When The Trade Desk sneezes, ad tech catches a cold.
That’s been the case since TTD reported its Q2 earnings on Thursday and Wall Street investors, nonplussed by the DSP’s performance, seemingly downgraded the entire programmatic sector.
DoubleVerify, Zeta and Magnite, for instance, each had a modest stock bump after reporting positive earnings earlier in the week last week. But after TTD reported its earnings on Thursday, all three companies saw their shares drop by about 10%. LiveRamp saw the same drop immediately after TTD’s earnings.
And the malaise has stuck.
PubMatic and Viant reported earnings this week, and both had better-than-expected quarters – but there’s no avoiding the ad tech reset. Each saw its share prices plummet by more than 10%, despite the strong quarterly returns.
Now that investment banks appear to be rethinking how they value TTD – which has seen its market cap fall from almost $45 billion to $26 billion since reporting earnings last week – other public ad tech companies could be in for a wild ride.
What went wrong?
Unlike when The Trade Desk reported its Q4 2024 earnings in February, when the company missed its own revenue forecast and the stock cratered, last week’s earnings debacle isn’t actually about earnings.
Rather, investors mostly appear flummoxed by TTD’s competitive positioning with Amazon.
Youssef Squali, managing director of digital media and internet stocks for Truist Securities, was the first to broach the subject on last week’s call. He asked CEO Jeff Green: “From your vantage point … have there been any meaningful changes in how Amazon has shown up competitively in the market?”
It was a question Green was prepared for.
“Honestly, I was hoping somebody would ask this,” he responded.
Amazon Ads primarily buys Amazon-sponsored product listing ads and ads on Prime Video and other media owned by Amazon, none of which overlaps with the ads TTD bids on across the open web, Green said.
Meanwhile, the Amazon DSP isn’t Amazon’s “top advertising priority, let alone the core of their business,” he added.
“When you look at it from that perspective or from a certain point of view, Amazon is not a competitor,” Green said. Amazon is “more of a potential partner, honestly.”
Green has made a similar case about The Trade Desk’s relationship with Google since TTD first IPO’d in 2016.
The Trade Desk competes with DV360, or at least the portion of DV360 that doesn’t go to YouTube. But the DSP has never been among the most important business lines within Google and has become less of a strategic priority for Google over time.
But investors clearly did not want to hear that message.
The accepted narrative in the market is that the Amazon DSP is voraciously coming for TTD’s business. Amazon’s ad growth rate was 22% in Q2 this year, reaching $15.7 billion.
Investors wanted a stronger rationale for TTD’s superiority, perhaps, and a more straight-on acknowledgement that Amazon is its main competition right now.
Instead, Green made hopeful assertions that if Amazon Prime Video were to someday open to outside demand – “and it wouldn’t surprise us if that were to eventually be the course that they choose to take,” he added – then The Trade Desk would be a major partner.
Dan Salmon, an equity analyst for New Street Research, penned a note after the call based on his conversations with investors, and he summed up the new vibe thusly: There was “much discussion about the competitive threat from Amazon,” Salmon wrote, which “the Street did not find overly convincing.”
And since then, “the sentiment [on TTD] is reversing once again.”
What about us?
So why is TTD so contagious?
The rest of the public programmatic portfolio, companies like DV, Magnite, PubMatic and Viant, no doubt feel justifiably sour that their stocks are down simply as a reflection of The Trade Desk’s current travails.
But they really can’t complain.
When going public themselves or in ongoing discussions with investors, they’ve relied on The Trade Desk as a positive benchmark for their own businesses. They basked in TTD’s reflective glow.
As in, “Hey, Wall Street, why not apply the same multiple to our revenue as you do for The Trade Desk?”
Ad tech investors and dealmakers have probably heard that line or others like it scores of times. Whether it’s a private company making a deal or a potential ad tech IPO, programmatic providers have been happy to hitch their wagon to TTD’s train.
But that means that when TTD slows down, so do they.
And so the message here for the rest of the programmatic landscape is much the same as what Wall Street investors are trying to impress upon The Trade Desk.
Do not forget who your real enemies are: the walled gardens.
