Ad-tech Firms Weather Digital Ad Economy Headwinds in Third Quarter

This week, several ad-tech firms reported their earnings, showing a brighter picture for the online economy compared with the losses social media and tech firms reported this quarter, according to financial analysts. Ad-tech firms like The Trade Desk, Magnite, PubMatic and Criteo provide the tools for advertisers and publishers to buy and sell ad space. This lets ad-tech firms focus on the media verticals growing the fastest, like connected TV and retail media, which don’t have the same challenges as social media, such as rising competition from TikTok and mobile attribution challenges due to Apple’s privacy changes. “If you don’t have CTV and retail media, you are disadvantaged,” said Shweta Khajuria, director of internet equity research at Evercore, noting that traditional ad-tech verticals like display are growing slower. While the outlook of the economy is uncertain, these tech players appear more cushioned to the headwinds than some of tech platforms reporting earnings last month, with Meta reporting its second consecutive drop in revenue, Snap reporting its slowest-ever revenue growth and YouTube ad revenues declining for the first time. Majority of Advertisers Likely to Retain Media Spend Levels During Expected Economic Recession The Trade Desk, Magnite and PubMatic all posted year-over-year growth in revenue and adjusted EBITDA, a measure of profit, with The Trade Desk leading the way with 31% topline growth. Criteo reported declines in revenue and EBITDA, though a spokesperson said the best way to measure the business is a figure called contribution ex-TAC (traffic acquisition costs), which she said is more reflective given a change in the company's accounting practices. The company grew 1% year-over-year by this metric. Still, headwinds remain, and as a result, several ad-tech firms missed Wall Street estimates. The stocks of Trade Desk, Criteo and PubMatic all traded down on earnings, though none by more than 14%, a far cry from the 25% drop Meta experienced a day after its earnings call. Magnite’s stock was up 65% yesterday on the heels of its third-quarter earnings report (though the market also had one of its strongest days in years on news that inflation is slowing). Layoffs at Meta and the election may also impact the market. Growth in connected TV Connected TV and retail media are expected to grow by 32% and 31%, respectively, this year, per Insider Intelligence. Companies with more robust offerings in these channels are poised to weather economic headwinds than those more leaned into display, analysts said, a vertical only expected to grow by 21% in 2022, Insider Intelligence found. Nearly half (49%) of Magnite’s revenue came from connected TV in the third quarter, while only 34% of PubMatic’s revenue drew from omnichannel video, of which CTV is only a portion, a PubMatic spokesperson told Adweek. Magnite’s CTV revenue grew 29% this quarter. A PubMatic spokesperson said their CTV business grew by 150%, though the company doesn’t break down the line of business in their financials (and likely grew from a smaller base). “We are not a display company,” a PubMatic spokesperson said. However, Khajuria said PubMatic could capture more market share from Magnite, especially because PubMatic’s growth has always been organic, while Magnite had the benefits of growth via the 2020 merger of Rubicon Project and Talaria. “We also feel very good about the ability to grow next year,” Magnite's CEO Michael Barrett said during its earnings call, “As many of the largest market participants have or are just launching their CTV ad businesses.” Diversification remains key The Trade Desk had the strongest tailwinds of any ad-tech firm, given that the company has struck key partnerships with retailers and streamers to build a diversified revenue base, said Jason Helfstein, head of internet research at Oppenheimer & Co. Connected TV, which makes up a low 40% share of the business, led growth for the company in the third quarter, followed by mobile, and then display, which made up the low teens of the business. 'Retreating to the Core': How 10 CROs Are Navigating Advertising Uncertainty “For us, display is a more mature channel compared to others. Display was one of our first channels when we started in 2009,” the spokesperson said. “As we add new channels ... it’s natural for legacy parts of our business to be less of our overall share of spend.” Criteo, which has leaned into retail media, saw its channel grow 32% year-over-year (measured by contribution ex-TAC at constant currency), while the marketing solutions segment, which encompasses web, mobile and offline stores, only grew by 1%. Nonetheless, growth in media is never definite. Criteo's retail media division has previously grown faster, sporting a 42% growth rate in the second quarter and a 48% increase in the first quarter. Editor's Note: An earlier version of this article inaccurately stated the growth rate of Magnite's connected TV business.