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2014 Looks Bright for Google Inc (GOOG), Facebook Inc (FB), and Yahoo! Inc. (YHOO)

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Digital advertising is the next frontier for ad men. The industry will take an increasing share of global advertising revenue as user-driven metrics help advertisers understand the effectiveness of their marketing strategy. Digital advertising will eventually become the most common way to advertise in the 21st century.

Industry trends

Source: Statista

The global advertising market is expected to grow by a modest 3% in 2013, with growth expected to improve in the 2014 fiscal year to a 6.1% rate (the 2014 growth rate is based on stabilization in European economies, paired with growth in emerging economies). The growth will be driven by double-digit growth in digital advertising and will also include declining demand for newspaper (-3.3% year-over-year) and magazine (-5.1% year-over-year) advertising.

How to position

Digital advertising is unquestionably on the rise, but this is likely to be driven by mobile ads going forward. The companies best positioned for this changing market include Google Inc (NASDAQ:GOOG), Facebook Inc (NASDAQ:FB), and Yahoo! Inc. (NASDAQ:YHOO). These three companies’ operate at scale and offer compelling advertising solutions for companies that want to market products online.

Google Inc (GOOG)

The Google investment thesis

There are a variety of reasons for why investors should stick with Google Inc (NASDAQ:GOOG). The company’s global search ads have grown by 18% year-over-year. Its ad revenues could accelerate in fiscal year 2014 based on the projection from Magna Global. The company’s revenues grew by 31% year-over-year on a consolidated basis and will be sustained by mobile applications and mobile ad sales going forward.

Google’s trouble with the mobile market is that it is losing mobile search revenue on both Microsoft Corporation (NASDAQ:MSFT)‘s and Apple Inc. (NASDAQ:AAPL)’s phones. Google Inc (NASDAQ:GOOG) makes up for this loss with Android Play Store sales, however. Google’s trouble in mobile is losing mobile search revenue on both Microsoft Corporation (NASDAQ:MSFT) and Apple Inc. (NASDAQ:AAPL)’s phones. Google Inc (NASDAQ:GOOG) makes up for this loss with sales from the Google Play Store on Android devices, however.

According to IDC, the smart phone market is projected to grow by 25% on average until 2016. Gartner estimates that the tablet market will grow from 125 million units in 2012 to 375 million in 2016. In the coming decade, I estimate that Google will maintain more than 40% of the global mobile market share. Based on these growth rates and market share predictions, the company’s search revenue from mobile paired with sales from the Google Inc (NASDAQ:GOOG) Play Store will give the company significant growth for years to come. Currently, Google generated $2.2 billion in revenue from the Play Store in the first quarter alone. The revenue growth in application sales will grow in the double digits for quite a while, and I anticipate growth rates to stay above 20% per year over the next five years.

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