3 Companies to Own This Year

Sean is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

One of the biggest trends of 2013 will be the growing mobile ad market.

According to the Wall Street Journal, Steve Jobs said back in 2010 that “Mobile advertising really sucks.” While he may have been right back then, the mobile ad market is growing rapidly and companies are refining their strategies. Back then Facebook (NASDAQ: FB) had a non-existent mobile ad presence. Today they account for over 18% of all mobile display ads. 

As the chart below shows, mobile ad spending was over $4 billion in 2012 and is expected to grow by 77% in 2013.

So which companies will benefit from the mobile advertising market? I predict it will be Facebook, Amazon (NASDAQ: AMZN), and Google (NASDAQ: GOOG), and here’s why.

Facebook

Facebook is rapidly developing its infant mobile ad platform into a more and more robust system. As the chart below illustrates, Facebook jumped from 0 to 8.8% of total mobile ad revenue.

Facebook already generates over $300 million from mobile advertisements. In the third quarter of 2012 mobile accounted for 14% of company revenue, but by the fourth quarter it was up to 23% of company revenue. The rapid growth in revenue from its mobile ad market is essential to the bottom line as the fourth quarter of 2012 marked the first time people spent more time viewing Facebook from their phones then online.

Facebook was the most downloaded app of 2012. Expect Facebook to continue to capitalize on its popularity in 2013 by being able to rake in more money from its mobile app.

Amazon

Amazon is opening up a new level of competition in the mobile ad sphere as it prepares to roll out its new advertising platform. With the amount of data Amazon collects on users this ad platform could potentially be superior to Google's because it is based on user interest and purchases. This makes it more accurate and more able to drive higher quality traffic that actually results in purchases.

Though the exact details haven’t been released yet, this should create a whole new revenue generating opportunity for its Kindle devices. Amazon sells these devices at a near loss and seeks to make it up through in tablet purchases and add-ons. This kind of strategy has driven Amazons profitability down to less than 2%. If the ad platform comes out in 2013, expect Amazon to be able to increase its profitability, especially on the Kindles.

Google

Google is the undisputed leader of online search advertising in terms of market share with 79%. But is also the leader in the mobile advertising sphere with 56.6% of total mobile ad revenue. In terms of mobile searches, Google takes home 95% of all search revenue.

Google is such a huge figure in the mobile ad arena that whether it’s rolling out new products or advertising strategies doesn’t really matter. It has a working model that everyone uses. Facebook might have been the most downloaded app last year, but the next five most downloaded apps were all Google products.
As the mobile market continues to grow, Google will continue to take home big money from the mobile market.

The other three

Some might argue that we should pay attention to the other names on that chart above such as Pandora (NYSE: P), Twitter, and Apple instead of Amazon. Let me explain why not.

Pandora’s" create your own radio feature" is quickly becoming a common offering from many different companies. It faces steep competition from Spotify, GrooveShark, iHeartRadio, and plenty others. It went from owning 10% mobile ad market share in 2011 to less than 6% market share in 2012 when Facebook and Twitter stepped up their game. Pandora is now stuck with increasing competition and no new offerings.

Of the three companies left off my top three list, Twitter is the one that probably has the most potential to prove me wrong. Its mobile ad presence is new and growing and might very well take off in 2013. My hesitation lies in the fact that it is less widely used than Facebook and has shunned traditional forms of advertising, which seem to hamper its earning potential.

Lastly, Apple had 3.2% of the mobile ad market in 2012 according to the chart above. I just don’t see a lot of room for Apple to grow its market share. It has reached its zenith as far as the popularity of its phones and it’s unlikely that Apple would take a larger portion of revenue from its apps. So I see Apple as stagnant for now.

In conclusion, bank on Facebook, Amazon, and Google to get boosted by the rising mobile advertising market, but be wary of Pandora, Twitter, and Apple.

 

 


SeanMSullivan has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, Facebook, and Google. The Motley Fool owns shares of Amazon.com, Facebook, and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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