More and more advertisers are shifting their spending to digital media like Google Inc (NASDAQ:GOOG), which means the landscape of the advertising industry—local ads, in particular—is rapidly changing. UBS analysts said as this shift goes on, they expect to see larger and larger portions of local advertising shifted to mobile search, digital coupons, display ads, business listings and lead generation.
Keys to success for digital advertising companies
In a research note this week analysts Eric J. Sheridan, Timothy E. Chiodo and Vishal J. Patel highlighted what they call a “SoLoMo” approach to digital advertising. They believe Google Inc (NASDAQ:GOOG) already practices all of these keys and that Groupon Inc (NASDAQ:GRPN) and Yelp Inc (NASDAQ:YELP) are heading in the right direction, although not there yet.
The three areas of importance they highlight within digital advertising are social (So), local (Lo) and mobile (Mo). As such, they believe that the companies which follow this type of approach “stand the best chance of capturing the holy grail” of SoLoMo advertising budgets.
Google’s already got it
The analysts have a Buy rating and $1,020 price target on Google Inc (NASDAQ:GOOG). They like the company’s vertical approach, particularly in relation to its search offerings. They said the search giant’s local and travel offerings are starting to receive more focus and enhancements. In their view, Google Maps is beginning to become the company’s “flagship offering” in its strategy.
They point to eight different tools in Google Inc (NASDAQ:GOOG)’s toolbox which help it cover all three aspects of the SoLoMo strategy. In addition to Google Maps, they touch on Google Places, Google+, Google Offers, Zagat and Frommer’s, Citi Experts, Carousel and Google Wallet. They said all eight of these aspects provide businesses with a comprehensive offering to reach local consumers through social and mobile outlets.
Groupon’s on the way
The UBS analysts have a Neutral rating and $11 per share price target on Groupon Inc (NASDAQ:GRPN). Overall, they are positive on Groupon in terms of its SoLoMo strategy, but they’re Neutral on it because of the company’s poor stock performance. They believe the company’s platform “translates well onto the smaller screen and is able to use geo-location data to target deal offerings close to the point of consumption.” They highlighted the company’s recent mobile accomplishments, which included almost half of its transactions being completed on a mobile device during the month of June.
They said Groupon Inc (NASDAQ:GRPN)’s mobile app has been downloaded more than 50 million times, with over 7.5 million of them coming during the second quarter of the year, which indicates acceleration from the previous two quarters. The analysts highlighted seven specific areas which have become vital to Groupon’s success: the company’s local sales force, Groupon Now, DealBank, Groupon Reserve, SmartDeals, the company’s new merchant tools, and the sort of Bread Box kit which enables advertisers to manage their functions.
Yelp’s also on the way
The analysts also have a Neutral rating on Yelp Inc (NASDAQ:YELP), along with a $42 per share price target. Like Groupon, they’re positive on Yelp’s strategy, but they remain Neutral simply because of the company’s poor stock performance recently. They call the company’s strategy “a nearly ideal SoLoMo flywheel.” They cite the company’s heavy mobile usage, local business reviews and high user engagement levels as being the elements in that flywheel, with each one feeding into the next in a continuous cycle which gives advertisers more reason to buy, providing more inventory to sell and increasing advertisers’ brand awareness.
They said all of this is providing more monetization opportunities, especially as Yelp Inc (NASDAQ:YELP) pushes into ecommerce. The eight areas of interest they focus on in Yelp’s strategy include the site’s cumulative reviews, which have built up over time, merchant dashboard tools, call to action, the platform as a whole, the Nearby feature, self-serve products, check-ins and related offers and scouts.
