Advertisers aiming to entice consumers have increasingly ratcheted up their spending on digital channels, in turn fueling revenue growth for Meta Platforms, Alphabet, and others that operate social-media apps and e-commerce sites, says Fidelity Portfolio Manager Matt Drukker.
“Spending on digital advertising is measurable and can generate a high return for advertisers,” says Drukker, who manages Fidelity® Select Communication Services Portfolio (FBMPX). “So, there is a virtuous cycle of people spending more time online, advertisers spending more to reach them there, and consumers closing the loop with online purchases. Growth is being propelled by AI, which can recommend personalized content to drive engagement and targeted advertising to optimize placement.”
In helming the fund since 2018, Drukker emphasizes companies that are capitalizing on the biggest trends in communication services, including rising engagement with mobile apps and direct-response advertising, among others.
Fidelity research shows that consumers have doubled their time on social media sites since 2018, including TikTok, Facebook, Instagram, Twitter, Snapchat, and Pinterest. Currently, e-commerce represents roughly 20% of retail sales, which Drukker says gives online shopping and, subsequently, digital advertising a long runway for adoption and growth.
“Given the value proposition of convenience and expedited product selection offered by online shopping relative to in-person shopping, I believe online retail spending is poised to grow quickly in the coming years, which bodes well for further growth in online advertising,” he says. “And I want to own the firms best positioned to capitalize on this secular trend.”
According to Drukker, since Apple instituted changes to its privacy settings that limit the ability of applications to track user behavior and target digital advertising, there has been an adaptation, including an acceleration in retail media, which is advertising on a media network. For example, advertisers are increasingly forming more-connected relationships with online platforms to improve advertising effectiveness.
Further, with artificial intelligence as a boon to both engagement and ad optimization, Drukker believes the digital advertising market, which represents about two-thirds of total advertising spending, can continue to expand.
“As user engagement rises on more-personalized content and digital advertising becomes more targeted, especially with the tailwinds of improving AI, the ability for advertisers and the platforms offering digital ad space to drive profitability and revenue also expands,” says Drukker.
He believes the fund’s top holdings—Meta Platforms (META) (parent of Facebook and Instagram) and Google parent Alphabet (GOOGL)—stand to benefit most from increases in retail media spending. Together, these two stocks represented nearly 44% of the portfolio as of February 29.
“Each is investing in AI and has the access to compute, the engineering talent, and the data to continue to innovate,” says Drukker. “Furthermore, emerging capabilities in generative AI have a lot of potential to further boost productivity, providing value to consumers and businesses alike. These major platforms will be the most likely distribution points for new services and digital experiences that have the potential to sustain or accelerate growth.”
For specific fund information, including full holdings, please click on the fund trading symbol above.
Matt Drukker is a portfolio manager and research analyst in the Equity division at Fidelity Investments.
In this role, Mr. Drukker manages the Fidelity Select Communication Services Portfolio, Fidelity Communication Services Central Fund, VIP Communications Services Portfolio, and Fidelity Select Wireless Portfolio. He manages the communication services sleeves of the Fidelity Balanced Fund, Fidelity Advisor Balanced Fund, Fidelity VIP Balanced Fund, Fidelity Balanced K6 Fund, and the Fidelity Series All-Sector Equity Fund. Also, he is a member of Fidelity's Stock Selector Large Cap Group and is responsible for managing the communication services sleeves for various diversified sector-based portfolios. Lastly, he is responsible for covering the communication services sector including telecom, media, video games, and large-cap internet and media stocks.
Prior to assuming his current responsibilities, Mr. Drukker managed the Fidelity Select Telecommunications Portfolio and co-managed Select Wireless Portfolio. In addition, he covered the restaurant industry and was responsible for managing the communication services sub-portfolio of the Fidelity Stock Selector All Cap Fund. Previously, he was an intern in Fidelity’s Equity Research division.
Before joining Fidelity full time in 2007, Mr. Drukker was an investment banker in New York, specializing in mergers and acquisitions and capital raising for financial institutions. He has been in the financial industry since 1999.
Mr. Drukker earned his bachelor of arts degree in economics from Williams College and his master of business administration degree in finance from The Wharton School of the University of Pennsylvania.