Facebook And Alphabet Are Largest Benefactors To Programmatic Shift Towards An Open Web

• Shares of Facebook Inc FB, Alphabet Inc GOOGL, The Rubicon Project Inc RUBI and Criteo SA (ADR) CRTO have declined significantly over the past one month.
• Morgan Stanley’s Brian Nowak maintained Overweight ratings for Facebook and Alphabet, while initiating coverage of Rubicon and Criteo with Equal-Weight ratings.
• Online advertising is expected to gain share, and programmatic ad buying would continue to gain traction, Nowak stated.

Online advertising is expected to gain share and constitute 42 percent of total global advertising by 2020, analyst Brian Nowak said. He added that display advertising is likely to comprise around 44 percent of the total online ad market.

The shift to programmatic ad buying is “among the most powerful trends in online display” and programmatic could constitute about 69 percent of the global display market by 2020. Moreover, programmatic is expected to drive 94 percent of the growth in the display market from 2015 to 2020, Nowak mentioned.

The programmatic shift is taking place with advertisers and agencies looking for:

1. Better real-time price discovery
2. A more efficient ad buying process
3. The ability to better link ad spend to actual transaction dollars

Nowak pointed out that Facebook and Alphabet are “the biggest drivers and beneficiaries of the programmatic shift.” He explained that the programmatic ad market comprises of “3 distinct buckets,” namely Social, Google, and the Open Web.

• Social [Facebook]: 52 percent of the overall market and driving about 58 percent of forward growth
• Google: 17 percent of the overall market and driving around 18 percent of forward growth
• The Open Web [Everyone Else]: this is expected to grow 21 percent per year over the next 5 years

Facebook

The price target for the company is at $130. Nowak said that while Social constitutes 52 percent of Programmatic, Facebook comprises 92 percent of Social. He named the company as the “top pick to benefit from and drive the programmatic shift.”

The analyst cited the following reasons:

1. Leading and growing on-platform monetization
2. New platforms, such as Instagram, starting to bud in 2016
3. Street estimates being overly conservative

Google

The price target for the company is at $820. Nowak pointed out that Google was the leader in the non-Social programmatic space. “Accelerating mobile search and YouTube primary drivers of top-line growth…but a programmatic business growing 26% per year helps as well,” the Morgan Stanley report noted.

The Rubicon Project

The price target for the company was established at $15. Rubicon is supply side platform within the Open Web Source. Real-time bidding management comprises 77 percent of the company’s managed revenue. The company helps publishers gain access to demand and liquidity, and advertisers reach their target demographics, Nowak mentioned

Rubicon has a $6.4bn addressable market, which is expected to grow around 20 percent every year over the next 5 years. Rubicon constitutes around 12 percent of market, and competes mainly against three private companies.

Criteo

The price target for the company is established at $36. Criteo is a pure play re-targeter, Nowak said. The company has about 4 percent share of the programmatic market. While prospects are bright, the company’s incremental EBITDA margins could come under pressure in the near-term due to increased investment in mid-market, China, core innovation and R&D, the analyst commented.