In this article, we will look at the 10 Worst Advertising Stocks To Buy According to Short Sellers. Let’s look at where Integral Ad Science Holding Corp. (IAS) 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).
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Integral Ad Science Holding Corp. (NASDAQ:IAS)
Short Interest: 3.63%
Number of Hedge Fund Holders: 23
Integral Ad Science Holding Corp (NASDAQ:IAS) is a global media measurement and optimization platform. It takes the ninth spot on our list of the 10 worst advertising stocks to buy, according to short sellers. Its cloud-based technology platform offers practical insights and independent verification and measurment of digital advertising across all channels, devices, and formats, including mobile, desktop, connected TV, display, video, and social.
Its Quality Impressions metric is designed to ascertain that digital ads are served to a real person instead of a bot, appear in a suitable and brand-safe environment, are viewable on-screen, and are displayed in the right geography. These checks help advertisers optimize their ad spend and ensure they can measure consumer engagement across platforms more efficiently. In addition, it allows publishers to enhance their revenue and inventory yield. It boasts integrations with key tech and advertising platforms, including Instagram, Facebook, YouTube, Google, and several others. Integral Ad Science Holding Corp operates in the United States, the United Kingdom, Germany, France, and other countries.
The company has several business growth drivers that help it stay on track with its growth progress. These include new and enhanced partnerships, key global customer wins, a strong product pipeline, and the opportunity to support digital logo wins after Oracle announced its exit from the advertising business.
Integral Ad Science Holding Corp’s (NASDAQ:IAS) total revenue in Q2 2024 grew by 14%, reaching $129 million and surpassing its previous outlook of a range between $125 million and $127 million. It also reported double digital growth across all its businesses in Q2, with 17% measurement growth, 11% optimization growth, and 12% publisher growth. International revenue for the company has been increasing faster than overall revenue for the third consecutive quarter, highlighting its global standing. This trend was driven by the adoption of strong social media offerings.
The company recently had two major global brands wins in the significant telecommunications vertical: Orange and Telefonica. Orange is the largest telecommunication provider in France. It selected Integral Ad Science Holding Corp (NASDAQ:IAS) as its new partner, primarily because of the company’s quality of service and differentiated products. Telefonica, a Spain-based multinational company, also selected Integral Ad Science Holding Corp (NASDAQ:IAS) as one of its global strategic partners. This partnership is set to extend to both optimization and measurement solutions.
According to its advertiser customer data, the company has seen a 55% increase in average annual spending in year 2 of new contracts since 2019. The stock is trading at a forward P/E of 10.95, an 18.90% discount to its sector. Its current price target of $31.20 implies an upside of 5.77% from current levels.
TimesSquare Capital U.S. Small Cap Growth Strategy stated the following regarding Integral Ad Science Holding Corp. (NASDAQ:IAS) in its first quarter 2024 investor letter:
“For the Communication Services sector, we generally prefer to invest in media and services companies that are either well placed from an advertising perspective with a target audience or provide differentiated services. Integral Ad Science Holding Corp. (NASDAQ:IAS) provides digital advertising verification services. The company reported a decent fourth quarter, with beats to sales and profit estimates. However, initial 2024 guidance was disappointing to investors, and the stock retreated by -31%. Management disclosed they are offering more competitive pricing to strategic accounts. While near-term revenues will be impacted, they believe there are significant up-sell and cross-sell opportunities among this cohort.”
Overall, IAS ranks 9th among the worst advertising stocks to buy according to short sellers. While we acknowledge the potential of IAS 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 IAS 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.