyst reviews listed here consist of 40 Buys, 2 Holds, and 1 Sell, resulting in a consensus rating of Strong Buy. However, the current average price target is $533.24, suggesting a one-year upside potential of just 4%. (look Meta stock price prediction)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. Content is for informational purposes only. It is very important to perform your own analysis before making any investment.
