The $1 Trillion Ad Opportunity

Note

The advertising market is expected to pass $1 trillion in 2024, according to Group M, showing significant growth in ad spend worldwide. Companies like Amazon and Instacart are changing the advertising landscape by offering digital ad placements with measurable ROI, making it easier for advertisers to see the impact of their ads. Reddit is introducing Reddit Answers, an AI application to enhance user experience and increase ad revenue by keeping users engaged on the platform. Warren Buffett and Bernard Arnault have different management styles, with Buffett focusing on financial acquisitions and Arnault being more of a strategic acquirer, but both are known for their decentralized approach to running businesses.

Highlights

• 2024-12-10 14:24 I can literally remember years ago when I was first starting to follow this trend. It was huge when it crossed 500 billion.

• 2024-12-10 14:25 They noted that some of the gains that we are seeing in advertising is coming from a reduction in consumer goods companies with their spend for more traditional in store retail.

• 2024-12-11 21:46 I’ll throw Meta and Alphabet in there too. What are some companies that you think maybe people should be having on their radar when it comes to increased ad spend? I would say if you’re a longtime fool listener, you probably have this company on your radar, but keep it on your radar. And that’s the trade desk. Because what the trade desk does as an aggregator of what are called demand side, people coming to them and say, hey, help me place ads in various places, it’s almost a one to one correlation between the amount of spending that’s being done and the amount of business that’s available to the trade desk.

• 2024-12-11 21:45 But I think connected TV in particular and ad supported video streaming in particular are probably even earlier innings than some of the more traditional display sponsored result type stuff that we would see from a Google or from an Amazon. That’s exactly right. And there’s actually a little company that I’ve been following for a couple of years that’s playing directly into this called Integral Ad Science.

• 2024-12-11 21:45 So what they do is they actually help digital advertisers on these various channels, you know, streaming, connected tv, et cetera. They say, hey, we can verify that a person, not a bot, not you know, actually saw this. So again, the data becomes more valuable. The other thing that Integral Ad Science does is they say, hey, your brand gives off this vibe. You don’t want to place it against this content.

• 2024-12-10 14:29 They are bringing forward a new user facing AI application they are calling Reddit Answers. David, what are we looking at here?

• 2024-12-11 21:45 So they’re not going to put any of their third party relationships at jeopardy by doing this, but they’re going to try to say, hey, we can do this, we have the technology, we have the data. Let’s make it a very useful thing for the Redditors that come to the site all the time. From the press release, it seems Reddit answers will be rolling out to a small number of US users, and it’s also only available in English at the moment. And so if you are a user, you may not see it right away. But I, I think one of the ways that may be helpful to think about it is fairly similar to what we are seeing with Google and their AI overviews when people are submitting queries.

• 2024-12-10 16:17 One of them is named Fluence Energy. Fluence Energy is in the energy storage business. Essentially, they create utility scale battery systems that they install alongside a renewable power producer. So let’s say solar power. Obviously the sun doesn’t shine every day. So when the sun shines, you convert the sunlight to energy. You store the energy in the battery and then from the battery you release it to distribution when it’s necessary.

• 2024-12-10 16:17 They are doing extremely well. It’s one of the fastest growing areas in the energy market. They just had their most recent earnings call and they said, we’re expecting 40% revenue growth next year. They did about 25, 26 this year. So they’re seeing an acceleration.

• 2024-12-10 16:17 The new CEO who came in earlier this year, he’s transformed the company from basically cash burn to cash generation. So there’s all sorts of things that are great things that are happening from a fundamental business business standpoint as well as what’s happening in its marketplace. And you’re trading at a reasonable valuation today. Fluence is the perfect example of what you should be looking for with small caps. A good business trading at a reasonable to attractive valuation.

• 2024-12-10 16:16 Yes. The ticker symbol for one of the bigger ETFs by iShares is iJr. If you contrast that with the Russell 2000, which is essentially the 2000 small cap companies, what the S&P 600 does is it says, hey, if you’re not profitable, you’re not in the index, whereas the Russell 2000 says it’s just based on size. So we don’t care about anything associated with business fundamentals. So in the S&P 600 ETF, you just get more high quality companies. And so yes, it is, in my opinion, it is a slightly better vehicle to use. And the reason is because quite frankly, it fits more with what we try to do here at the Motley fool, investing in those fast growing high quality companies.

• 2024-12-10 16:18 And Buffett saw an opportunity to extract capital from that business to use the float, that is the money that they take in as an insurance company before they pay out claims and invest that float in the same way that Bernard Arnold saw a chance to use a prestige brand within a struggling conglomerate and extract capital out of that. So they both had this sense at a very young age. I think Bernard Arnault was in his 20s and Warren Buffett was in his mid-30s when they had a similar idea. Here’s something that isn’t working. I want to take control of that and really exploit it and use the capital for other things.

• 2024-12-10 16:19 A part of Buffett’s whole image is that he’s known for his aphorisms, his, his nuggets of investing wisdom. Does Arnault have the same kind of wise reputation, even though maybe his is a bit sharper than Buffett’s?

• 2024-12-11 21:45 Yeah, it’s fascinating. Let’s start with the similarities. I think both of these guys are decentralists. So neither one likes to micromanage things.

• 2024-12-11 21:45 Buffett is famous for after cutting those deals, so shrewdly, having the agreements be very simple on paper, very short agreements, once or twice on a handshake. So you have to understand that Berkshire Hathaway does two things, if you don’t know this already. They acquire operating companies, many of them publicly traded, and run those companies. And then they also have an investment in publicly traded companies where they own the stock and they’re looking to buy great companies for a great price and then reap the investment gains from that. In the case where Berkshire Hathaway owns operating companies, that then folds under its own umbrella as one single publicly traded company.