In this article, we will look at the 10 Worst Advertising Stocks To Buy According to Short Sellers. Let’s look at where Cardlytics, Inc. (CDLX) stands against other worst advertising stocks.
Overview of the Global Advertising Sector
Advertising agencies have profited from per capita disposable income, increasing consumer spending, and corporate profit in the past few years. Although advertising expenditure fell after the outbreak of the COVID-19 pandemic, industry revenue in 2020 rose with companies demanding creative services for their pandemic-focused promotional campaigns. Corporate profit bounced back after 2020, allowing agencies to monetize the exponential release of pent-up demand as companies and businesses scrambled to target a specific customer base: one with increasing disposable income.
According to estimates from IBISWorld, industry-wide revenue in the advertising sector has been growing at a compound annual growth rate of 2.7% over the past five years. It is expected to reach $70.1 billion by 2024, increasing by 1.9%. Profit is also anticipated to grow by 6.6%. According to a report by Mordor Intelligence, the online advertising market is valued at $257.97 billion as of 2024. It is expected to increase to $431.76 billion by 2029, growing at a compound annual growth rate of 10.97% in the forecast period.
North America is the largest market in the sector and is also the fastest-growing in the world. The increasing use of digital devices and social media has caused an exponential boom in the online advertisement sector, becoming a critical component of marketing strategies for companies across the globe.
Spending in the Advertising Sector
Spending in the advertising industry, which determines the fate of publishers, is also determined by the state of the economy, consumer confidence, and advertisers’ outlook. Advertising giants have talked during earnings calls that while the advertising market is not at its best right now, it does appear to be recovering.
This recovery is taking place in areas such as food and technology, which joins strong performance in healthcare, pharmaceuticals, and beauty care. Companies that are active in programmatic advertising (data-driven user targeting through ads), have also seen programmatic revenues surge while broader advertising revenue decline.
US Elections and the Advertising Industry
US political campaigns take over the advertising landscape during an election season, setting the stage for a number of challenges for non-political advertisers. As such challenges only seem to grow with each election cycle, 2024 is no exception. Hotly contested Senate battles and a divisive Presidential race landscape are some of the factors driving unprecedented political ad spend. Estimates show that this year’s political ad spending is expected to stand between $10.2 billion and $12 billion. This translates to a 13%-30% increase from the 2019-2020 election cycle ad spend.
This creates a pressing need for advertising and marketing leaders from outside the political landscape to find creative ways to navigate the politics-saturated market and chalk out ways to make the most of their spending in a period of localized inventory scarcity and high demand. Advancements in generative AI are also likely to create a landscape of misinformation and disinformation, especially on social media. This brings an additional responsibility to advertisers to safeguard their brands and clients from the potential pitfalls of such AI-generated misinformation and harmful political content.
According to a report by Insider Intelligence, TV media is again expected to take the largest chunk of America’s political ad spending. It is anticipated to rise 7.9%, accounting for 71.9% of all spending. In addition, advertising costs on TV and other mediums are also expected to rise with the presidential campaign reaching its full swing. These trends will likely affect all kinds of advertisers, as TV, radio, and out-of-home advertising is anticipated to be rife with election advertising. This would make getting non-political messages across considerably harder, as there is expected to be considerable noise in the market between August and November.
Our Methodology
To list the 10 Worst Advertising Stocks to Buy According to Short Sellers, we used a Finviz screener to filter out stocks catering to the advertising industry. Next, we narrowed our list of stocks by selecting the ones having high short interest. Finally, the stocks were ranked in ascending order of their short interest. We also mentioned the hedge fund sentiment for each stock.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
10 Worst Advertising Stocks To Buy According to Short Sellers
Cardlytics, Inc. (NASDAQ:CDLX)
Short Interest: 17.31%
Number of Hedge Fund Holders: 19
Cardlytics (NASDAQ:CDLX) operates a digital advertising platform within its partners and its own digital channels. These include mobile applications, online, email, and various real-time notifications. The Cardlytics platform allows marketers to deliver advertising content to customers and earn rewards, funded with a portion of the fee collected from them. The platform equips marketers to reach their potential customers across a wide array of financial institutions (FI) partners through their digital banking accounts.
The company also operates Bridg, a customer data platform that leverages point-of-sale (POS) data (including product-level purchase data) to enable partners to perform analytics and targeted loyalty marketing. Marketers can also calculate the impact of their marketing. Cardlytics (NASDAQ:CDLX) operates in the United States and the United Kingdom.
Cardlytics (NASDAQ:CDLX) is continuing to make progress across the new technology releases in three areas: the adoption and refinement of its Ad Decisioning Engine (ADE), the launch of its Automated Insights Dashboard, and the launch of its Dynamic Marketplace. 80% of the company’s banks are already onboard ADE, with continued progress in transitioning the rest. In addition, the Automated Insights Dashboard allows advertisers to access on-demand insights. This launch is expected to increase the overall billing opportunity as spend thresholds are required for access, and enables advertisers to take real-time action. The Dynamic Marketplace includes a transition to its engagement-based pricing model. These interventions are expected to appeal to advertisers, helping the company solidify its market standing.
Cardlytics’ (NASDAQ:CDLX) growth plans bring optimism to the company. These include a strengthened financial profile to reduce operating expenses, improve capital structure, and facilitate continued strategic business investments. It also holds clear plans to align its offerings with the modern advertising market, increasing consumer incentives and billings. In addition, the company is taking proactive steps to address its challenges. These include delivering an improved monetization value to its buyers, brands, and banks. The starting point to address such challenges for the company is improving delivery, forecasting, and pricing while simultaneously delivering a platform that exceeds advertiser expectations and needs.
The company is making solid progress in growing its engagement. Consumer incentives rose by 25% in Q2, which shows that consumers are finding value in the company’s offerings. These engagement-driven initiatives are expected to attract more marketing budgets to the platform, adding to its flywheel effect.
Cardlytics’ (NASDAQ:CDLX) has considerable expansion and growth plans in place. It holds a competitive market edge due to its unrivaled first-party purchase data, with cardholders’ spending data ranking as the best predictor of its future and making it valuable for advertisers. It is thus running on a flywheel effect of brands, buyers, and banks, increasing its customer base of cardholders with rewards and, in turn, driving incremental spending for advertisers and banks.
Overall, CDLX ranks 1st among the worst advertising stocks to buy according to short sellers. While we acknowledge the potential of CDLX as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than CDLX but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.