Publishers Pierce Google's Armor, Snapping Up Mobile Display Share

There are two main types of digital advertisers: ad networks like Google (NASDAQ: GOOGL  ) and Apple's (NASDAQ: AAPL  ) iAd, and publishers like Pandora (NYSE: P  ) , Twitter, and Facebook (NASDAQ: FB  ) . Though publishers still lag ad networks on PCs, they're dominating mobile display ads, according to a report released by IDC on Tuesday. As shipments of Internet-connected mobile devices soar and their capabilities continue to increase, these disruptive publishers seem to have the upper hand.

Disruptive technologies reveal Google's weakness
Google has definitely seen its share of significant success on mobile; the company captured 54.5% of all mobile ad spending in the U.S. in 2012, according to a study by Pew Research Center. Though Google may boast volume of digital ad revenue, Facebook, Twitter, Pandora, and even The Weather Channel have outpaced Google in mobile adoption of digital display ads by a long shot.

A recent report from IDC provided some perspective.

Facebook, Pandora, Twitter, and The Weather Channel all registered strong sales in 2012 and all (with the exception of Pandora) popped onto the scene from zero sales in 2011. As a result, publishers controlled 52% of U.S. mobile display ad spending in 2012, compared to the 39% they received in 2011.

"Mobile ad networks are losing market share to publishers, and we expect them to lose even more going forward," explained Karsten Weide, IDC's vice president of media & entertainment.

Mobile display advertising itself is the fastest growing sub-segment within mobile advertising, which increased its market share of total mobile display advertising from 31% to 39% from 2011 to 2012. Mobile search ads, at 61%, still hold sway over the market, which obviously works in Google's favor, but the power has already shifted to publishers in mobile display ads.

Mobile display advertising in 2012

Rank Company Gross Revenue Type
1 Google $243 million Ad network
2 Facebook $234 million Publisher
3 Pandora $229 million Publisher
4 Millennial Media $151 million Ad network
5 Apple $125 million Ad network
6 Twitter $117 million Publisher
7 Jumptap $90 million Publisher

Valuation matters
Valuation, however, brings expectations down to earth. Google should continue to lose significant mobile display advertising market share to Facebook, Pandora, and Twitter, but the overall growth of the mobile advertising market, which grew by 88% in 2012, should still drive significant growth for Google within investors' expectations for the stock.

Facebook, for instance, trades at a whopping 11.7 times sales, more than twice Google's price-to-sales ratio of 5. In other words, investors have already priced significant growth into Facebook's stock. Pandora is the exception here, trading at just 5.3 times sales, despite its blazing 53% year-over-year revenue growth in the company's most recent quarter.

Pandora's seemingly conservative valuation, of course, has its reasons. First, the company is only flirting with profitability. Second, the company is still relatively small compared to the other tech companies with a significant sway of the digital music market. Investors are worried that Pandora could face increasing competition from bigger players.

Betting on mobile
While Pandora's position isn't secure enough for me to play ball yet, Google and Facebook both look like solid long-term bets in the fast-growing mobile ad market. Yes, Google is losing share in the mobile display market, but it still dominates mobile search with a whopping 79% share of the U.S. market. Both Google and Facebook have found their way to my brief list of outperform CAPScalls.

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