Twitter: Trends In The U.S. Online Advertising Market And Its Impact
The U.S. Internet advertising market generated spending of over $35.5 billion during the nine months ended September 2014. Digital marketing is fast gaining traction among brand advertisers, owing to increasing ubiquity of smartphones and PCs, coupled with improvement in ad measurement techniques. Future growth in the digital advertising market will be fueled by mobile ads, as the platform is still highly under-penetrated within brand marketing budgets, as compared to the amount of time spent on mobile devices. While TV accounts for a significant portion of brand advertising budgets, Americans now spend more time on mobile devices than on TV.
The U.S. digital advertising market is expected to rise at a CAGR of more than 12% between 2014 and 2019, and mobile share’s in the overall U.S. ad market could reach 16% by 2019, according to Forrester Research. [1] These trends are expected to play right into Twitter‘s (NYSE:TWTR) hands as the mobile platform comprises for over 80% of its business. We believe there could be about 20% upside to our $49.30 price estimate for Twitter’s stock if its U.S. advertising business grows at over 30% annually during our forecast period. We have presently estimated its U.S. advertising revenues to increase by around 25% annually over our forecast horizon.
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How Big Is The Internet Advertising Market In The U.S?
The online advertising revenue in the U.S. rose by 16.9% annually in Q3 2014 to $12.4 billion, according to reports by the Interactive Advertising Bureau (IAB) and PwC US. [2]. The year-over-year growth rates have averaged at around 14%-18% over the last eight quarters, as marketing budgets continue to flow towards the digital platform, in line with the increasing time being spent by consumers on PCs and smartphones.
Mobile Will Be The Key Driver For Growth In The Future
The mobile platform is leading the growth in the industry, as mobile advertising revenues surged by 76% during the first half of 2014, which far outpaced the 15.1% increase in the overall online advertising industry. [3] Mobile advertising will continue to see rapid growth in the coming future, as the platform is under-penetrated within brand advertising budgets. According to a study by Forrester, the mobile platform accounts for merely around 5% of the average brand advertising budget. This is despite the fact that consumers spend a significant proportion of their leisure time on mobile devices [4]. According to data by Flurry (a mobile analytics company), Americans spend an average of 2 hours and 57 minutes daily on mobile devices as compared to 2 hours and 48 minutes on TV. [5]. The share of TV in the overall ad spending within the U.S. stood at 42.6% in 2014. [6] Hence, the share of mobile in overall advertising budgets is likely to rise rapidly in the coming years, in our view.
How Is The Digital Advertising Market Expected To Grow In The Future?
The digital advertising market in the U.S. is forecast to rise at a CAGR of 12.5% between 2014 and 2019 to reach $103.4 billion, according to Forrester Research. [1] And, its share in the overall U. S. ad spending is estimated to rise from 24% in 2014 to 36% in 2019. At the same time, the share of TV ad spending in overall advertising could decline to 30% by 2019. Growth in mobile ads, which could total $46 billion by 2019, is expected to fuel the growth in the industry in the coming years. Its share in the overall U.S. ad market could surge to 16% by 2019, according to Forrester.
Impact On Twitter
Twitter is poised to gain a great deal from these trends in the U.S. advertising market. This is because demand for social media advertising is expected to outgrow the broader digital advertising market in the coming years. While the overall digital ad market is estimated to rise at a CAGR of 12.5% during 2014 to 2019, social media ad spending could rise at a CAGR of 18% during the same period (according to Forrester). In addition, since the mobile platform accounts for over 80% of Twitter’s monthly active user base and over 85% of its total advertising revenue, we expect growth in mobile ad spending to contribute strongly to the company’s long-term growth. In line with these trends, we have forecasted Twitter’s U.S. advertising revenue to rise at a CAGR of 25% over our forecast period. In the event, Twitter’s U.S advertising revenues grow at a faster rate of 32% annually, then it will represent about 20% change in our price estimate to $58.
Our $49.3 price estimate for Twitter’s stock, represents near-5% upside to the current market price.
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More Trefis Research
- Digital to Overtake TV Ad Spending in Two Years, Says Forrester, Advertising Age, November 4, 2014 [↩] [↩]
- Q3 2014 Internet Advertising Revenues Hit $12.4 Billion, Making it the Highest Quarter on Record, Interactive Advertising Bureau, December 18, 2014 [↩]
- IAB internet advertising revenue report, Interactive Advertising Bureau, October 2014 [↩]
- Why Do Brands Have Such Small Mobile Advertising Budgets? [Study], ClickZ, September 16, 2014 [↩]
- Mobile to Television: We Interrupt this broadcast (Again), Flurry, November 18, 2014 [↩]
- 2015 Ad Spend Rises To $187B, Digital Inches Closer To One Third Of It, TechCrunch, January 20, 2015 [↩]