While we all know that home improvement giant Home Depot (HD) is a great place to buy hammers and saws and lumber and such, we often do not consider the value of its advertising space. But Home Depot has, via its Orange Apron Media network. And Home Depot is shaking up the way it presents advertiser value, by not looking so much at ROAS—Return on Ad Spend—so much as ROMO. That shift is causing a shakeup in the landscape, and shareholders are skeptical about the impact. Home Depot shares are down fractionally in Tuesday afternoon’s trading.
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While ROAS worked well at first, when advertisers wanted quick wins with support that could be easily recognized and packaged into reports for top brass, as Orange Apron Media developed, it became clear ROAS was not a fair measure. After all, when Home Depot advertises a refrigerator, no one goes right out and buys that refrigerator. It becomes part of an extended process of comparison shopping and measures.
So Home Depot pivoted to ROMO, or Return on Marketing Objective. ROMO can better measure the long-term selection process and fully encompass what Home Depot calls “…the entire customer journey.” ROMO allows for measurements like building relationships with customers, an excellent way to predict long-term success. Advertising technology has changed a lot over the years, so it should be little surprise that it is changing once more.
Welcome to Costco; Can I Eat Your Lunch?
Meanwhile, Home Depot has a new and somewhat unexpected corporate threat in, of all places, Costco (COST). Home Depot has been the name to conjure with for a lot of small-scale home improvement projects for a lot of years now. But Costco’s own home improvement game has been on the rise lately, and that poses a real threat to Home Depot.
Formerly, the two were kind of separate in the market. Home Depot was all about home improvement, but Costco was about stock-up runs. If Costco also becomes a home improvement force, the kind of thing customers can hit while on stock-up runs, then Home Depot’s value declines accordingly. And, thanks to Costco’s membership fees, it can run on lower margins than Home Depot can.
Is Home Depot a Good Long-Term Buy?
Turning to Wall Street, analysts have a Strong Buy consensus rating on HD stock based on 18 Buys and six Holds assigned in the past three months, as indicated by the graphic below. After a 9.57% rally in its share price over the past year, the average HD price target of $445.14 per share implies 9.65% upside potential.
