As the 2016 U.S. presidential election hits the home stretch, Americans are gearing up for a flood of annoying political ads. Voters in swing states are bracing themselves for a particularly brutal mudslinging storm between now and November. But some traders are looking to profit off the big business of campaign advertising.
According to the New York Times, the Obama and Romney campaigns spent a combined $9.4 billion on political advertising in 2012. The majority of that money was spent on local broadcast television ads.
The projections for political ad spending in 2016 are staggering. The Citizens United Supreme Court ruling in 2010 removed restrictions on the amount of money that corporations can spend endorsing candidates, and ad tracking firm Borrell Associates expects the candidates to take full advantage.
Borrell is projecting $11.7 billion in ad spending during the 2016 election cycle.
According to a report by Global Equities Research analyst Trip Chowdhry in late July, TV and radio ad spending in swing states is somewhat lopsided at this point. Chowdhry reports that Hillary Clinton has spent a total of $87 million on campaign ads in swing states between now and November, while Donald Trump has spent only $440,000. Both numbers will likely skyrocket as election day approaches.
Each election cycle involves more and more digital ad spending. This cycle, candidates are projected to spend $1.2 billion on digital ads.
Which stocks will benefit most from this cash flow?
A large part of the digital advertising efforts will focus on the two juggernauts of social media: Facebook Inc (NASDAQ: FB) and Twitter Inc (NYSE: TWTR). The Facebook user base is particularly appealing to candidates because it has much more age diversity than Twitter’s user base. According to Pew Research, 87% of voters age 18-29 have a Facebook account, 63% of voters age 50-64 have one and 56% of voters age 65 and older have one.
Older voters are historically much more likely to show up at the polls on election day. In 2012, only 38% of Americans age 18-24 voted, while 70% of voters 65 and older voted.
While $1.2 billion in digital ad spend certainly seems like a lot of money, it likely won’t do too much to move the needle at massive companies like Facebook or Twitter. The same goes for the national media conglomerates like CBS Corporation (NYSE: CBS) and Walt Disney Co (NYSE: DIS).
Instead, the companies that rely the most on political ad spending are the smaller, local television companies. During times of peak demand, local TV stations can charge up to 50 times their normal advertising rates for political ad spots.
E. W. Scripps Co (NYSE: SSP) operates 34 TV stations in 17 states, including stations in battleground cities like Cincinnati and Tampa.
Gray Television, Inc. (NYSE: GTN) has 64 network affiliates in 27 states, including swing states like Florida, Iowa and Ohio.
Finally, Tegna Inc (NYSE: TGNA) has 46 TV stations and has a major presence in swing states like Florida, Ohio and Colorado.
If campaign ad spending ends up anywhere close to the $11.7 billion projections, these three smaller companies could see a major impact. All three stocks have a market cap of less than $5 billion.
Disclosure: the author holds no position in the stocks mentioned.
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