Forecasts for the U.S. ad market continue to become more optimistic, pushing advertising stocks to buy to new heights. What’s more, the sector is expected to expand tremendously in 2024. For example, research firm IPG Mediabrands last month raised its forecast for the U.S. ad market’s growth to 9.2% from its previous 8.4% estimate. In the second half of the year, many websites’ revenue will get boosts from political ads. In fact, IPG expects digital spending by political entities to jump 156% this year, compared with 2020. Other macro factors pushing ad spending are easing inflation and significant GDP growth. Hot sectors such as travel, retailers and food and beverage are spending the most on ads. Meanwhile, Forrester expects the U.S. ad market to increase by a healthy 6.6% this year. For those who want to exploit the growth of the U.S. ad market, here are three top advertising stocks to buy.
Pinterest (PINS)
Pinterest (NYSE:PINS) features recipes, along with information about home goods and style ideas.
The company recently reported stellar first-quarter results, showing that it’s benefiting a great deal both from the strong U.S. macro ad environment and its ad partnerships. Specifically, the company’s revenue jumped 23% versus the same period a year earlier to $740 million, while its EBITDA soared an incredible 319% year-over-year to $113 million. Pinterest’s global monthly active user base climbed 23% YOY to $740 million.
On the company’s Q1 earnings call, CEO William Ready noted that the firm’s partnership with Amazon (NASDAQ:AMZN) had been active since February. Meanwhile, its alliance with Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) was in its initial stages but progressing well. He added that the firm’s partnerships in general had made a significant revenue contribution.
The CEO added that the firm is benefiting from increased engagement in general and strong interest in the platform from members of Generation Z in particular.
Going forward, I expect the company’s strong popularity and impressive partnerships to enable it to continue to deliver impressive financial results.
All of these positive catalysts make Pinterest one of the top advertising stocks to buy.
Roku (ROKU)
Another clear beneficiary of the strong U.S. ad market, Roku (NASDAQ:ROKU), grew very rapidly in Q1 and generated significant, positive, adjusted EBITDA for a third straight quarter. Also importantly, its cash flow from operations is growing very quickly.
Specifically, Roku reported that its net revenue had jumped 19% last quarter YOY $881.5 million. Its cash flow from operations had risen to $456 million. Meanwhile, its EBITDA, excluding certain items, rose to $40.9 million, versus an EBITDA loss of $69.1 million in Q1 of 2023. Roku also added 1.6 million households in Q1, while the number of hours streamed on its platform jumped 23% YOY. And very encouragingly, the number of hours streamed on Roku’s Roku Channel soared 66% last quarter versus the same period a year earlier.
Seaport Research upgraded its rating on the shares to “Buy” from “Neutral.” Seaport expects Roku to benefit from the strong digital-ad market and notes that it’s changing hands for only 20 times its free cash flow. The firm placed a $74 price target on the shares.
Spotify (SPOT)
In recent months, the Street appears to have become much more upbeat on Spotify (NYSE:SPOT). SPOT stock has jumped 34% in the last three months and 107% in the last year.
British bank HSBC started coverage of the shares with a “Buy” rating. The bank believes that the firm can exploit its market-leading position in music streaming to generate a meaningful amount of revenue from podcasts and audiobooks. Consequently, HSBC thinks that the firm’s revenue can soar to $170 billion in 2030 from $14.5 billion last year.
Also upbeat on Spotify is Bank of America which includes the name on its list of top U.S. stocks.
In Q1, the audio company’s sales jumped 20% YOY while its premium subscriber count climbed 14% YOY. Its operating income came in at a record high of 168 million euros.
On the date of publication, Larry Ramer held a long position in AMZN. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
