Digital advertising has long been the growth engine of the advertising industry, thanks in large part to Google and Facebook, though contributions from some e-commerce platforms are increasing the allure of exposure to this segment.
One of way of getting that exposure is with the ARK Next Generation Internet ETF (NYSEArca: (ARKW)). Actively managed, ARKW is far from the run-of-the-mill internet exchange traded fund, and while it currently doesn’t hold shares of Google’s parent Alphabet (NASDAQ:GOOG) or Facebook (NASDAQ:FB), it does have exposure to digital advertising trends, and that’s a positive for investors.
“We have raised our total advertising spending estimates from 10.5% growth this year to 12.6%, with similar expectations for 9.5% growth in 2022. Digital advertising, which will grow at a higher rate in both years than we initially anticipated, will drive this additional increase,” says Morningstar analyst Ali Mogharabi.
Some of the avenues through which ARKW sources online advertising exposure include social media platforms, such as Twitter (NYSE:TWTR) and Snap (NYSE:SNAP). Those stocks combine for almost 7% of ARKW’s weight and Twitter is the fund’s second-largest holding. The fund’s robust e-commerce exposure is also relevant in the digital ad spending conversation.
“We expect e-commerce spending to increase at high-single-digit rates through 2025. The pandemic experiment with e-commerce was a resounding success for both consumers and firms, and we expect it to alter long-run behavior. In turn, this will drive growth in digital and overall ad spending,” adds Mogharabi.
This implies that the $6.35 billion ARKW is levered to economic recovery and potential increases in consumer spending thanks to holdings such as Shopify (NYSE:SHOP) and Etsy (NASDAQ:ETSY).
“Our projection that the unemployment rate will decline below levels seen before the pandemic and remain low through 2025 bodes well for advertising demand,” notes Morningstar’s Mogharabi.
Unrelated to ARKW’s digital advertising exposure, the ARK fund has exposure to another compelling segment: iGaming and sports wagering. Confirming ARK’s penchant for moving into disruptive growth industries and stocks in the early innings, the issuer has been a steady buyer of DraftKings (NASDAQ:DKNG) and Genius Sports (NYSE:GENI) this year.
Including ARKW, three ARK ETFs hold shares of DraftKings. In the case of the internet ETF, the fund allocates almost 4.5% of its combined weight to sportsbook and iGaming giants DraftKings and Genius, the latter of which is a provider of sports wagering data.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.