CyberAgent’s Solo Victory? An Analysis of the Internet Advertising Agency Industry
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The internet advertising industry isone of the few growth industries as the domestic economy stagnates. Overseas, it has already surpassed television advertising, and domestically it is expected to do so in 2020.
The capabilities required differ from traditional advertising agencies
In an era where almost everyone owns a smartphone,the time spent looking at smartphones is surpassing that spent on television. Advertising demand arises where people’s eyes can reach, a very reasonable trend.
In the internet advertising industry, those who thrive are, as with old television, the “advertising agencies.” However, those represented by traditional agencies such as Dentsu and Hakuhodohave somewhat different characteristicsseem to be.
Traditional advertising agencies had strengths in controlling media such as television and selling to advertisers by leveraging that power. What was demanded then wasvisual flair, sales ability, and connections with media personnel.
However, media in the internet world isdiverse, and as represented by Google and Facebook,they open advertising space to any advertiser.
From the user side, instead of mass advertising that appeals to the masses,targeting ads aimed at people with specific interests and concerns are mainstream. By tracking user behavior, advertising effectiveness becomes clearly measurable in numbers.
In an open and dispersed internet advertising world where results are clear, the traditional vague notions of “glamour,” “sales power,” and social networks lose some of their power, and what becomes important are“data accumulation” “ability to propose” “ad operation capability”.
Developing these capabilities does not happen overnight. In a continuously evolving internet world, one must analyze various traffic andcontinuously develop more effective methods.
In particular, agencies that have large enterprises as advertisers will quickly be weeded out if they cannot continually propose the latest advertising methods.
Internet advertising agencies will polarize
On the one hand, internet advertising hasopened doors to smaller businesses.
Unlike mass advertising that is spread to anyone, niche advertising that reaches only necessary people becomes possible. This isoverwhelmingly low-budget, and you can start immediately without an agency if you’re motivated.
However, a certain level of know-how is required, so there will still be fields of activity for small and medium agencies in this area.
Therefore,the internet advertising agencies that survive will polarize from here.
One extreme is to continue accumulating the latest technologies andto keep grasping the needs of major advertisersto keep grasping the needs of major advertisers, the other extreme isspecialized agencies that respond to niche demands.
CyberAgent, with overwhelming power
If we talk about the representative of the former,undoubtedly CyberAgent (4751). It holds the top share and continues to grow faster than the industry average.
In particular, with regard to “data accumulation,”the more you do it, the stronger it becomes.
The strength of the industry leader CyberAgent is thatit does not weaken over time; rather, it grows stronger. While traditional advertising agencies and competitors are at a loss, there is a high possibility of building an overwhelming position.
Other internet advertising agencies, while their sales grow, profits remain flat or lackluster. This is because the industry has low barriers to entry and intense competition. The recent profit slump is due tointense price competition affecting earnings.
Will a company find its own path?
To avoid price competition,each company must differentiate itself. If you are not prepared to challenge CyberAgent, it is best to relentlessly cultivate a non-overlapping field to improve profitability.
Next-largest in scale after CyberAgent isOpt HD (2389) and Septeni HD (4293) give a mixed impression.
Both companieshave ties with Dentsu (4324) to catch up (Opt split in 2017),which in turn makes it harder for each company to stand out.
Even if the market is not large, if a company can build a top share in a niche area, the shift to internet advertising may bring high profits and strong growth for the time being. At present, I cannot find such a company, but I will continue to search.
As of now, there is unfortunately no clearly recommended company. Aside from CyberAgent, there is no other company with strong expected growth, andall companies have relatively high P/E ratios.
【PER】 (as of January 24, 2019)
CyberAgent (4751): 104x
Opt HD (2389): 22.9x
Septeni HD (4293): 20.3x
Dentsu (4324): 18.5x
On the other hand, CyberAgent isincreasing investment in AbemaTV, making investment decisions more difficult. Because it holds an overwhelming position in advertising agencies, I would like to continue analyzing it separately along with its other businesses.
