Advertisement Industry: To Make Mild and Steady Recovery


The author is an analyst of NH Investment & Securities. She can be reached at hzl.lee@nhqv.com. — Ed.

 

The ad market is to make a mild and steady earnings recovery on the resumption of advertising execution and BTL marketing in industries situated to benefit from economic re-opening. While stricter privacy policies at Apple and Google are inevitably to lead to significant changes in marketers’ allocations of their digital ad execution budgets, we do not see a threat to the overall ad industry value chain. We remain Positive, believing that ad industry growth will be catalyzed by: 1) rich first-party data and 2) big data-based contextual targeting technology.


Steady sector growth to sustain in 2H22

We maintain a Positive stance towards the ad industry, anticipating a mild and steady earnings recovery in 2H22 on the resumption of advertising execution and BTL marketing in the industries situated to benefit from economic re-opening. While stricter privacy policies at Apple and Google are inevitably to lead to significant changes in marketers’ allocations of their digital ad execution budgets, we do not see a threat to the overall ad industry value chain. Moving forward, earnings growth looks well equipped to sustain, led by digital domains.

We present Cheil Worldwide as our sector top pick, noting both stable top-line growth across all divisions and improving labor cost efficiency. Its earnings are primed to expand over the mid/long term in line with the beefing up of its digital ad-tech capabilities, including in the metaverse and NFT realms. The abundant amount of big data that the company has accumulated over a lengthy period of time presents another strength.

Traditional advertising: To benefit indirectly from economic re-opening


In 2022, the Korea Advertising Index (KAI) continues to exceed 100 on a y-y monthly comparison basis. In 2021, ad market earnings started to improve on y-y low-base effects. With further recovery expected this year in line with economic re-opening benefits, we foresee stable earnings growth across the advertising industry.

Digital advertising: Ad platform mix changes underway

One of the reasons for the recent slowdown in sales growth of digital ad platforms is the damage to retargeting ads stemming from Apple’s tightening of its privacy policy. With Google likely to implement a similar policy around 2024, notable changes in marketers’ allocations of their digital ad execution budgets appear inevitable going forward.

That said, it is unlikely that strengthening privacy policies will threaten the overall ad industry value chain. In a recent industry survey, the majority of marketers responded that they do not believe that the privacy-strengthening trend will affect the size of their digital ad marketing budgets, but will lead to notable changes in their weightings for the execution of their budgets. Going forward, we believe that the digital advertising market will expand further in response to: 1) rich first-party data; and 2) big data-based contextual targeting technology.
 




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