The entire technology sector has gone through a radical transformation with the rapid popularity of handheld devices. This has improved the prospects of the Internet advertisement industry. The increased ‘portability of computing’ has significantly increased the amount of time spent online. Understandably, this also increases the attractiveness of Internet as medium of advertisement. According to research by PWC, Internet advertisement revenues grew by 21.9% between 2010 and 2011, i.e. from $26 billion to $32 billion. The sell side estimates that Internet revenues would exceed $40 billion in 2013.
This rapid growth in advertisement revenues increases the attractiveness of stocks that derive revenues from the Internet. Google Inc (NASDAQ:GOOG), Facebook Inc (NASDAQ:FB), eBay Inc (NASDAQ:EBAY) and AOL, Inc. (NYSE:AOL) are leading players in this arena and would be the biggest beneficiaries of this revolution. The biggest challenge is the ability to monetize mobile traffic. In this regard Facebook has been the most successful amongst major industry players. As this industry grows it will face legal barriers related to the amount of responsibility a company undertakes when publishing a third party advertisement. Therefore, Google’s recent success in Australian courts is a major breakthrough for all companies dependent on internet advertisement revenues.
As we can see in the table below, the growth rates are pretty good. The industry potential is also reflected in the amazing returns these stocks have shown. One exception is Facebook because the stock has gone public only recently and the current price doesn’t reflect the real potential of the company. The social giant might be the biggest stakeholder in Internet advertisement growth because it takes a lead on Google due to its better mobile monetization. According to recent quarterly results, Facebook now gathers 23% of all its revenues from mobile, giving it an edge over peers.
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Although it still lags behind Facebook in terms of mobile monetization, Google’s Android has become the largest smartphone operating system in the world. Google has still not been able to fully utilize the potential from its dominance in this arena. A major reason for this inability is that independent applications available on Google Play can publish their own offline advertisements. There is already tough competition in this space with iOS only marginally behind Android and Windows 8 hitting store shelves. All three technology giants are now controlling their own hardware as well, with Nexus already a major industry player and Surface Pro hitting store shelves this week. Although it is highly unlikely that this space will be crowded due to pretty obvious barriers to entry, it will continue to be extremely competitive amongst existing players. If Google can successfully compete with these players and keep its dominance over smartphone OS, successful mobile monetization will push its stock to the sky.