Top Picks: Cheil Worldwide and Studio Dragon
The author is an analyst of NH Investment & Securities. She can be reached at hzl.lee@nhqv.com. -- Ed.
Amid heightened concerns over an economic slowdown, the sluggish performance of targeting advertising platforms has been added, resulting in the share prices of media/ad companies coming in flat. However, the global ad market is expected to grow 9.0% in 2022, exceeding the economic growth rate forecast by 6.0%p, driven by increased spending by firms benefiting from re-opening and the high growth of new media. While Meta and Snap, which target third-party data (data collected indirectly through various media), are struggling with sluggish ad sales, Amazon, which started its ad business based on first-party data (data collected directly from customers), is on the rise. Demand for owned media (own mall, own site) marketing from some firms is also on the rise.
The projected growth rate of the global ad market in 2023 is 5.4%, which is 2.7%p higher than the economic growth forecast. As reopening effects have disappeared, the extent of the growth has been relatively low (y-y), but we expect solid growth to continue despite concerns about an economic slowdown. Moving ahead, growth will continue to be driven by new media. In addition to high growth for first-party data-based ad platforms, butterfly effects from the introduction of ads by new media (Netflix, Roblox) should also be noticeable.
The domestic ad market should follow global trends. Broadcasting advertising is in a difficult place due to the economic slowdown and intensifying competition following the introduction of OTT advertising. However, there are still many positives in the digital ad market. It is time to pay attention to operators with strengths in data and the metaverse.
I. Ad market growth driven by new media
Over the past 20 years, the global ad market has grown at an average annual rate of 4%. Excluding economic crises, it has expanded at a rate that exceeds economic growth rate every year, and new media is currently leading the way. Even during the period of negative growth in the ad market in 2009, digital advertising, a new medium, grew, thanks to the emergence of smartphones and SNSs, where customized advertisements have become commonplace. As of 2022, existing media, which have difficulty in using customized ads due to strengthened privacy policies, are suffering, but the ad market is still growing, on emerging other new media.
II. New media to be the winners in 2023
Despite concerns over an economic slowdown in 2023, the ad market should continue to grow by around 5% y-y. The new medium expected to lead this growth is retail media network (RMN). As RMN utilizes first-party data from retailers, that is, buyers’ data, its target is sophisticated, and it is possible to advertise directly to purchasers, which is advantageous for conversion to buy. Accordingly, advertisers are expected to flock to it. The start of OTT and metaverse ads will have a limited impact on short-term growth, but it is noteworthy that first-time ads are starting.
III. Finding winners in the domestic market
As the domestic economic growth rate is predicted to be less than 2%, the ad market will face some challenges. In particular, in the case of broadcast advertising, which is sensitive to the domestic economy, competition is intensifying with the launch of Netflix’s ad-supported plan. However, there will still be some room in the digital sector. In particular, we expect high growth in the data and metaverse segments. In addition, media reps and content producers should benefit from the introduction of new ads on large platforms such as Netflix and Roblox.
IV. Top picks
We maintain a Positive rating on the media/ad sector. Share price movements are relatively flat due to tepid earnings at targeting ad providers and the worsening economic slowdown. But, the ad market is still growing, and there are winners amidst chaos. The buzz terms for the ad market in 2023 are to be first party data and new media (Netflix, Roblox). Accordingly, Cheil Worldwide (which has preemptively prepared for new fields such as data and the metaverse) should benefit directly, and Studio Dragon, which has secured both valuation and long-term growth potential via the introduction of Netflix ads, is to benefit indirectly.