2 media stocks to own now

Advertising and media go hand-in-hand to maximise earnings and business growth potential

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As a category media has changed dramatically and widened to include print, radio, TV, internet and mobile. The technology around us is becoming more personalised, allowing consumers to search as well as screen out information and news.

The blurring of services and offerings and the fast paced innovation makes it difficult for investors to keep up with changes. Which companies will be the winners in five or 10 years? That's the big question.

Now that users can move around on the web through various devices, the content and service that each media company provides will determine their success. News can be a commodity, but a successfully created brand can focus an audience's attention. There is so much information on the internet, yet if a company is seen as an aggregator and distiller of desired information and media content, then people may flock to it.

Here are two media companies that investors should know about. Advertising and media go hand-in-hand to maximise earnings and business growth potential, so see how they are developing new income streams.

STW Communications Group Ltd (ASX: SGN) is a marketing and communications group made up of 75 companies. They provide services domestically as well as in South East Asia, the US and the UK.

Since 2009 it has grown revenue steadily. Even in times when many media companies are struggling to stay competitive and relevant, it raised underlying profit by 12.5% in FY2013.

In Australia it is number one in a variety of categories such as an advertising agency, PR agency and media group. It handles advertising for many famous brand names like Subway sandwiches, NRMA Insurance and National Australia Bank Ltd (ASX: NAB).

As it interacts more with viewers and service users digitally, it can create new income streams by putting customer generated data to work. It can focus advertising and fine tune what they offer to the likes of its audiences. Data analytics and marketing automation will be two ways to power earnings.

REA Group Limited (ASX: REA) has been masterful in making itself the leader in online real estate listings through its realestate.com.au website. It has not only created a brand name that many property buyers turn to, but also established itself as one of the main websites that real estate agencies use for listings.

In addition, it has developed products and services so that it can upsell from basic listings. If being on the website was a must for property sellers, then paying more to be on or near the top of the listings was just as important. Advertisers can also be assured of a lot of eyeballs for their brands, generating more revenue for the company.

Net profit has more than doubled since 2011, up to $109.7 million on $336.5 million in sales in FY2013. Its FY2014 interim result was a 37% increase in NPAT. The rising housing market is creating more listings and more earnings.

Foolish takeaway

REA Group has a 41 PE, so you have to balance out the past performance with what can be reasonably expected in the future. Waiting for a better, cheaper share price to come along is possible, but the last share sell-off was the GFC, so opportunities like that are not so frequent.

Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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