2 Companies to Buy Now That Control 50% of All Online Advertising

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A short 15 years ago, the online advertising market was not only very nascent, but it was highly fragmented, with many of the market leaders then struggling now to keep up with the new leaders. Companies like AOL and Yahoo! Inc. (NASDAQ: YHOO) once dominated the online market and have been relegated to second tier status as new and more powerful companies have emerged.

Two subsectors have emerged to help lead the growth in the sector and that is search and, of course, social media. Two companies that dominate those arenas have also spread their capital around to acquire new technologies, in everything from virtual reality to autonomous driving to streaming programming and content.

A research note from Stifel says the choice is simple: own the two industry giants. The analysts think both companies have the potential to achieve and potentially exceed consensus revenue forecasts over the next five years. Both are rated Buy.

Alphabet

The search giant continues to expand and is even working on a driverless car now. Alphabet Inc. (NASDAQ: GOOGL) provides online advertising services in the United States, the United Kingdom and rest of the world. It offers performance and brand advertising services, and it operates through Google and Other Bets segments. The Google segment includes principal internet products, such as Search, Ads, Commerce, Maps, YouTube, Apps, Cloud, Android, Chrome and Google Play, as well as technical infrastructure and newer efforts, such as virtual reality.

The Google segment also sells hardware products, comprising Chromecast, Chromebooks and Nexus. The Other Bets segment includes businesses such as Access/Google Fiber, Calico, Nest, Verily, GV, Google Capital, X and other initiatives.

Top Wall Street analysts point out the company reported better than expected second-quarter results with the best top-line growth since the third quarter of 2014. Paid clicks came in above Wall Street estimates, growing 29%, while Google websites paid click growth was 37% with YouTube and mobile accounting for much of this strength. EBIT margins also continued to see outstanding growth at 39%, versus 37.5% in the same period last year.

The Stifel price target for the stock is $925, and the Wall Street consensus target is at $940.91. The shares closed Tuesday at $808.02.

Facebook

The huge social media leader posted gigantic quarterly numbers that truly blew most of Wall Street away. Facebook Inc. (NASDAQ: FB) operates as a mobile application and website that enables people to connect, share, discover and communicate each other on mobile devices and personal computers worldwide.

Its solutions also include Instagram, a mobile application that enables people to take photos or videos, customize them with filter effects, and share them with friends and followers in a photo feed or send them directly to friends; Messenger, a messaging application for mobile and web on various platforms and devices, which enable people to reach others instantly, as well as enable businesses to engage with customers; and WhatsApp Messenger, a mobile messaging application.

Facebook also develops Oculus virtual reality technology and content platform, which allows people to enter an immersive and interactive environment to play games, consume content and connect with others. As of December 31, 2015, it had 1.04 billion daily active users (DAUs) and 934 million DAUs who accessed Facebook from a mobile device. Most Wall Street analysts point to the fact that Facebook remains the top beneficiary of the adoption of mobile internet trends with total U.S. internet time spent on Facebook and Messenger.

While the Stifel team loves the Alphabet growth prospects, they feel that Facebook’s long-term forecasts are more easily attainable, especially as the company continues to grow and employ new platforms for online advertising. It should be noted that Facebook had grown to an astounding $372.54 billion market cap in less than five years.

Stifel has a $155 price objective for the stock, and the consensus price target is $153.95. Shares closed Tuesday at $129.73.

The bottom line for investors is easy: own these two stocks for sure, as they will continue to dominate. Whether individually, or in an exchange traded, closed end or mutual fund, both make incredible additions to long-term aggressive growth portfolios.