MAGNA: Digital Advertising Takes Center Stage

Alphabet (GOOGL) released on Monday, July 23rd and surprised the world with a significant beat over earnings estimates. Reported earnings per share was $11.75 beating the Wall St estimate of $9.45 and representing a year-over-year growth in income of 32 percent. Revenue came in much higher as well beating estimates of $25.6 billion by about $600 million. Many thought Google, the main arm of Alphabet, had beat the digital advertising business model to death, and therefore, the company would start to see some slowing in growth. However, that was not the case.

MAGNA Global releases data on the global advertising industry and, in particular, releases its seasonal updates of its “MAGNA Advertising Forecasts” that feature many key findings. The latest report was released on June 18th and would have prompted an optimistic view on Alphabet earnings if it had been read before the event.

In its latest report, MAGNA forecasted net advertising revenues to be 6.4 percent higher at $551 billion after analysis from 70 different countries. This would be the strongest growth since 2010. Of the types of advertising analyzed, the digital platform is projected to grow strongly at 15 percent to top $100 billion (in the US) for the first time. At those numbers, the digital platform will account for more than half of total ad sales in the United States.

Overall, there are some mediums that are taking big hits as the digital advertising continues dominating the industry. National television (with major cyclical events) will only see slight growth of 0.2 percent, but taking away one-time bumps (from US Mid-Term elections, FIFA Football World Cup, Winter Olympics) results in a 1.4 percent contraction. Local TV (without cyclical events) and Radio will also suffer contracting 3.4 percent and 3.8 percent respectively. Finally, Print continues heading towards its demise with an expected 16.9 percent contraction in 2018 revenues. 2019 forecasts suggest each category could see accelerating contractions especially with a lack of major cyclical events.

Within the digital advertising segment, Social, Mobile, and Video advertising are expected to see growth above 20 percent in 2018. With Social growth at 31.4 percent in 2018, one can expect that Facebook and Twitter earnings will be ones to watch. Google, of course, has already shown the benefits of the expected acceleration in Video and Mobile advertising, at 23.9 percent and 28.5 percent respectively, in its own second quarter earnings that crushed expectations. The only disappointment was in Desktop advertising where MAGNA sees a 4.5 percent contraction in 2018.

One forecast that flies under the radar in the report is the estimation that “ad impressions generated on television screens” will reach $2.2 billion in 2018 representing a growth rate of around 40 percent. The proliferation of Smart TVs and “over-the-top” entertainment caused by the paradigm known as “cord-cutting” will bring companies with streaming sources to the forefront of the world of technology. Companies like Amazon, Google, and Apple through Amazon Prime, YouTube, and Apple TV will be drivers of growth in this category for years to come.


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