In a twist that makes sense only on Wall Street, media company stocks are being pummeled in part because of weakness in the ad market caused by an uncertain economic outlook and expectations that inflation will constrain consumer demand — yet ad-tech stocks stay relatively strong.
The explanation for this conundrum seems to be that the same forces driving marketers to be more conservative with their advertising dollars are also making them more interested in spending those dollars as wisely, efficiently and effectively as possible. That means greater reliance on data and technology.
Ad-tech companies are also benefiting from the shift of ad dollars from linear TV, dominated by traditional media companies, to connected TV, with more players.
Matthew Swanson, analyst at RBC Capital Markets, told B+C Multichannel News that for companies in the linear-TV business, the shift to CTV “can be cannibalistic, since they are taking ad dollars away from linear.” Still, it’s better to get some CTV dollars rather than being disrupted with no benefit at all, he said.
On the other hand, ad-tech companies generally don’t profit much from linear television spend. That means “the influx of CTV ad spend coming from linear is all net new to the environment,” Swanson said.
Ad technology firms benefit from the rapid 30% growth of CTV spending, even more than publishers, Swanson added. “While ad-tech vendors benefit from the overall demand, each individual publisher can only benefit from its own.”
The difference can clearly be seen in the mood of executives as they addressed investors and analysts. Executives at big media companies were concerned about the ad market, while tech execs acted as if they were floating above the economy’s dark clouds.
It is very clear that under the current operating conditions, we are significantly outpacing the market regardless of the macro environment.
— Jeff Green, The Trade Desk
Warner Bros. Discovery CEO David Zaslav was among the most alarmed by the ad market outlook. “The advertising market right now is very weak,” he said at the RBC Capital Markets Technology, Internet, Media and Telecommunications Conference on November 15. “And it’s weaker than it was during COVID.”
Paramount Global chief financial officer Naveen Chopra told the same conference that in the third quarter, Paramount’s ad business rose 1% and the digital part of its ad business grew 4%. “We feel good about that performance, particularly in a weak market,” he said.
On the ad-tech side, signals were pointing up and the numbers were much bigger.
Jeff Green, founder and CEO at The Trade Desk, said his company’s revenues grew 31% in the third quarter. “It is very clear that under the current operating conditions, we are significantly outpacing the market regardless of the macro environment,” he said on an earnings call.
Green said CTV was a catalyst for a “massive change” in the market, shifting power to the open internet and away from walled gardens.
When Lexus wanted to reach millennial luxury car buyers, Green said, it chose CTV outlets over linear TV and was able to reach 15 million potential new customers and generate a 67% improvement in purchase intent among key targets.
Similarly, at Innovid, CEO and co-founder Zvika Netter reported a 47% jump in revenue, with record-breaking gains for CTV.
“We feel confident our business will continue to thrive due to our leadership position in the CTV and broader converge TV industry,” Netter said. “In spite of the headwinds, actually CTV, we believe, is more immune to overall pressure than desktop mobile display in other formats.”
Ad Tech’s Place in Streaming
While some TV programmers may be threatened by the entry of Disney Plus and Netflix into the ad-supported streaming business, Innovid is working with both.
“The consensus is that linear TV advertising has passed its peak, which presents new opportunities for advertisers to adopt traditionally digital-centric strategies on the big screen and know-how. We believe the demands for automated technology to help unify converge TV advertising will expand as viewership increasingly pivots to the streaming space and Innovid will continue to deliver volume growth,” Netter said.
Swanson, the RBC Capital Markets analyst, noted that despite the tough economic atmosphere for advertising, revenue for the ad-tech companies he covers missed consensus levels by just 1.1% in Q3. Four of five companies outperformed on adjusted earnings before interest, taxes, depreciation and amortization. ▪️
