Why the Trade Desk will benefit as advertisers seek flexibility
The coronavirus epidemic has prompted many businesses to close their doors to the public. If you are not open to customers, there is less incentive to market them. As a result, when the pandemic first led cities and states to place stay-at-home orders, advertisers cut spending wherever they could. The commercial counter (NASDAQ: TTD), which allows advertisers to turn ad campaigns on and off at will, saw revenue decline in the second quarter as a result of these cuts.
Now, as businesses begin to reopen, the Trade Desk should benefit as advertisers cautiously increase their spending. Speaking on this during the company’s first quarter earnings call, CEO Jeff Green said, “We believe data-driven advertising is at the forefront of the recovery where advertising is fueling and even ignites growth, and where growth fuels more publicity. As The Trade Desk is one of the leaders in data-driven advertising, we are confident that we will play a vital role in the global economic recovery. ”
Optionality becomes a priority
While it is true that many businesses in the United States are starting to reopen, they are doing so with caution. The risk of an increase in the number of new coronavirus cases could lead to more closures, so until there is a definitive solution such as a vaccine, companies that rely on bringing people in in their stores will remain hesitant to spend.
This risk of future disruptions pushes advertisers to seek more flexibility in their investments and commitments. It no longer makes sense to agree to an advertising campaign months in advance when businesses are unsure whether their doors will even be open. This major shift in the focus of marketers is likely to hurt traditional television advertising, which typically requires long engagements, not to mention the uncertainty surrounding popular programming and live sports.
These longer-term commitments made it difficult for companies to cut ad spending with television networks when the pandemic first shut down businesses across the country. The Trade Desk saw revenue decline 12.9% year-on-year in the second quarter, in part due to the flexibility it offers.
Now that businesses have reopened, they are focusing on educating potential customers. The Trade Desk is poised to benefit as marketing budgets increase. The same agility offered by The Trade Desk when budgets were shrinking means that it is likely to benefit from the increase in spend, allowing the company to take an even larger share of the market. Additionally, The Trade Desk can reach over 80 million households in the United States, so a marketer who starts with a smaller, more focused campaign has the opportunity to grow when needed. What hurt the company in the second quarter will help him in the second half of the year.
Businesses don’t reopen all locations
In addition to timing, companies will also be looking for geographic flexibility. The Trade Desk’s omnichannel offerings on smart TV, mobile, video and audio allow marketers to target consumers in the exact regions they’re trying to reach. It helps businesses cut costs and improve their brands. No one likes to see irrelevant ads.
Tilly’s, a specialty retailer, opened most of its 238 stores in August in the United States, with the exception of 33 it has in parts of California. Such a retailer may not want to advertise to individuals in areas where stores are still closed. There are many examples of businesses like Tilly’s that have a patchwork of reopens and need a more focused approach to advertising. The commercial counter will probably be the partner that many of these companies choose to fill this need.
In fact, despite the uncertainty in this environment, management was still confident enough to provide guidance for the third quarter that signals a complete reversal from the prior period. The Trade Desk expects revenue to be between $ 177 million and $ 181 million, which would represent 9% year-over-year growth midway through.
What this means for investors
The Trade Desk will undoubtedly benefit from the increased marketing budgets. It remains to be seen whether the company will be able to sustain these advantages over the long term. Investors are optimistic about the success of the Trade Desk as the technological actions is up 65% year-to-date.
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