If you asked most Americans if they use the internet on a daily basis, you likely would get an answer strong in the affirmative. Statistics indicate that a remarkable 92% of all Americans have access to the internet (which is up a stunning 75% since 2012) as it has become one of the most versatile and popular tools for communication, information and entertainment in today’s modernized and increasingly global world. The United States ranks third in the world with 307 million users.
The advent and massive growth of the internet has proved to be a boon for companies seeking the best advertising value for their dollar. Digital advertising that can be targeted right to a company’s specific consumer and demographic, and so much more, has become a gigantic industry. For the top internet companies, and even smaller niche players, it has become a huge cash cow.
A new Goldman Sachs research report includes a deep dive into internet digital advertising, as we are now into the second half of 2023, and some of the top stocks come as no surprise. The report noted this about the state of the industry:
There continues to be a large bifurcation in performance by ad vertical dependent upon the macro environment and consumer demand (incl. for goods vs. services). We continue to see sustained strength within travel, local and omnichannel retail. In addition, the more interest rate-sensitive verticals (including. autos, housing, & financial services), while still under pressure on an absolute level, have proven to be relatively more resilient vs. our expectations in Q2. According to data from Pathmatics, US ad impression growth across Facebook and Instagram continues to be strongest within the retail, travel & CPG categories vs. continued pressure (on an absolute basis) within financial services (a continuation of trends seen in the first quarter of 2023 and the fourth quarter of 2022.
Two of the five stocks the Goldman Sachs team are very positive on come as no surprise, and the three others are also favorites of the analysts. While all are rated Buy, it is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
Alphabet
There should be no surprise that the search giant is a top pick, as it is all-in on the AI revolution and remains a very compelling idea, especially at current trading levels. Alphabet Inc. (NASDAQ: GOOGL) provides various products and platforms in North America, Europe, the Middle East, Latin America and elsewhere.
Its Google Services segment offers products and services, including ads, Android, Chrome, hardware, Gmail, Google Drive, Google Maps, Google Photos, Google Play, Search and YouTube. It is also involved in the sale of apps and in-app purchases and digital content in the Google Play store, as well as Fitbit wearable devices, Google Nest home products, Pixel phones and other devices, and in the provision of YouTube non-advertising services.
The Google Cloud segment offers infrastructure, platform and other services; Google Workspace that includes cloud-based collaboration tools for enterprises, such as Gmail, Docs, Drive, Calendar and Meet; and other services for enterprise customers. The Other Bets segment sells health technology and internet services.
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