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Meta Platforms and Alphabet Are Poised to Gain as Digital Ad Spending Surges

By Parkev Tatevosian, CFA – Dec 13, 2021 at 9:51AM

Key Points

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The online advertising giants have dominant properties that marketers cannot avoid.

Advertisers are increasingly moving their spending online, no doubt in an attempt to follow consumers who are increasingly moving online themselves. Marketers want to be where consumers are, looking to convince them of the benefits of buying their products or services. A recent forecast from media-buying platform and data operations unit GroupM seems to provide further confirmation of this trend.

Between consumers and marketers usually stand companies where people spend lots of time. Two prime examples are Alphabet (GOOGL 2.70%) (GOOG 2.66%), the worldwide leader in search queries, and Meta Platforms (META 3.66%), home to Facebook's family of apps. They are both in an excellent position to benefit from the shift of advertising online.  

A person on their laptop.

Image source: Getty Images.

Alphabet and Meta dominate the digital ad market 

According to an AdWeek report this month about the GroupM forecast, digital advertising will account for 64.4% of total ad spending in 2021. That's up from 60.5% in 2020 and 52.1% in 2019. What's more, GroupM said it expects global ad spending to rise 22.5% this year to reach $763 billion. Through the proliferation of mobile devices, consumers are spending more time connected to the internet than ever before.

Viewing content through streaming services is gaining traction against traditional linear TV. The former can be taken with the consumer anywhere a mobile device can. In contrast, the latter can only be watched at home. The convenience benefits are not likely to reverse themselves anytime soon. 

One of the apps consumers spend most of their time viewing content on is Alphabet's YouTube. And like I mentioned earlier, advertisers follow consumers. YouTube's ad revenue increased to $7.2 billion in Alphabet's most recent quarter ended Sept. 30. That's up 44% from $5 billion in the same quarter last year. Overall, Alphabet generated $53 billion in revenue from advertising in Q3, 43% higher than the year before. 

Meta Platforms has several of the world's most popular apps, including Facebook, Instagram, and WhatsApp. Together, its family of apps boasts 3.5 billion monthly active users. To be sure, folks who use Meta's apps voluntarily reveal information about themselves and their interests -- features desired by advertisers. It's no surprise that advertisers are paying Meta for the privilege to show ads to the 3.5 billion people who frequent its platforms. In all, Meta earned $28.3 billion in ad revenue in its most recent quarter ended Sept. 30.

Alphabet and Meta could be encouraging the shift to digital advertising

With such a stronghold on the digital advertising market, Alphabet and Meta stockholders are likely pleased to hear that businesses are increasing advertising spending online. The two are poised to benefit as marketers will be hard-pressed to bypass the giants when allocating their digital ad spending.

Alphabet and Meta may be some of the prime reasons advertisers shift expenditures online. If marketers were not getting an excellent return on the investment from allocating to Alphabet and Meta, the two would not have been able to grow revenue as fast as they have in the last decade -- 20.1% and 45.8%, respectively.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Parkev Tatevosian has no position in any of the stocks mentioned. The Motley Fool owns and recommends Alphabet (A shares), Alphabet (C shares), and Meta Platforms, Inc. The Motley Fool has a disclosure policy.

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