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Ad Spending Will Jump This Year, and These 2 Stocks Will Prosper

By Parkev Tatevosian - Jun 22, 2021 at 9:07AM

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Roku and Amazon are in line to reap the benefits of an increase in overall ad spending.

Ad spending slumped last year. Understandably, firms took measures to reduce costs at the onset of the pandemic. No one knew the duration or the severity of lockdowns, so the safest thing to do was pause whatever spending you had control over. Some types of advertising give businesses the ability to start and stop at will, making them some of the first expenses firms cut during downturns. 

Ad spending rebounded during the back half of 2020, fueled by political campaigns. Now, as economies are reopening worldwide and supply bottlenecks are easing, firms are boosting advertising in 2021. Indeed, overall ad spending is expected to jump to $749 billion in 2021, up from $628 billion in 2020. Amazon (AMZN -1.13%) and Roku (ROKU -6.58%) are two stocks that will prosper as a result.

Two older people sitting together on a couch watching something.

Ad spending is estimated to reach $749 billion in 2021. Image source: Getty Images.

Amazon  

Amazon's segment that includes ad revenue is growing at an accelerating pace. In the last four quarters, revenue grew 41%, 49%, 64%, and 73% year over year. The segment was already gaining steam, and it's only going to be fueled by the expansion of overall marketing dollars in 2021.

Amazon offers marketers a unique proposition -- access to 200 million Prime members who have their payment information saved, are one click away from making a purchase, and have access to fast and free shipping. All of these are friction points where customers may walk away from making a purchase.

Surely, advertisers value access to arguably the readiest-to-spend consumers in the world. 

Five young adults watching a program.

Roku boasts 53.6 million active accounts. Image source: Getty Images.

Roku 

Roku, the streaming content platform pioneer, is another stock that stands to benefit as advertisers increase spending in 2021. Consumers have clearly stated their preference for streaming content rather than watching linear TV. Indeed, in the first quarter, Roku reported having 53.6 million active accounts, a 35% increase from the same time last year.  

What's more, folks streamed 18.3 billion hours of content on Roku's platform, up 49% from the year prior. Of course, marketers would pay to grab the attention of millions of users spending billions of hours on Roku's platform. According to GroupM, spending on connected TV ads is expected to grow by 25% this year, reaching $16 billion. But the growth is not going to stop there; the firm estimates it will nearly double to $31 billion by 2026.

Roku is the No. 1 smart TV operating system in the U.S. and Canada, and No. 2 in Mexico. It is in an excellent position to benefit from the increase in overall ad spending and the continued transition in ad spending from linear TV to internet-connected TV.

Still, the estimated increases in ad spending are just that -- estimates. Several factors could hamper the growth, including, but not limited to, further disruptions caused by the coronavirus, inflation in company input prices causing them to rethink budgets, and continued supply shortages -- no need to advertise if your product is sold out. However, if it does play out as estimated, Amazon and Roku could be big winners. 

 

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Parkev Tatevosian owns shares of Roku. The Motley Fool owns shares of and recommends Amazon and Roku. The Motley Fool recommends the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Amazon.com, Inc. Stock Quote
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AMZN
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Roku Stock Quote
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ROKU
$78.10 (-6.58%) $-5.50

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