The U.S. turned in a fairly robust quarter in Q1 2010, with a GDP increase of 3.2%. Personal consumption expenditures also increased 3.6%. In May 2010 the unemployment rate decreased to 9.7% and personal consumption expenditures increased $24.4 billion, or 0.2%. Greater consumer activity is typically a prime motivator for greater advertising spending. Online advertising revenues in the U.S. were $5.9 billion in Q1 2010, representing a 7.5% increase over the same period in 2009, according to Interactive Advertising Bureau.
Online advertising is the fastest growing segment of the advertising industry. Online advertising spending in the U.S. is expected to reach $24.9 billion in 2010, representing 8.9% growth over last year according to Barclays Capital Internet Data Book. Economic gains, increased broadband Internet access, along with the continued shift of advertising budgets from traditional to digital media is expected to drive online advertising revenues in the U.S. to $37.5 billion by 2014, a 10.5% compound annual growth rate (CAGR) from 2009, which totaled $22.8 billion.
In 2009 online media represented 14.0% of the total U.S. advertising spending while average consumers spent about 22.0% of their media time online. This gap represents a significant opportunity for acquirers and investors of online ad firms as online advertising budgets are increased to bring them in-line with online media consumption. The popularity of social media is increasing this consumption – three of the world’s most popular brands online are social-media related: Facebook, YouTube and Wikipedia.
While online advertising did not fully escape the impact of the recession, its decline in the U.S. was much less severe than that of other advertising media. Online advertising expenditures are expected to surpass newspaper advertising for the first time in 2010
Search marketing has continued to fuel the growth of online advertising. Search revenues are expected to increase from $11.0 billion in 2009 to $21.3 billion in 2014, a 14.1% CAGR. The $12.8 billion marketers will spend on search in 2010 represents 52.0% of the total online ad spend.
Online video advertising and mobile advertising are expected to further drive digital advertising growth in the coming years. Online video advertising is expected to reach $3.7 billion in 2014, a 32.7% CAGR from 2009 revenues of just under $1.0 billion according to Barclays Capital.
The mobile advertising market also is poised for growth as wireless networks are upgraded and more Internet-enabled smart phones arrive in the market. Mobile advertising in the U.S. is expected to grow from $414 million in 2009 to $1.6 billion in 2014, a 32.0% CAGR.
It is time for investors to update their investment thesis for online advertising firms.