Historians tell us humankind’s first venture into Out of the Home (OOH) Advertising can be traced back to billboards in use in ancient Egypt.  The invention of the printing press propelled the industry with the availability of posters and handbills suitable for transmission to the masses.
The digital age is now driving Out of Home Advertising with stunning advances in visual appeal and ease of modification.  Digital billboards can change ads throughout the day, with breakfast food and coffee ads in the morning and entertainment focused ads in the evening with ads suited to the weather of the day as well. 
In November of 2014 the first company in the OOH Advertising business here in Australia listed on the ASX. The company was APN Outdoor (APO), a spin off from its parent APN News Media, now HT&E Limited (HT1).  By late June of 2015 three more players came on the ASX.  By September of 2016 three of the four saw share price increases ranging from 65% to 150% since listing.  
The rise in share price apparently reflected the revenue growth in Out of Home, or Outdoor Advertising, through 2016, as seen in the following graph from livewiremarkets.com.

Australia’s Outdoor Media Association (OMA) reported 15.7% growth in out of home advertising in 2016 but noted a slowing in the rate of increase, a trend not yet reversed in the first two quarters of 2017.  The downtrend may have been foreshadowed by industry leader APN Outdoor in August of 2016, when the company shocked eager investors with a profit forecast downgrade in the midst of an otherwise solid Half Year Financial Report. 
APN lowered is EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) from a range of $ $84 million to $88 million to between $79 million and $84 million.  Company management’s somewhat mystifying rationale for the downgrade was the “significant reduction in market activity in recent weeks for the September to November period which has arisen, at least in part, from a combination of an extended national election process closely followed by the Olympics.”
The high-flying share price fell through the floor and dragged its principal rival, oOh! Media (OML) along with it. Here is a share price movement chart for the two companies since they began trading on the ASX.

While flashy outdoor advertising is generating the excitement, investors need to remember both companies are diversified advertisers, with a presence in “classic” and online advertising as well as in digital.  Both have ample room to translate classic static advertising to digital formats.  In its FY 2017 Full Year Financial Results presentation APN Outdoor noted only 8% of its large format roadside billboards were digital – a total of 87 – with classic billboards at 998.
In December of 2016 APN and OML announced merger plans, with the share price of both companies experiencing about a 15% bump.  The ACCC (Australian Competition and Consumer Commission) expressed “concerns” over the merger on 4 May and by the 19th of the month, APN Outdoor Group and Ooh Media dropped their merger plans, with surprisingly little effect on the share price.
Be it concerns over high valuation or slowing growth, the share price of both companies is down year over year, despite posting record Full Year Results.  The third major ASX player in the sector, QMS Media (QMS) also reported strong results in both Full Year 2016 and Half Year 2017 presentation.  The following table looks at the price movement year over year of the three as well as since the first trading day of each.  

The business models of the three are similar but there are differences in targeted markets with OML and QMS that bear mentioning.
While all have roadside formats dominated by static billboards, OML has the largest disparity between its static offerings – 3800 – and its current digital billboards – 65.
APN Outdoor is the most broadly diversified, with an advertising presence in transit, rail, and airport in addition to its billboard advertising.  
Ooh Media has no major presence in rail or transit but has digital and static offerings in more than 588 shopping centres in Australia.  In addition, the company’s Locate by oOH! Format provides digital advertising in sites where consumers are “fixed” for periods of time such as cafes, pubs and bars, offices, and university campuses. oOH! Edge offers custom-designed digital advertising campaigns.
The QMS portfolio consists of static and digital billboards and adds digital and static advertising in sports venues, street furniture, and ambient solutions – custom-designed to fit settings surrounding consumer activity.
Given the price drops for all three companies over the past year it would appear investor appetite for this sector has diminished a bit.  Analysts, however, remain positive.  Deutsche Bank recently initiated coverage on the sector, slapping a Buy rating on all three companies.  According to Reuters, each company has a Consensus Outperform Rating.  Here are some historical growth rates and forecasts for the companies.

The OML historical 5-year growth is abnormally high due to swinging up from large losses.  The forecasted growth should be enough to warm the hearts of most investors, but the slow-down from the astronomical past performance may be blinding many to the opportunities here. 
Outdoor advertising in all its formats has one huge advantage over even the best of Internet ads – they are always there.  You can’t click through to the next page and the only adblocker is your ability to look away.  As such, the outdoor digital format is ideally suited to “captive audiences”, such as hordes of consumers awaiting the next train.  APN Outdoors already has a digital system – XtrackTV – ideally suited for in-depth ads, given the fact the average wait time on a train platform is 6.5 minutes.  The company also has a static system called CrossTrack.
Like one of the great success stories of our time, Google, these companies are in effect technology companies masquerading as advertisers.  Data Analytics can help advertisers fit the right product ads to the right places. oOH! Insight partners with Australian data analytic firm Quantium to create digital ad campaigns based on a wealth of consumer behavior data.  A recent campaign promoting the release of the film Despicable Me 3 in Melbourne used the QMS DigiLab platform to tie a social media campaign collecting creative entries from users into QMS outdoor digital displays featuring the top 10 most creative user entries of the day.
Artificial Intelligence is entering the world of outdoor digital displays as well.  Smaller billboards in public places are being tested with technologies designed to engage consumers in direct interaction.  
One such board promoted smoking cessation products from a Swedish pharmaceutical company.  To the average passerby, the board appeared static, but an embedded smoke detector in the display sprang into action when a smoker came within range, immediately switching to a coughing man, complete with sound, followed by presentations of the company’s products.
A more complex display contracted by US automobile manufacturer General Motors incorporated facial recognition software into the billboard.  The ad features a spokesperson with a GM vehicle in the background interacting with the consumer based on the software’s recognition of the consumer’s age, gender, and facial expression, evoking a smile from the billboard in response to a smile and so on.
In truth, existing digital displays that modify ads based on date, time, or weather can be considered “smart.” While incorporating this kind of technology into large format roadway billboards seems the stuff of science fiction, the fact is a US company – Clear Channel Outdoor – is already experimenting with a system called “Radar” that aggregates and analyses data from cell phones in passing cars, changing the ad to fit the passing consumers. 
While the digital outdoor advertising sector seems a good long term bet, a Bear argument against investing would point to the dangers of falling advertising revenue in a recession.  While economists and marketing experts argue against cutting back on ad spending in tough times, companies do it.  The following graph shows the revenue drop in the UK following the GFC.

OMA reports an outdoor advertising revenue drop in Australia from $454 million in 2008 to $400 million in 2009. However, the numbers from both countries do not break revenues down into static and digital, as does the next chart from the UK. 

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