Advertising was one of the biggest turnaround stories following the market bottom of 2009. High profile segments of the ad market are still doing OK, and digital behemoths Google and Facebook are raking in the advertising dollars. Meanwhile, out-of-home advertising is getting pounded this year. If the market continues to weaken, this last group would be the first to lose ad dollars.

Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.

Digital Taking Traditional Ad Dollars
The out-of-home advertising space is a lower profile advertising medium. The non-digital component of the out-of-home network is part of the traditional advertising model that includes television, radio and print. Companies like Lamar Advertising Company (Nasdaq:LAMR) operate outdoor billboards, transit advertising, and highway logo signs. Lamar competes with Clear Channel Outdoor Holdings, Inc. (NYSE:CCO) and CBS Outdoor, a division of CBS Corporation (NYSE:CBS).

Aside from low growth prospects in developed markets, the biggest threat to legacy advertising outlets is the transition online. Digital is the fastest growing segment of the advertising market. BIA/Kelsey reports that small and medium-sized U.S. businesses will spend 70% of their marketing budgets on digital advertising, performance and retention solutions by 2015. That's up from 48% in 2010. Of course, a part of that 70% will be out-of-home digital display. But the vast majority will likely be directed to search portals and social media sites Google, Yahoo and Facebook. Also, digital represents a low percentage of the business for most out-of-home network operators. At Lamar, digital is just 13% of their book.

Winners and Losers
Outdoor advertising stocks will probably continue to struggle through the second half of the year. Last year, out-of-home advertising network operators posted gains of 25% and more. 2011 has been a different story. Year-to-date, shares of Lamar and Clear Channel Outdoor are down 52 and 21%, respectively. This month alone, Lamar is off 8% and Clear Channel is down 3%. Both have touched their 52-week low within the past five weeks.

Only China-based Focus Media Holding Limited (Nasdaq:FMCN) has managed to buck the downtrend. Focus runs digital signs on highways and displays in stores, hotels, restaurants and buildings. Focus recorded a stellar 13.1% year-over-year increase in revenues during the second quarter, capturing ad dollars within the exploding Chinese economy. The implementation of Location Based Service interactive advertising technology is another growth driver that may propel shares of Focus even further.

The Bottom Line
Focus appears to be the exception rather than a harbinger of a rebound in out-of-home network advertisement. Lamar's decision to guide revenues lower for the third quarter reflects growing uncertainty in the market. Weak rate and occupancy statistics suggest a very difficult environment for these advertisement networks to control pricing. If investors do choose to play ad stocks, there may be a preference for diversified advertising and marketing service providers like Interpublic Group of Companies, Inc. (NYSE:IPG) and Omnicrom Group Inc. (NYSE:OMC) who offer solid yields. Lamar, Clear Channel and Focus pay no dividend. Be careful in the advertising space, particularly in the out-of-home network. (For additional reading, take a look at The Impact Of Recession On Businesses.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Stock Analysis

    Allstate: How Being Boring Earns it Billions (ALL)

    A summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
  2. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  3. Investing

    Playing The Decline of Traditional Broadcast Media

    Broadcast media is losing viewership as cord cutting by the younger generation triggers subscription losses at cable and satellite companies.
  4. Investing Basics

    How to Deduct Your Stock Losses

    Held onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
  5. Economics

    Is Wall Street Living in Denial?

    Will remaining calm and staying long present significant risks to your investment health?
  6. Stock Analysis

    When Will Dick's Sporting Goods Bounce Back? (DKS)

    Is DKS a bargain here?
  7. Investing News

    How AT&T Evolved into a Mobile Phone Giant

    A third of Americans use an AT&T mobile phone. How did it evolve from a state-sponsored monopoly, though antitrust and a technological revolution?
  8. Stock Analysis

    Home Depot: Can its Shares Continue Climbing?

    Home Depot has outperformed the market by a wide margin in the last 12 months. Is this sustainable?
  9. Stock Analysis

    Yelp: Can it Regain its Losses in 2016? (YELP)

    Yelp investors have had reason to be happy recently. Will the good spirits last?
  10. Stock Analysis

    Is Walmart's Rally Sustainable? (WMT)

    Walmart is enjoying a short-term rally. Is it sustainable? Is Amazon still a better bet?
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

Trading Center