According to Morgan Stanley analysts, online advertising will grow by 20% in 2021 with Google (NASDAQ:GOOGL), Facebook Inc. (NASDAQ:FB) and Pinterest Inc. (NYSE:PINS) leading the pack.
Online ad spending recovery linked to e-commerce growth
During the pandemic, online advertising was one of the affected industries, and in 1H 2020, there was a significant drop in advertising revenue for companies such as Google and Facebook. This was due to most companies cutting their market spending by almost 30%. However, in the third quarter, Google, Facebook, Pinterest Twitter Inc. (NYSE:TWTR), Amazon.com Inc. (NASDAQ:AMZN) and Snap (NYSE:SNAP) saw a rebound of online advertising revenue. This is a sign that some of the digital advertising trends linked to the growth of e-commerce are here to stay.
In a note to investors, Morgan Stanely analysts said that the exceptional digital advertising revenue witnessed in Q3 shows the initial impact of “V-shaped recovery” into 2021. In Q3 digital ad companies, witnessed the returns of growing e-commerce ad spending and recovery of brand advertising which was among the worst-hit parts of the market by the pandemic. With digital ad bouncing back, analysts estimate that the trend will continue into next year. The analysts said that they expect advertising to be cyclical and GDP growth to be faster, resulting in more ad spending across different industries as business spends to leverage reopening/recovering consumer spend.
Change in consumer behaviour necessitated a change to digital ad spend
According to Morgan Stanley, the stay-at-home orders have led to a change in consumer behaviour which has accelerated the desire to shift into digital ad spending. The analysts revised 2020 and 2021 ad estimates by 8% and 15% respectively, and they are holding for YoY growth of 11% in 2020 and a 20% YoY growth next year.
The investment firm said that several factors would help the recovery of the online ad market at a quicker rate than anticipated. For example, they said online travel-related spend, which represented 8% of digital ad spending in 2019 could recover quickly in the next two years.
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