If you invest in Twitter (NYSE:TWTR), Facebook (NASDAQ:FB), or Google (NASDAQ:GOOG)(NASDAQ:GOOGL), you're well aware of the importance of advertising on mobile platforms. What 10 years ago was a world connected by desktop and laptop computers is now increasingly connected by the devices in our pockets.
Nowhere is that more obvious than in emerging markets, where the affordability of smartphones trumps expensive computers for just about everyone. Of the planet's 7 billion inhabitants, Internet penetration has only reached 42%, but that number will rise thanks to mobile devices.
Over time, an increasing number of mobile phones will have Internet connectivity. This has serious implications for investors, perhaps most significantly for those invested in Facebook, Twitter, and Google. All three rely on mobile advertising for the vast bulk of their revenue, and all three are about to benefit from a huge shift in how advertising dollars are spent.
The migration to mobile advertising
Businesses can be forgiven for being slow to move their advertising dollars. Sticking with what is tried and true is usually the safest bet. That likely accounts for why, even in 2014, TV, print, and radio gobbled up 64% of all advertising dollars spent globally
It won't be that way for long. As businesses get better data on the effectiveness of mobile advertising, they will soon see that not allocating massive amounts of money to mobile would be financial suicide.
In fact, eMarketer predicts that mobile advertising by 2018 will account for 26% of all global ad spending. That might not sound like much, but in 2012 that figure was a measly 2.5%.
Which brings us to our ever-important chart. Using data provided by eMarketer, here's how much mobile advertising spending is expected to grow in the world's five largest economies by 2018.
For those keeping track at home, mobile advertising spending is expected to increase by 265% between now and the end of 2018 in these five economies. That's a once-in-a-lifetime type of shift.
This helps explain how Twitter, though it saw very tepid user growth last quarter, still essentially doubled its revenue, and how Facebook has grown revenue by 145% over the past two years despite user growth being nowhere near that figure.
If you want to follow track how this shift is playing out, here's what to look for: with Twitter, "advertising revenue per thousand timeline views" will tell you if the company is benefiting from this trend. With Facebook, it will be "average revenue per user" or ARPU. And with Google, the "cost per click" and "total clicks" metrics will tell you how the transition to mobile is doing.(One point of caution is that, for the time being, mobile ads fetch less money than their desktop counterparts, and that could help explain a slowdown in the metric).
Investors hoping to cash in on this once-in-a-lifetime change would be wise to at least consider buying shares of the largest future winners of this shift.