In this article, we will take a look at the 12 best advertising agency stocks to buy.
The global advertising market is one of the ever-evolving industries where innovation never stops. From billboards to newspapers and TV ads to web banners and video ads, the global advertising industry keeps changing based on the consumer behavior. What remains constant in the industry is the growth and expansion. While the global macro-economic backdrop and rising inflation forced advertisers to slow ad spend, ultimately affecting the overall industry last year and this year, the industry as a whole is growing.
According to Magna, a global media investment and intelligence firm, the ads market in 2023 is expected to grow 3.4%. This growth prediction was down from the 3.7% growth forecast Magna made in December. Still, the firm believes the growth remains upbeat in the industry, driven by new form of ads like short-form video ads mostly popular on platforms like TikTok and Instagram.
Online ads giants Meta Platforms, Inc. (NASDAQ:META) and Alphabet Inc. (NASDAQ:GOOG) have been facing slowing growth in ads revenue since last year when ad spend budgets saw huge cuts as companies were spooked by the deteriorating global economic situation. However, Meta Platforms surprised the industry when it posted growth in its advertising revenue for the first quarter of 2023 in April. Meta Platforms, Inc. (NASDAQ:META) ad revenue jumped 4.1% in the first quarter of 2023 compared to the year-earlier period.
The Role of AI in Advertisements
Meta Platforms, Inc. (NASDAQ:META)’s CEO Mark Zuckerberg in the company’s latest quarterly earnings call said AI played a key role in this growth. AI improved the company’s algorithm behind content recommendation which increased average time spent by users on its platforms, ultimately increasing ads revenue.
Here’s what Zuckerberg said:
“Our AI work comes in two main areas: first, the massive recommendations and ranking infrastructure that powers all of our main products — from feeds to Reels to our ads system to our integrity systems and that we’ve been working on for many, many years — and, second, the new generative foundation models that are enabling entirely new classes of products and experiences. Our investment in recommendations and ranking systems has driven a lot of the results that we’re seeing today across our discovery engine, Reels, and ads. Along with surfacing content from friends and family, now more than 20% of content in your Facebook and Instagram feeds are recommended by AI from people, groups, or accounts that you don’t follow. Across all of Instagram, that’s about 40% of the content that you see. Since we launched Reels, AI recommendations have driven a more than 24% increase in time spent on Instagram. Our AI work is also improving monetization. Reels monetization efficiency is up over 30% on Instagram and over 40% on Facebook quarter-over-quarter. Daily revenue from Advantage+ Shopping Campaigns is up 7x in the last six months.”
Photo by austin-distel on Unsplash
For this article we cast a wide net and first listed all the notable companies operating in the advertising industry that help small and large businesses create, deliver, optimize, improve online or offline ads. We also picked digital marketing and ad-tech companies. We then picked 11 of these companies with the highest number of hedge fund investors. Thus, our article shows the best advertising agency stocks to buy according to hedge funds. We gauged hedge fund sentiment using Insider Monkey’s database of 943 hedge funds.
Best Advertising Agency Stocks to Buy
12. Direct Digital Holdings, Inc. (NASDAQ:DRCT)
Number of Hedge Fund Holders: 3
Supply- and demand-side ads solutions company Direct Digital Holdings, Inc. (NASDAQ:DRCT) ranks 12th in our list of the best advertising agency stocks to buy now. Direct Digital Holdings, Inc. (NASDAQ:DRCT) is up about 28% over the past 12 months. In March Direct Digital Holdings, Inc. (NASDAQ:DRCT) posted Q4 results, according to which its GAAP EPS in the period came in at $0.01, missing estimates by $0.09. Revenue in the quarter jumped about 127.9% year over year to reach $29.4 million, beating estimates by $0.6 million. For fiscal 2023 Direct Digital Holdings, Inc. (NASDAQ:DRCT) expects its revenue to total in the range of $118 million to $122 million, compared to the consensus estimate of $120.03 million. In addition to DRCT, hedge funds are also piling into Meta Platforms, Inc. (NASDAQ:META) and Alphabet Inc. (NASDAQ:GOOG).
11. Digital Media Solutions, Inc. (NYSE:DMS)
Number of Hedge Fund Holders: 7
Insider Monkey’s database of 943 hedge funds shows that 7 hedge funds had stakes in digital performance advertising solutions company Digital Media Solutions, Inc. (NYSE:DMS) as of the end of the fourth quarter of 2022.
In Digital Media Solutions, Inc. (NYSE:DMS)’s latest earnings call, DMS management talked about the company’s acquisitions to increase its footprint and some cost cutting measures including layoffs:
“To this point earlier this quarter, we took a step to further position DMS as a diversified digital performance advertising business by acquiring the HomeQuote.io home services marketplace and ClickDealer international ad network. The acquisition demonstrates our commitment to executing our key strategic growth initiatives by investing and expanding our Marketplace solutions into home services in the U.S. market while also strengthening our Brand Direct business through international expansion. Home Services is one of the largest addressable markets and we’re excited to work with the ClickDealer and HomeQuote teams on leveraging DMS assets to capture growth in this market. In addition, DMS will now have access to diversified international media distribution and advertisers that will expand the current Brand Direct business that DMS operates domestically into over a dozen countries worldwide.
This will allow DMS to serve international advertisers in verticals like e-commerce, cybersecurity, retail, consumer finance, and gaming. We expect the acquisition to add over $60 million in revenue over the balance of 2023 and be accretive to DMS 2023 earnings. In March, we also announced the implementation of a restructuring plan designed to create efficiency, save costs, and strategically target areas with growth potential. With the business consolidation into DMS core service offerings, the restructuring resulted in a 14% reduction of the DMS workforce, the financial benefits of which will accrue in future periods. Having completed these foundational changes, we look forward to reigniting our growth engine and focusing on executing our strategic initiatives and opportunities.”
10. Stagwell Inc. (NASDAQ:STGW)
Number of Hedge Fund Holders: 10
New York-based full-service marketing firm Stagwell Inc. (NASDAQ:STGW)’s solutions ranks 10th in our list of the best advertising agency stocks to buy now. Stagwell Inc. (NASDAQ:STGW) is known for its Stagwell Marketing Cloud, a suite of proprietary SaaS and DaaS tools for in-house marketing teams.
According to Insider Monkey’s proprietary database of 943 hedge fund holdings, 10 hedge funds had stakes in Stagwell Inc. (NASDAQ:STGW) as of the end of the fourth quarter.
9. AdTheorent Holding Company, Inc. (NASDAQ:ADTH)
Number of Hedge Fund Holders: 12
AdTheorent Holding Company, Inc. (NASDAQ:ADTH) is an ads technology company that uses machine learning to maximize returns on ads for marketers and advertisers. Insider Monkey’s database of 943 hedge funds shows that 12 hedge funds had stakes in AdTheorent Holding Company, Inc. (NASDAQ:ADTH) as of the end of the fourth quarter of 2022. In March AdTheorent Holding Company, Inc. (NASDAQ:ADTH) posted its Q4 results.
GAAP EPS in the quarter totaled $0.08, beating estimates by $0.05. Revenue in the quarter totaled $51.8 million, beating estimates by $4.8 million. For the first quarter, AdTheorent Holding Company, Inc. (NASDAQ:ADTH) expects its revenue to come in the range of $31 million to $33 million, while the analyst estimate for this figure is $32.50 million.
8. Integral Ad Science Holding Corp. (NASDAQ:IAS)
Number of Hedge Fund Holders: 15
Integral Ad Science Holding Corp. (NASDAQ:IAS) helps companies fight ad fraud and expand their reach by refining the quality of their ads. In March Integral Ad Science Holding Corp. (NASDAQ:IAS) posted its Q4 results.
GAAP EPS in the quarter came in at $0.07, beating estimates by $0.06. Revenue in the period jumped 14.6% year over year to total $117.44 million, beating estimates by $6.13 million.
A total of 15 hedge funds tracked by Insider Monkey have stakes in Integral Ad Science Holding Corp. (NASDAQ:IAS). The biggest stakeholder of Integral Ad Science Holding Corp. (NASDAQ:IAS) was Robert Smith’s Vista Equity Partners which has an $830 million stake in the company.
7. Criteo S.A. (NASDAQ:CRTO)
Number of Hedge Fund Holders: 17
France-based online ads platforms company Criteo S.A. (NASDAQ:CRTO) shares have gained about 23% over the past year. A total of 17 hedge funds tracked by Insider Monkey had stakes in Criteo S.A. (NASDAQ:CRTO). The total worth of these stakes was $309 million. The biggest stakeholder of Criteo S.A. (NASDAQ:CRTO) was Michael Platt and William Reeves’s BlueCrest Capital which owns a $59 million stake in Criteo S.A. (NASDAQ:CRTO).
In March, Criteo S.A. (NASDAQ:CRTO) posted its first-quarter results. Adjusted EPS in the quarter totaled $0.46, beating estimates by $0.22. Revenue in the period jumped 1.8% year over year to total $221 million, beating estimates by $7.05 million.
6. Magnite Inc. (NASDAQ:MGNI)
Number of Hedge Fund Holders: 24
California-based advertising technology company Magnite Inc. (NASDAQ:MGNI) ranks 6th in our list of the best advertising agency stocks to buy. Magnite Inc. (NASDAQ:MGNI) lists several notable names as clients on its website, including Warner Bros. Discovery, Inc. (NASDAQ:WBD), Samsung Electronics Co., Ltd. (KSE:005930.KS), Spotify Technology S.A. (NYSE:SPOT), eBay Inc. (NASDAQ:EBAY), Verizon Communications Inc. (NYSE:VZ), among others.
The stock jumped in April after B. Riley started covering Magnite Inc. (NASDAQ:MGNI) with a Buy rating.
A total of 24 hedge funds tracked by Insider Monkey reported having stakes in Magnite Inc. (NASDAQ:MGNI) as of the end of the fourth quarter of 2022, up from 19 funds in the previous quarter. The most significant stakeholder of Magnite Inc. (NASDAQ:MGNI) was Brian Bares, Russell Mollen, and James Bradshaw’s Nine Ten Partners which owns a $14.3 million stake in the company.
Like Meta Platforms, Inc. (NASDAQ:META) and Alphabet Inc. (NASDAQ:GOOG), Magnite Inc. (NASDAQ:MGNI) is one of the best advertising stocks to buy according to hedge funds.
5. Omnicom Group Inc. (NYSE:OMC)
Number of Hedge Fund Holders: 25
New York-based Omnicom Group Inc. (NYSE:OMC) is one of the market leaders in the advertising industry. Omnicom Group Inc. (NYSE:OMC) has various agencies and provides advertising solutions to sellers and buyers across the entire spectrum of the industry.
Despite headwinds in the ads market Omnicom Group Inc. (NYSE:OMC) recently posted strong Q1 results. Adjusted EPS in the period came in at $1.56, beating estimates by $0.16. Revenue in the quarter jumped 0.9% year over year to total $3.44 billion, beating estimates by $60 million.
As of the end of the fourth quarter of 2022, 25 hedge funds had stakes in Omnicom Group Inc. (NYSE:OMC). The most notable hedge fund stakeholder of the firm was Citadel Investment Group of Ken Griffin which owns a $162 million stake in Omnicom Group Inc. (NYSE:OMC).
4. Interpublic Group of Companies Inc. (NYSE:IPG)
Number of Hedge Fund Holders: 28
Interpublic Group of Companies Inc. (NYSE:IPG) is a major advertising and marketing company. Interpublic Group of Companies Inc. (NYSE:IPG) has gained about 7% over the past 12 months. In March the BofA analyst Adrien de Saint Hilaire gave a Buy rating for Interpublic Group of Companies Inc. (NYSE:IPG) after the analyst met the company’s management. Following the meeting, the analyst felt “confident” that the current headwinds faced by Interpublic Group of Companies Inc. (NYSE:IPG) were “transient” and the weakness in tech/telecom segments should be “more than offset” by strengths in healthcare segment.
A total of 28 hedge funds tracked by Insider Monkey had stakes in Interpublic Group of Companies Inc. (NYSE:IPG) as of the end of the fourth quarter of 2022. The biggest stakeholder of Interpublic Group of Companies Inc. (NYSE:IPG) was Natixis Global Asset Management’s Harris Associates which owns a $471 million stake in the company.
3. Accenture Plc (NYSE:ACN)
Number of Hedge Fund Holders: 63
Accenture Plc (NYSE:ACN) provides a variety of solutions in the advertising industry related to programmatic ads, using AI in ads, TV ads, multimedia ads and more.
As of the end of the fourth quarter of 2022, 63 hedge funds have stakes in Accenture Plc (NYSE:ACN). GuardCap Asset Management of Guardian Capital owns a $387 million stake in Accenture Plc (NYSE:ACN).
ClearBridge Sustainability Leaders Strategy made the following comment about Accenture plc (NYSE:ACN) in its Q4 2022 investor letter:
“Accenture plc (NYSE:ACN) is a leading global professional services company that helps clients build their digital infrastructure and optimize their operations. We view Accenture as a resilient, high-quality business with consistent earnings and cash flow, a strong balance sheet and very attractive returns on capital. Secular drivers like cloud migration and digital transformation, as well as new, innovative technology deployments like data security, block chain, AI and machine learning position Accenture well for continued growth. It is also currently rolling out a suite of sustainability tools that offers a comprehensive view of a company’s goals, progress and performance across financial and ESG measures, so it is an enabler of ESG for its clients. We exited our position in software-as-a-service company Workday to fund the position, largely on better relative risk/reward, in our view.”
2. Alphabet Inc. (NASDAQ:GOOG)
Number of Hedge Fund Holders: 152
The sheer size and scale of Alphabet Inc. (NASDAQ:GOOG)’s Google’s advertising operations makes the company one of the best advertising agency stocks to buy. Though Alphabet Inc. (NASDAQ:GOOG) isn’t an ads agency per se, literally hundreds of thousands of small and large ads agencies are working to help their clients get success on Google’s search engine platform. Alphabet Inc. (NASDAQ:GOOG) also offers various resources for people to fine-tune their ads and recommends various Google partner ads agencies.
According to data from Dentsu, companies spent approximately $400 billion on online ads last year. Alphabet Inc. (NASDAQ:GOOG) took away about a quarter of that spending.
Polen Focus Growth Strategy made the following comment about Alphabet Inc. (NASDAQ:GOOG) in its Q1 2023 investor letter:
“One area we are watching regarding Alphabet Inc. (NASDAQ:GOOG) and Adobe is AI systems and their capabilities, including generative AI. Interestingly, both Adobe and Alphabet could see benefits or threats from the emergence of generative AI and large language models (LLMs). Both companies already use generative AI to the benefit of their users in anticipating how content creators edit their work (Adobe) and in how search results are anticipated and generated (Google). At the same time, breakthrough technologies like AI can open the door to additional competition and/or impact a company’s profitability levels. We now see AI systems others are developing, including LLMs and generative AI offerings, that could be more competitive in the future. While we think it remains early days for ChatGPT and the capabilities of these types of LLMs and generative AI programs like DALL-E, the technology seems to be progressing at a fast rate and will at least require a strong response from incumbents.
As of now, we believe Alphabet and Adobe are leaders in their own right in these areas and have a clear path to improving their existing offerings with AI advancements, which would allow them to be net beneficiaries of AI. There are also significant barriers to building leading AI offerings in these areas. As a result, our position sizes in Adobe and Alphabet remain sizeable. For Adobe, the status of its pending $20 billion-plus Figma acquisition is also uncertain. There is a good chance, in our view, that it will be blocked by regulators, which would mean the future opportunity to expand its offerings to the developer community (beyond designers) may not occur.”
1. Meta Platforms, Inc. (NASDAQ:META)
Number of Hedge Fund Holders: 194
Meta Platforms, Inc. (NASDAQ:META) is the second biggest player in the online ads market and the company’s efforts to reignite growth are working as evident from its Q1 results. Meta Platforms, Inc. (NASDAQ:META)’s ad revenue in the first quarter of 2023 jumped about 4.1% on a YoY basis to reach $28.1 billion.
Meta Platforms, Inc. (NASDAQ:META) has a special Media and Creative Agency hub which provides resources to small businesses to find ways to promote and advertise their business on the Facebook platform. A total of 194 hedge funds tracked by Insider Monkey were long Meta Platforms, Inc. (NASDAQ:META) as of the end of the fourth quarter of 2022.
Giverny Capital made the following comment about Meta Platforms, Inc. (NASDAQ:META) in its Q1 2023 investor letter:
“Meta Platforms, Inc. (NASDAQ:META) was our leading performer, up 76% for the quarter. I have written quite a bit about Meta in prior letters and I feel like I got the basics right: Meta never had an earnings or engagement problem so much as an expense management problem. Once founder and CEO Mark Zuckerberg announced layoffs and a new commitment to efficiency, the stock doubled in a few months.”
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Disclosure: None. 12 Best Advertising Agency Stocks to Buy is originally published on Insider Monkey.
