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May 30, 2019

Mobile and Video Lead Internet Advertising to New Heights

MHT Partners  | Business & Information Services Investment Bank

The Interactive Advertising Bureau (IAB) recently released its latest Internet Advertising Revenue Report, which is conducted independently by PwC on behalf of the IAB. As expected, the report shows internet advertising continues its unrelenting growth. For nine consecutive years, U.S. internet advertising revenues have maintained a double-digit growth rate. In 2018, internet ad revenues totaled $107.5 billion, which represents growth of approximately 22% over 2017.

Fastest Growing Segments in Internet Advertising

 

 

 

 

 

 

 

 

Video was the fastest growing format.  In 2018, video revenue grew 37% to reach $16.3 billion, which represented 15% of the overall market.    The second fastest growing format was Banner ads, which grew 22% and totaled $33.5 billion or 31% of the market.   Search remained the largest format with a 45% share of the market.  Search revenue totaled approximately $48 billion, which represents an increase of 19% over 2017.

Mobile devices continued to increase their share of the internet advertising market.  Mobile ad revenues grew to 65% of the total market, up from a 57% share in 2017.  Most formats achieved strong gains on mobile devices, with video leading the way.  Mobile video grew 65% in the year and accounted for 15% of total mobile revenues.  Mobile Search and Banner also exhibited strong growth with rates of 37% and 36%, respectively.  Overall, mobile accounted for $70 billion in revenue, which represents a 40% growth rate when compared to 2017.

Desktop revenues fell to 35% of the market, down from a 43% share the previous year.  Video was the only Desktop format that demonstrated meaningful growth, registering an approximate 7% increase for the year.  Overall, Desktop revenues totaled approximately $38 billion, which was down 2% on a year-over-year basis.

 

 

 

 

 

 

 

Growth Drivers

Although the overall digital audience in the U.S. remained relatively flat with only 1% growth in 2018, consumers spent 20% more time online during the year. As a result, advertisers followed them online and directed more ad dollars to online budgets.

Digital users access the Internet through both mobile and desktop devices, and often use both.  However, mobile devices were the driver of increased time online.  Time spent on mobile devices increased 31% in 2018 while time spent online using a desktop device declined 2% in the year. Overall, approximately 75% of all time spent online is accomplished using a mobile device.

A significant reason for the sharp increase in time spent online is consumers are spending more time on Social Media.  According to the IAB, consumers spent 22% more time on Social Media in 2018 than 2017.

Another growth driver, according to the IAB, is the resurgence of eCommerce.  In the report, the IAB states “Digital ad revenue stemming from eCommerce, including the emergence of the direct brand economy, has been a key driver of recent growth. Players continue to add features, making it easier for advertisers to target audiences ready to buy and convert searches into purchases.”  Advertisers and publishers are able to utilize data and technology to deliver targeted messages in a more effective manner to consumers at various points in their consumer journey.

Implications for M&A

Internet advertising is a large, fast growing market that will continue to attract investors and acquirers.  MHT Partners, a leading business services investment banking firm, believes companies providing specialized marketing services that help connect advertisers with consumers via the Internet will be able to capitalize on the rapidly expanding internet advertising industry and, as a result, will be a highly sought-after target for acquisition or investment.

Sources:
IAB internet advertising revenue report, Interactive Advertising Bureau and PwC, May 2019
IAB: U.S. Digital Ad Revenues Surpass $100 Billion For First Time, AdAge, May 07, 2019
Full Year 2018 Internet Ad Revenue Report (webinar), Interactive advertising Bureau, May 2019

 

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