2 Digital Ad Stocks to Buy for Massive Growth Potential

Digital ad stocks remain supported by secular growth tailwinds that should offset near-term market volatility

Twitter (NYSE:TWTR), the once left-for-dead social media company that is in the middle of a huge turnaround.

Once upon a time, Twitter’s digital ad business was struggling to grow. Indeed, during a several quarter stretch a few years back, Twitter’s digital ad business was actually reporting year-over-year revenue declines. But, that has all changed now. Over the past several quarters, Twitter has improved its digital ad capabilities, and the digital ad business has consequently turned into a 15%-plus growth business.

This new growth trend should persist. Twitter has increasingly established staying power in the consumer internet landscape as a go-to place for crowdsourced sentiment and feedback on current events. At the same time, the company has proven itself as a viable advertising medium with strong targeting capabilities. Thus, at worse, this company should maintain share in the secular growth digital ad market for the foreseeable future. At best, the company actually continues to gain share.

In either scenario, Twitter projects as a healthy revenue growth company over the next several years. Meanwhile, margins are ramping from a depressed base, and as they continue to do so, healthy revenue growth will turn into robust profit growth. Robust profit growth will push TWTR stock higher long term.

 Pinterest(NYSE:PINS) is worth a look here because its digital ad business is very young, growing very quickly and it has the potential to be very big one day.

Pinterest is a very big visual discovery platform that is still growing very quickly. The platform has roughly 291 million monthly active users, and grew that user base by 22% year-over-year last quarter. Yet, despite this huge user base, Pinterest doesn’t have a big market cap. Pinterest’s market cap is $14 billion, implying a market cap per user of under $50. Over at Twitter, market cap per user is up around $85.

Why the huge discrepancy? Pinterest’s ad business is much younger and smaller than Twitter’s ad business. But, Pinterest’s ad business is also growing very quickly (54% growth last quarter), as is the company’s average revenue per user rate (up 26% last quarter). Given the company’s huge user base, if Pinterest stays on this growth track of expanding average revenue per user, then Pinterest’s ad business at scale could be enormous.

If it does get enormous, then today’s valuation — market cap per user of under $50 — is a steal. Naturally, it will head toward Twitter-levels around $85. That valuation expansion, on top of continued user growth, should propel PINS stock way higher over the next several years.

By Luke Lango, InvestorPlace ContributorMay 31, 2019, 11:24 am EDT

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