We recently published a list of The 10 Best Advertising Stocks to Buy According to Short Sellers. In this article, we take a look at how Pegasystems Inc. (NASDAQ:PEGA) compares to other advertising stocks.
Compared to the copy-driven model of the late 20th century, popularized by series like Mad Men, the advertising era of 2024 is completely different. Today, advertisers have the data of billions of people at their disposal, which they can characterize according to their preferences and target their ads. This growth in digital advertising has been driven by the rise of video streaming platforms and digital publications, which continue to gain market share over paper newspapers.
Nowhere else is the impact of digital advertising more evident today than in the value of the world’s largest search engine company. As a mega-cap stock, this company has a whopping $2 trillion market value, making it one of the largest companies in the world by market value. But in another case where 2024 will be a historic year of change for the tech industry, as demonstrated by technologies like artificial intelligence, this company is also facing pressure from the U.S. government that could end up changing the very fabric of the industry.
The origins of the search engine giant, which made $187 billion in revenue from search and advertising over the past 12 months, date back to the late 1990s, when its founders developed an algorithm called PageRank. This software determined which websites were considered authoritative based on the quantity and quality of backlinks, and as the search engine grew, so did the company’s dominance of the global advertising industry, processing more than 22 billion searches a day. But that runaway success may soon be coming to an end, as a Washington judge ruled in August that the company’s $26 billion in payments to other companies to make the platform the default option on their devices constituted anti-competitive behavior that locked others out of the industry.
Following the ruling, there are rumors that the Justice Department is considering splitting up the company by divesting its mobile software and web browser businesses. However, such a decision would require court approval, which would force the company to comply. And while a court victory is good for headlines, the U.S. government has rarely broken up large companies in the modern era. The last such case occurred in 1982 in connection with the breakup of the Bell System, and even if the browser and operating system were separate companies, they probably wouldn’t survive since both are provided free to users.
Not to mention that antitrust cases could drag on for years and only be enforced when the industry is very different from what it is today. That’s because artificial intelligence is eating away at the industry, and products like OpenAI’s SearchGPT are already in their early stages. Speaking of AI, it’s also leaving its mark on the advertising industry. Just as advertisers can access the data of millions of users through search and social media platforms, AI is helping them sift through that data in novel and new ways.
According to McKinsey, AI could provide a $931 billion productivity boost to marketing and sales through new features like personalized campaigns and improved data usage. These use cases are already apparent: The world’s largest social media company regularly posts updates on how it’s using AI to make advertisers’ jobs easier on its platform. Two of the tools it offers are the Advantage+ and Advantage+ Shopping platforms, which allow advertisers and sellers to automate their campaign workflows and determine the best ads to run. The platforms also appear to be getting results, with the company citing a study that “demonstrates a 22% higher return on ad spend for U.S. advertisers after they adopted Advantage+ Shopping campaigns,” with the company’s revenue from the two AI platforms set to double annually in the first quarter of 2024.
Speaking of revenue, ad industry spending, which determines the fate of publishers, is also driven by the state of the economy, consumer confidence, and advertiser outlook. One such company, with brands in more than 100 businesses, said during its Q2 2024 earnings call that while the advertising market is not currently at its best, it appears to be recovering. This recovery is taking place in areas such as food and technology, which combine with strong performances in healthcare, pharmaceuticals, and beauty. Another publisher, one of the world’s most prominent digital media and lifestyle platforms that relies on programmatic advertising (data-driven user targeting through ads), reported a 3% annual increase in its programmatic revenue in the second quarter, while broader advertising revenue fell 19% annually.
With these details in mind, let’s look at which advertising stocks short sellers say you should buy. For stocks that are driving advertising technology, here are some to look at: The 8 best AdTech stocks to buy now.
Our methodology
To create our list of the best promotional stocks to buy according to short sellers, we ranked the NASDAQ and NYSE listings of a promotional ETF by the percentage of outstanding shares that were sold short and selected the stocks with the lowest percentage. After an internet search, an additional 23 stocks were analyzed, but all of these had a market capitalization of under $300 million and were therefore excluded.
With these stocks, we also mentioned the number of hedge fund investors. Why do we care about the stocks that hedge funds invest in? The reason is simple: Our research has shown that we can outperform the market by mimicking the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks each quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (Further details can be found here).
An enthusiastic programmer works on a laptop surrounded by screens displaying code.
Pegasystems Inc. (NASDAQ:PEGA)
Short interest as % of outstanding shares: 1.37%
Number of hedge fund investors in Q2 2024: 27
Pegasystems Inc. (NASDAQ:PEGA) is an enterprise support software company that enables businesses to acquire customers and manage customer experiences. It’s a relatively small company compared to some of the other advertising stocks on our list, despite being founded in 1983, and as is typical of high-growth cloud stocks, Pegasystems Inc. (NASDAQ:PEGA) is only sporadically profitable. This means investors focus heavily on revenue growth and margins, with the stock price dependent on those two metrics. As a smaller company, Pegasystems Inc. (NASDAQ:PEGA) can benefit from quickly adapting its strategies to new trends, and it appears to be doing so with its Blueprint platform. Blueprint enables Pegasystems Inc. (NASDAQ:PEGA) customers to use AI to develop various digital transformation strategies, differentiating its enterprise software from customers who primarily focus on enabling companies to write code and generate software.
Pegasystems Inc. (NASDAQ:PEGA) management provided key details about Blueprint during the company’s second quarter 2024 earnings call:
“The conversations I’ve had with customers since launching Blueprint have been some of the most positive in Pega’s 40-year history.
In fact, when our customers saw what we had delivered, they quickly recognized the power and the possibilities. I believe the energy and confidence in our vision is growing – and helping to deliver the results we’re talking about today. With tens of thousands of Pega Blueprints created in the last few months, we’re seeing opportunities to accelerate growth and create additional momentum for Pega Cloud, which will help monetize. And we’ve only just scratched the surface of what we, our customers and our partners can do with this breakthrough technology, and that’s really energizing us. I believe Blueprint is fundamentally changing the way we interact with, sell to and deliver to our customers.”
Total PEGA 7th place on our list of the best advertising stocks to buy according to short sellers. While we recognize PEGA’s potential as an investment, we believe some AI stocks promise higher returns and do so in a shorter time frame. If you’re looking for an AI stock that’s more promising than PEGA but trades at less than 5x earnings, read our report on the cheapest AI stock.
READ MORE: $30 trillion opportunity: The 15 best humanoid robot stocks to buy, according to Morgan Stanley And According to Jim Cramer, NVIDIA has “become a wasteland”.
Disclosure: None. This article was originally published on Insider Monkey.
