These three tech stocks may reap the rewards of a brand advertising rebound

Published Tue, Oct 20 20209:56 AM EDTUpdated Tue, Oct 20 20205:02 PM EDT

As brand advertising spending makes its comeback after the broader industry took a major hit earlier this year due to the pandemic, some companies are set to see a particular benefit by the return of those dollars. While advertising in the area of "direct-response," or ads that encourage consumers to take immediate action like download an app or buy something from an e-commerce site, has remained more resilient this year , spend for brand campaigns have shown a different trajectory; UBS analysts commented in a recent note that while direct-response has led the recovery, brand advertising has been slower to return. A slew of companies are likely to benefit as advertisers start to ramp up brand advertising, like media companies that receive revenue from TV advertising and advertising holding companies whose agencies make the campaigns and buy advertising on behalf of their brand clients. But tech companies like Google, Twitter and The Trade Desk appear especially well-positioned as brands are looking for additional information about what they're getting for their money, along with the flexibility to switch out messaging or placements especially as the pandemic rages on, experts say. Here's why those companies appear well-positioned to benefit by a rebound of brand advertising. Google Though the tech giants proved to be relatively resilient to the worst of Covid's impact on the advertising industry, the pandemic still stung for Alphabet 's Google as it reported its first revenue decline in company history in the second quarter as Covid-19 slowed economic growth and advertisers pulled back spending during the quarter. Barclays analysts said in a recent note that while Google still faces headwinds like travel, its YouTube segment is likely to benefit from the recovery in brand advertising to some degree. The company has made a number of moves to woo advertisers away from traditional TV and streaming players. Deutsche Bank analyst Lloyd Walmsley told CNBC YouTube is "the most notable area" where Google will benefit from an influx of brand spend. He said there's also likely brand spend in Google's network business, which places advertising on outside sites. But, he says, "Investors pay a lot less attention to that side of the business. It's lower-margin because they have to share revenue back with the publishers." And though trends have been generally pointing to recovery, some experts warn the whole industry could suffer further from the pandemic. But Google's ad business appears to be still be well-positioned. Canaccord Genuity analysts wrote in a recent note that some brands are also taking a wait-and-see approach to budget plans because of uncertainty around the pandemic and the election, opting to allocate even more spend to "proven" digital channels like Facebook and Google, "as tests of newer platforms may not be indicative of how they will play out once things normalize." Alphabet's stock is up more than 53% since its March 23 low, and is up 15% year-to-date. Twitter Twitte0 has been viewed as a place for advertisers to appear alongside big events and sports, and less a place for direct-response advertising, in part because of technological issues it's faced with the suite of products it uses for that capability. For instance, the company has said it had all but one eligible marketers from the Super Bowl that were advertising on Twitter around the time of this year's game. That's meant Twitter was especially hard-hit in comparison with digital advertising peers like Facebook or Snap. Barclays analysts wrote in a recent note that Twitter would be uniquely positioned for a stronger recovery in the third quarter because of its heavy brand advertising exposure and its alignment with sports. eMarketer analyst Nicole Perrin agreed that Twitter would see that benefit. "Twitter's ad revenue strategy for a while has been to be a place to do these tentpole-oriented advertising; a lot of it is related to media and entertainment industries. Twitter has suffered more this year than all the other social platforms… they're the ones that are going to have comparatively the biggest benefit from brand coming back." Shares of Twitter have rallied nearly 130% since their low in March during the coronavirus market slump. The social media company's stock is up more than 42% in 2020 year-to-date. The stock hit its 52-week high last week, the same day as Deutsche Bank upgraded the stock, calling it a "compelling bull case for 2021, and well positioned to benefit from an event and a cyclical recovery." The Trade Desk Ad tech company The Trade Desk , which has technology that helps brands and agencies reach targeted audiences across media formats and devices, has seen the benefit of a particularly strong presence in the connected TV space. CEO Jeff Green said on the company's earnings call in May that while The Trade Desk had viewed the transition to CTV as a multiyear story, "the last eight to 10 weeks have changed all of that." That much has been clear in its growth this year: The Trade Desk's stock is up more than 360% percent from its March 19 low, and up 141% year-to-date. With more people in their living rooms streaming shows and movies, The Trade Desk has seen more opportunities to show them ads on platforms. And as the linear TV advertising buying process has been upended as marketers seek more flexibility in the months ahead, they're viewing connected TV advertising, and the flexibility and data around that, as a good alternative. Needham analysts wrote in a note last week that Covid "effectively cancelled the Upfronts," meaning that a lot of the advertising money typically committed during the period has now moved to the "scatter" market, giving The Trade Desk's clients the option to buy more ads programmatically. "TTD is data-driven and as ad budgets grow post-COVID, advertising ROIs are more in focus and TTD's data layer helps ad agencies determine when they are spending ad dollars wisely," they wrote. It also gives brand marketers a way of getting that anthem-style spot from TV with more data and flexibility available. "There's so much demand for CTV ads, especially accessible programmatically," said eMarketer's Perrin. "That is where brands really want to spend on those upper-funnel type campaigns. Because they get that sound and motion, all the benefits of TV commercials, which brand advertisers still think is kind of the best, most ideal format for conveying brand attributes." Wesley ter Haar, the founder of digital production company MediaMonks and executive director of S4 Capital Group, said he's seeing the pandemic be a tipping point of having big, traditional marketers use digital means for branding. "The traditional, CMO-friendly pitch to get fame and reach is still the big TV buy with an iconic, endemic spot," he said, while digital has been more closely thought of as a channel for direct-response. "The conversations I've seen in the last few months have been pretty traditional brands, pretty traditional marketers and CMOs sort of biting the bullet and saying, 'OK, we're going to go full-digital'… We're seeing a lot of brands go, 'We can no longer shortcut to fame and reach with 30 second spots ads.' We've known that for awhile, but now we sort of really know it." CNBC's Michael Bloom contributed reporting.

A man wearing a face mask walks past a Twitter logo outside their New York City headquarters. Facebook and Twitter took steps to limit the spread of a controversial New York Post article critical of Joe Biden, sparking outrage among conservatives and stoking debate over how social media platforms should tackle misinformation ahead of the US election.

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While advertising in the area of "direct-response," or ads that encourage consumers to take immediate action like download an app or buy something from an e-commerce site, has remained more resilient this year, spend for brand campaigns have shown a different trajectory; UBS analysts commented in a recent note that while direct-response has led the recovery, brand advertising has been slower to return.

A slew of companies are likely to benefit as advertisers start to ramp up brand advertising, like media companies that receive revenue from TV advertising and advertising holding companies whose agencies make the campaigns and buy advertising on behalf of their brand clients.