The high-octane series Mad Men lit up living rooms with the rich and vivid goings on of 1960s Madison Avenue, and showered the power age of advertising in glamour and a lot of martini. The phrase Mad Men was supposedly a slang term used to describe the tight-suited movers and shakers, Mad being short for Madison, not mad as in taking a 1-iron off a tight lie. Advertising today, though, is a different place. A different world. In the old days, the ‘Ad Man’ of Madison Avenue was it, the only play in town. And most ad dollars were for those big brands with the cash flow to meet the demands of the good-looking creatives of the 200 or so agencies, that hoovered up nearly 90% of the $60-70bn in TV ad spend. Today, the ad market is dominated by the mega-cap moguls, Facebook and Google, stocks that have recently been under pressure as the market gets all tizzy about inflation, and wrings its hands over long duration growth. It’s all too easy to get sucked into the narrative, but when reading reports that the addressable market for digital advertising in the US is potentially three to five times larger than consensus estimates, the trillion-dollar market caps of both Facebook and Google begin to look less imposing. The platforms have democratised advertising for all businesses so SMEs can reach beyond their immediate surrounds where they have a physical presence. And e-commerce penetration of retail in the US is still only circa 17%. The runway for growth, then, looks long, wide and flat. For analysts modelling the future, there are several moving parts that drive revenue performance for these types of ad platforms, which makes forecasting future trends a bit of a stew. Whilst the online ad market is highly competitive and the long-term growth opportunity could be eaten into by e-commerce aggregators and other specialist marketplaces, the shifting plates of commerce that continue to pitch corporates into the digital age, means that ad budgets could, in the coming years, be materially bigger than they are today. For the likes of Facebook, with scale, best-in-class ad targeting, and valuable ad inventory such as Groups, Instagram Reels and WhatsApp yet to be released, the current market multiple looks frighteningly light. It is, perhaps, easy to see why further weakness off a tape soaked in macro bound inflationary fears, could be seen as a one of those ripe-for-it, ‘buy the dip’ opportunities.
The securities mentioned in this blog may be held by funds managed by Majedie Asset Management Ltd.