In the unpredictable realm of the stock market, there exists a group of stocks known as the “Magnificent Seven.” Since the dawn of 2023, these stocks have outshone the S&P 500 with their impressive performance. Among these seven, three stand out as compelling investments, driven not by trendy AI pursuits but by the timeless art of Advertising.
Dominance in the Advertising Niche
When it comes to advertising revenue, Alphabet, Amazon, and Meta Platforms reign supreme. These titans rake in significant amounts of revenue quarter after quarter thanks to their robust advertising operations.
| Company | Q4 Advertising Revenue |
|---|---|
| Alphabet | $65.5 Billion |
| Meta Platforms | $38.7 Billion |
| Amazon | $14.7 Billion |
Data sources: Alphabet, Meta Platforms, and Amazon.
While Alphabet and Meta lead the pack in this domain, Amazon’s active involvement in the ad market may surprise some. Notably, Amazon witnessed a 27% year-over-year growth in its advertising services segment in the fourth quarter.
Market Resilience and Growth
In Q4, Meta’s ad division displayed a solid 24% year-over-year increase in ad revenue, while Alphabet trailed slightly at an 11% growth rate. However, given Alphabet’s vast size and scope, its slower growth aligns with expectations. The resurgence in growth rates for these companies is particularly noteworthy considering the challenges faced in early 2023 due to looming recession fears.
Businesses naturally tightened their belts in uncertain economic times, slashing advertising budgets among other expenses. This belt-tightening directly impacted giants like Meta and Alphabet, heavily reliant on the advertising sector. Yet, as recession fears have waned, the ad landscape has brightened once more, propelling the success of ad-focused companies.
Amazon’s trajectory differs with its constant ad revenue growth. Its relative youth in the ad market and ongoing investment in capabilities keep it in a perpetual growth phase. As the segment matures, cyclical patterns akin to Alphabet and Meta may emerge. For now, Amazon stands strong in growth mode, poised to benefit from the improving ad market alongside its peers.
Attraction of Stock Prices
Beyond the ad market resurgence, Alphabet, Meta, and Amazon present compelling investment opportunities due to their attractive valuations among the Magnificent Seven. While I favor the forward P/E ratio for Alphabet and Meta to account for fluctuating ad business performance, Amazon’s price-to-sales (P/S) ratio provides a clearer picture of its value trajectory.
GOOGL PE Ratio (Forward) data by YCharts
AMZN PS Ratio data by YCharts
Amazon’s forward P/E sits at 44, yet parts of its business like international commerce remain unprofitable for now, warranting a focus on the P/S ratio. With Amazon not yet returning to historical valuation norms, investors have room to grow alongside this stock.
With the advertising sector thriving, investing in the triumvirate of Alphabet, Meta Platforms, and Amazon presents a lucrative opportunity for investors in 2024.
Editorial Reflections
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Keithen Drury has positions in Alphabet, Amazon, and Meta Platforms. The Motley Fool has positions in and recommends Alphabet, Amazon, and Meta Platforms. The Motley Fool upholds a strict disclosure policy.
The opinions shared here reflect the author’s viewpoint and do not necessarily align with those of Nasdaq, Inc.
