Shares of The Trade Desk (TTD 6.31%) fell 19.5% in June, according to data provided by S&P Global Market Intelligence. Not much specific to the company happened during the month. However, it seems that investors are worried about the economy and about The Trade Desk’s prospects for landing a big new partner.
For most of June, The Trade Desk stock moved largely in line with the market. So the stock was down, but not by nearly as much as it was at the end of the month.
A couple of things did happen late in June that might explain that unusual additional drop. The first was a piece of news relating to Netflix (NFLX 3.29%), which is in the early days of preparing to launch an ad-supported tier of its subscription streaming service. With over 200 million subscribers around the world, the Netflix account would be a coveted prize for any adtech company like The Trade Desk.
On June 23, Netflix co-CEO Ted Sarandos was at the Cannes Lions festival to discuss advertising. When pressed to name the specific partners his company would work with, Sarandos declined, instead saying that it was talking to “all” adtech players. It seems that investors may have interpreted this negatively and started worrying whether The Trade Desk would land this important client.
The other news was macroeconomic. On June 29, the Bureau of Economic Analysis released its third estimate for US GDP in the first quarter of 2022. It revised its GDP estimate down to a 1.6% decline — worse than economists had predicted.
The advertising sector performs better during periods of economic expansion, not contraction. Therefore, it seems that the market is worried about The Trade Desk’s prospects. If advertisers start to slash budgets because of the economy, the company’s results would logically be expected to suffer.
The Trade Desk can’t control what company Netflix chooses as its demand-side adtech partner. And it doesn’t control the economy. However, it does offer a superior tool for helping advertisers reach the consumers they want. And if its product is better than those of its rivals, then it should gain adoption over the course of the coming decade, even if there are bumps in the road along the way.
One announcement the company made on June 21 highlights why digital programmatic advertising is so exciting. The Trade Desk partnered with Albertsons Companies, a supermarket operator with more than 2,275 store locations. Now, brands that advertise with The Trade Desk’s software will be able to compare sales results from Albertsons to better measure the effectiveness of their ad campaigns.
Measuring advertising results in this way is something that can’t be done with traditional advertising. And it’s why spending in the programmatic ad space is expected to grow by 73% from 2021 through 2026 to reach $725 billion, according to Statista. I believe this big-picture trend can keep pushing The Trade Desk’s business forward despite investors’ worries in June.