In this article, we will look at the 10 Worst Advertising Stocks To Buy According to Short Sellers. Let’s look at where National CineMedia, Inc. (NCMI) 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
National CineMedia, Inc. (NASDAQ:NCMI)
Short Interest: 6.10%
Number of Hedge Fund Holders: 12
National CineMedia (NASDAQ:NCMI) is a media company operating in the cinema advertising sector in the United States. It comprises over 18,400 screens in around 14,400 theatres nationwide in 190 Designated Market Areas. The company presents several formats of The Noovie Show, depending upon its theatre circuit of operation. This includes Post-Showtime advertising inventory after the advertised showtime, and the selling of advertising on its LEN, a series of screens in movie theatre lobbies.
In addition, the platform also undertakes other forms of promotions and advertisements in theatre lobbies, including selling mobile and digital online advertising through its Audience Accelerator. The Audience Accelerator works across various Noovie digital properties and complementary out-of-home venues, including convenience stores, restaurants, and even college campuses.
The cinema industry as a whole thrived in Q2 2024 as the public entered into the summer. The box office landed $1.9 billion, primarily due to the release of widely popular and highly anticipated releases such as Inside Out 2, Bad Boys: Ride or Die, and Kingdom of the Planet of the Apes. National CineMedia’s (NASDAQ:NCMI) primary audience is Gen Z and Millenials, collectively representing more than 70% of its viewership in Q2, with a reach of around 30 million individuals.
This trend highlights the extent to which the company resonates with its core audience. The company has also added 11 new advertisers with major cinema advertising campaigns year-to-date. In addition, its Silence Your Cell Phones courtesy partnership became the largest revenue driver in its premium offering. Courtesy advertising also experienced a boom, growing by 88% year over year primarily due to travel and tech industry partners.
The company is running on a strong profitability model. Its platinum advertising offering in Q2 became the second-best quarter ever in 2024, trailing behind Q4 2019. Sales in Q2 2024 increased more than 15 times compared to the same period in 2023. Public interest in this exclusive offering is continuing to grow, with advertisers from several premier categories planning to include their campaigns in the coming quarter. These categories include entertainment, government, and dining. In addition, an increasing interest in experiential marketing is also driving demand and opening up new opportunities for the company.
On August 15, Benchmark upgraded National CineMedia (NASDAQ:NCMI) to a Buy from Speculative Buy rating on account of its growth optimism. In addition, B. Riley raised the stock’s price target to $8.50 from $7.50. Its current price target of $7.03 implies an upside of 10.24% from current levels. 12 hedge funds hold stakes in the stock, with Blantyre Capital holding the highest stake worth $117.05 million.
Overall, NCMI ranks 5th among the worst advertising stocks to buy according to short sellers. While we acknowledge the potential of advertising companies, 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 NCMI 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.