It was a strange quarter for ad-based companies on Wall Street. Independent ad tech companies have seen their stock prices rise in the wake of their earnings.
The Trade Desk, the programmatic bellwether, reported a revenue increase of almost a third, although its profitability dropped from $39 million in Q3 2021 to $16 million in Q3 this year. One theme came up throughout recent ad tech earnings: Revenue is up, but it’s outgrown by expenses.
Investors were also impressed by the major ad agency holding companies, such as WPP, Omnicom and Publicis.
On the other hand, broadcasters and digital media leaders like Disney, Warner Bros. Discovery, BuzzFeed and Dotdash Meredith reported diminishing audiences and are preparing investors for a disappointing Q4.
The major ad platforms – Google, Meta, Amazon, Snap and others – are doing layoffs, cutting costs and warning of worse-to-come advertiser pullbacks.
What to make of this year’s pre-holiday-season ad tech earnings roundup?
The good
Between Wednesday and Friday of last week, practically every independent ad tech company (The Trade Desk, Magnite, Criteo, Viant, System1, Tremor and PubMatic, to name but a few) had a much-needed bump up in its share price.
Last week, LiveRamp CEO Scott Howe told investors he wanted the share price to rise. “All of us at LiveRamp are disappointed by our current valuation,” he said.
His wish was granted. LiveRamp’s valuation is up by about 30%, as is The Trade Desk’s. Magnite shares have more than doubled.
The brand verification subcategory had a particularly strong year. DoubleVerify grew its profits in Q3 from $7.9 million in 2021 to $10.3 million this year. Integral Ad Science flipped a $9.8 million loss in Q3 2021 to a $767,000 profit this past quarter.
Those are modest gains, sure. But The Trade Desk and Criteo, for instance, which were also big gainers on the market last week, both reported a plunge in profitability.
And, hey, maybe the mass layoffs in Silicon Valley could lead to a talent influx.
The job market has “loosened up” since the pandemic hiring craze, DoubleVerify CEO Mark Zagorski told investors. “For us, that means an opportunity to continue to upgrade our team, to fill spots with great people and do so at a cost hopefully significantly less than it was a year ago.”
The Trade Desk CFO Blake Grayson, when asked whether the profit margin would improve next year, said the company would not freeze hiring or do layoffs. “A lot of companies with more resources than us are pausing or reducing,” he said.
But TTD and some other ad tech companies are apparently more willing than Meta or Alphabet (which earned $4.4 and $13.9 billion in profit last quarter, respectively) to accept the profitability reduction at the moment.
The bad and the ugly
Buckle up.
The good news for ad tech seems straightforward. Double-digit gains across the board!
But percent-based growth is tricky.
Magnite’s 50% overnight growth last week brought the company’s market cap from about $700 million to $1.1 billion. But when Magnite peaked in February 2021, its market cap was more than five times what it is right now. A $400 million gain would have been a day of solid mid-single-digit growth.
Magnite, LiveRamp, PubMatic and other ad tech stocks need to get back to a size that doesn’t cause market shares to ping around by double-digit millions. Recently, they’ve hovered around $1 billion in market cap. They slipped back into small-cap stock territory and need to return to respectable multibillion-dollar values.
And smaller ad tech companies, particularly DSPs, are struggling.
Viant is down more than 90% since it IPO’d in February 2021. And Tremor, which has an SSP and DSP, acquired another DSP in Amobee this quarter. Its value dropped by about 20% on Monday after Tremor reported a revenue decline from last year and that the company flipped from an $11.9 million profit in Q3 2021 to a $1 million loss in Q3 2022.
The biggest fear is that ad tech has felt the first shockwave of the recession but not the full force of the impact.
“The advertising market right now is very weak, weaker than it was during COVID,” Warner Bros. Discovery CEO David Zaslav said at the RBC 2022 TIMT Conference on Tuesday. “There is a pretty big miss of the whole Christmas season.”
And it isn’t just legacy TV in trouble. Last month, Alphabet reported that YouTube had an outright drop-off in revenue, likely YouTube’s first year-over-year revenue decrease since Google acquired the company 15 years ago.
Media companies, major first-party ad platforms and advertisers themselves are sounding the alarms. Perhaps many did over-hire during the pandemic, but they also could be canaries in the coal mine.
If holiday shopping numbers miss the mark this year, the moderate gains that ad tech and agency businesses made in Q3 could evaporate overnight.
The hopeful
Ad tech companies are tying their hopes to two main trends: CTV and retail media.
LiveRamp’s Howe boasted of two account wins: the European retail giant Carrefour and Ahold Delhaize, which operates Giant, Stop & Shop and other grocery chains. He said LiveRamp now works with eight of the 10 largest retailers in the US.
Magnite, too, which is not a natural retail media partner like LiveRamp, is still in on retail.
And DoubleVerify’s fastest-growing unit is its supply-side tech, even though its main business is with advertisers. Zagorski cited retail media and CTV networks coming online as catalysts for that supply-side growth.
“Folks who basically are pushing inventory out but want to provide some level of transparency and cleanliness to that inventory,” he said of the new client group.
Magnite, PubMatic and DoubleVerify each cited Kroger as a sign of potential wins to come in retail media. Kroger Precision Marketing, the grocer’s retail media and data unit, recently opened up to a partner program.
And when it comes to CTV, ad tech companies touted exclusive data and inventory deals to investors, emphasizing any streaming media or TV manufacturer with a claim to smart TV real estate.
Disney, the pilot broadcast partner for The Trade Desk’s Unified ID 2.0 program, was cited 11 times by execs during The Trade Desk’s recent earnings report. Three months ago, TTD cited Disney 21 times.
Magnite CEO Michael Barrett told investors he “wants to highlight three client wins in the quarter with Fox, Vizio and Kroger.” Magnite will be the go-to programmatic video partner for One FOX, a Fox-owned CTV app, while Vizio uses the SpringServe video ad server.
To gain access to CTV inventory, Tremor emphasized its deal with FIFA as the exclusive ad tech vendor for its FIFA+ inventory during the World Cup across CTV, online video and mobile. And it gained exclusive rights to Hisense ACR data through a $25 million investmnent in a Hisense subsidiary called VIDAA.
The Trade Desk CEO Jeff Green mentioned Procter & Gamble, which reported earnings last month, as an example of how that could work. P&G is reducing its overall marketing spend, but it’s doing so largely by shifting linear TV ads to targeted channels, where they achieve higher reach and frequency at lower cost.
“Back in early 2020, as we entered that short-lived COVID dip, I talked about how easy it was for large brands to turn off programmatic with the first hint of uncertainty,” Green said. “But what you are hearing from P&G and what I hear from major brands around the world every day now is that programmatic is a central and critical component of any campaign.”
