Revenue from digital advertising in the U.S. rose an estimated 23% to $19.6 billion in the first quarter, with Google parent Alphabet (GOOGL) and Facebook (FB) dominating the landscape with a combined 71% share.
The $19.6 billion is the second-highest quarter recorded, following the $21.6 billion in the fourth quarter of last year, according to data from the Interactive Advertising Bureau and accounting firm PwC. It was the seventh straight first quarter to have double-digit growth, year over year.
Brian Wieser, an analyst at Pivotal Research, estimates that Google accounted for about 51.5% of the total and 19.5% for Facebook, or 71% combined. That's up from 69% in the year-ago quarter of 2016 and 64% in the first quarter of 2015.
If these estimates are correct, he wrote in a research note, "digital advertising that did not go through Facebook or Google performed reasonably well in the first quarter," growing by 14%, vs. the 7% growth rate observed during all of 2016. But the bigger point, he wrote, is that Alphabet, Facebook and other owners of digital media properties are gradually approaching the point of saturating available digital budgets.
"This helps explain why digital media owners – and Facebook in particular – have become more aggressive in finding ways to capture television advertising budgets," he wrote. For similar reasons, Alphabet is also counting on YouTube to help capture growth from TV ad budgets, he wrote. International markets provide ongoing opportunities for growth as well.
IBD'S TAKE: Both Alphabet and Facebook have pulled back from record highs they set last week. IBD currently has an "uptrend under pressure" designation on markets, suggesting that investors should be more cautious about buying, cutting losses quickly and taking some profits to raise cash.
Wieser has a hold rating on Facebook and a price target of 140. He also has a hold rating on Alphabet and a price target of 990.
Facebook stock slipped 0.3% to close at 150.25, on the stock market today. Alphabet stock was down 0.3%, near 967.93.
Wieser said three core risks for all digital advertising companies relate to the high degree of rivalry given an absence of barriers preventing new competition from emerging, overly high and increasing capital needs to remain competitive, and government regulations and consumer pushback related to the management of consumer data and respect for privacy.
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