Investors use The Trade Desk as a proxy for the health of the entire open web advertising ecosystem, which means TTD’s recent run of concerning earnings is devaluing the entire ad tech sector.
Doubts about how TTD is competing with walled gardens like Amazon, along with slower overall revenue growth, have led some investors to downgrade the DSP’s stock from “buy” to “hold.”
Since TTD reported its Q2 earnings last week – including a respectable but slightly underwhelming 19% YOY growth rate – its price per share has been down about 40%.
And other ad tech companies, including Zeta, MNTN, Magnite, PubMatic and Viant, have also seen their stock prices drop despite solid Q2 earnings.
But TTD’s recent issues aside, what’s really turning investors away from ad tech is the seismic shift in online search as new AI-powered platforms restrict referral traffic to open web publishers. That’s according to Laura Martin, managing director of investment firm Needham & Company and our guest on this week’s episode of The Big Story.
“Investors are worried that digital ad dollars are moving into walled gardens, of which Amazon is the one to beat right now,” Martin says. “But, also, there’s a very real concern that suddenly the open internet is not going to get the consumer traffic it used to, which lowers the total addressable market for every company that sells ads on the open internet.”
In other words, some investors see the writing on the wall for the open web. But Martin believes the open web isn’t going anywhere, despite losing ground to Big Tech and social media, where it’s easier to demonstrate how ads perform within their closed ecosystems.
Yet the shifting search landscape is not an excuse for failing to fix the structural issues that led to TTD’s underwhelming Q4, namely the slower-than-expected rollout of its new Kokai platform.
“It feels like the problems that Jeff itemized in the fourth quarter call aren’t fixed, and that’s problematic,” says Martin, referring to TTD CEO Jeff Green.
However, there’s something to be said for the “If you can’t beat ’em, join ’em” mentality, according to Martin. TTD’s best path forward, she says, may just be to become more like the walled garden platforms it reviles by preferencing its direct publisher relationships.
