We recently compiled a list of the 10 Best Advertising Stocks to Buy According to Short Sellers. In this article, we are going to take a look at where Amazon.com, Inc. (NASDAQ:AMZN) stands against the other advertising stocks.
When compared to the copy driven model of the late 1900s as popularized by shows such as Mad Men, the advertising era of 2024 is completely different. Today, advertisers have at their disposal the data of billions of people which they can characterize according to preference and target their ads to. This growth in digital advertising has been driven by the rise of video streaming platforms and digital publications, which continue to gain market share over paper newspapers.
Nowhere else is the impact of digital advertising in today’s era clear as through the value of the world’s largest search engine company. A mega cap stock, this firm has a market value of a whopping $2 trillion, making it one of the largest companies in the world in terms of market value. Yet, in another case of 2024 being a historic year of shifts for the technology industry as evidenced by technologies such as artificial intelligence, this firm is also facing the heat from the US government which might end up changing the very fabric of the industry.
The search engine giant, which earned $187 billion in trailing twelve month revenue from search and advertising, traces its roots back to the late 1990s when its founders created an algorithm called PageRank. This software determined which webpages were authoritative based on the amount and quality of backlinks they got, and as the engine grew, so did the firm’s dominance in the global advertising industry as it processes more than 22 billion searches per day. However, this gravy train might be ending as a Washington judge ruled in August that its $26 billion in payments to other firms to make the platform the default option on their devices was an anti competitive behavior that locked others out in the industry.
Following the ruling, there are rumors that the Justice Department might be considering breaking the company up by making it divest its mobile software and web browsing business divisions. However, any such decision will require court approval which will force the firm to comply. And while a court victory is great for news headlines, the US government has rarely broken up large companies in the modern era. The last such case was in 1982 through the breakup of the Bell System, and even if the browser and OS were made separate businesses, they are unlikely to survive on their own since both are provided to users for free.
Not to mention, the long drawn nature of anti-trust action could take years, and end up being enforced when the industry is vastly different from what it is now. This is because artificial intelligence is gnawing at the heels of the industry, with products such as OpenAI’s SearchGPT already in early stage releases. Speaking of AI, it’s also making its mark on the advertising industry. Just as advertisers are able to rely on millions of users’ data through search and social media platforms, AI helps them navigate through this data in novel and new ways.
As per McKinsey, marketing and sales could see a $931 billion productivity boost from AI through new features such as personalized campaigns and improved data use. These use cases have already become apparent, with the largest social media company in the world regularly sharing updates about how it is using AI to make advertisers’ jobs easier on its platform. Two tools that it offers are the Advantage+ and Advantage+ Shopping platform which enables advertisers and sellers to automate their campaign operations and determine the best advertisements to run. The platforms also appear to be driving results, with the firm quoting a study that is “demonstrating 22% higher return on ad spend for US advertisers after they adopted Advantage+ Shopping campaigns” with revenue for the firm through the two AI platforms doubling annually during Q1 2024.
Speaking of revenue, the advertising industry’s spending, which determines the fate of publishers is also determined by the state of the economy, consumer confidence, and advertisers’ outlook. One such firm with brands in more than 100 companies shared during its Q2 2024 earnings call that while the advertising market is not at its best right now, it does appear to be recovering. This recovery is taking place in areas such as food and technology which joins strong performance in healthcare, pharmaceuticals, and beauty care. Another publisher, which is one of the most well known digital media and lifestyle platforms in the world that relies on programmatic advertising (data driven user targeting through ads), saw its programmatic revenue grow by 3% annually during Q2 even as broader advertising revenue dropped by 19% annually.
With these details in mind let’s take a look at which advertising stocks to buy according to short sellers. For stocks that are driving advertising technology, you should check out 8 Best AdTech Stocks to Buy Now.
Our Methodology
To make our list of the best advertising stocks to buy according to short sellers, we listed the NASDAQ and NYSE listings of an advertising ETF by the percentage of shares outstanding that were sold short and selected the stocks with the lowest percentage. An added 23 stocks after an internet search were also analyzed, but all these had market caps below $300 million so they were excluded.
For these stocks, we also mentioned the number of hedge fund investors. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A customer entering an internet retail store, illustrating the convenience of online shopping.
Amazon.com, Inc. (NASDAQ:AMZN)
Short Interest as % of Shares Outstanding: 0.68%
Number of Hedge Fund Investors In Q2 2024: 308
Amazon.com, Inc. (NASDAQ:AMZN) is one of the biggest eCommerce companies in the world, which also makes it a key player in the advertising industry. This is because Amazon.com, Inc. (NASDAQ:AMZN)’s eCommerce site which attracted 3.25 billion users in June according to SemRush, creates a golden goose of users for large and small businesses to target. Amazon.com, Inc. (NASDAQ:AMZN) helps its sellers to run marketing campaigns through the Amazon Ads platform. Some features under this include cost per click (CPC) ads for sponsored brands, products, and displays. Amazon.com, Inc. (NASDAQ:AMZN) also operates in the SaaS advertising industry through its AWS business which allows customers to run advanced marketing analytics and manage customer experiences. As a whole, Amazon.com, Inc. (NASDAQ:AMZN)’s hypothesis depends on its ability to optimize its fulfillment networks, increase same day deliveries, leverage AI in its business and in AWS product offerings, and the broader economic health.
Patient Capital Management mentioned Amazon.com, Inc. (NASDAQ:AMZN) in its Q2 2024 investor letter. Here is what the firm said:
“Amazon.com Inc. (AMZN) moved higher throughout the second quarter as AI demand helped to reaccelerate growth in their AWS business. It looks as though the cloud business is finally past the customer cost optimization period with customers restarting their cloud migrations as well as expanding spend on AI projects. Despite the top and bottom-line improvement seen in the first quarter, the company is significantly underearning its long-term potential as it continues to reinvest aggressively in the business. With 80% of global retail sales still being done in physical stores and 85% of global IT spending still on-premises, we see a long-run way for the dominant player in the cloud, retail, and increasingly logistics and advertising space.”
Overall AMZN ranks 3rd on our list of the best advertising stocks to buy according to short sellers. While we acknowledge the potential of AMZN as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than AMZN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
