A Look Inside the 2019 Ad-Tech Outlook

Industry experts provide their assessment of the latest earnings calls

Ad-tech companies The Trade Desk, LiveRamp, Rubicon Project Criteo and Telaria have filed their recent quarterly earnings in the last two weeks.
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If all advertising is going digital, and with digital increasingly powered by ad tech or programmatic, the road ahead for companies in this space should be smooth, right? Unfortunately, that’s not necessarily the case as the sector is increasingly dominated by the industry’s largest names.

This is why the financial disclosures of the few remaining publicly listed ad-tech companies (many are foregoing the option to list on the public markets) provide an interesting insight into the machinations of the contemporary ad-tech market.

While some of the notable ad-tech companies listed on markets elsewhere in the world are proposing to merge, those listed in the U.S. have shared the state of their respective fortunes for the closing quarter of 2018 (see below). This round of earnings calls also saw C-suite executives talk up their assessment of the market—both events in the past year and those in the year to come.

Richard Kramer, founder of financial analyst firm Arete Research, told Adweek the impressive returns of The Trade Desk (currently the ad-tech darling of the public markets) do not warrant its lofty valuation.

“Even in the extremes of the 2013-2015 ad-tech hype around programmatic, we have never seen the valuation levels currently attached to TTD stock, now trading at 18x sales,” he said. “Given the two ‘original sins’ of ad tech—the fact that most companies rely on price arbitrage schemes, and the opaque nature of ‘performance’ based on adding ‘data’–this only adds to the risks that such a lofty valuation brings, however effective the commercial execution at TTD remains.”

Identity is crucial

Meanwhile, Ratko Vidakovic, founder of Adprofs and author of This Week in Ad Tech, notes that the recent financial filings of these companies demonstrate a clear push towards profitability. He also observed how three of the concerned companies—Criteo, LiveRamp and The Trade Desk—were keen to emphasize their respective identity solutions which will be crucial to attracting advertiser spend and pose a credible alternative to titans such as Amazon, Facebook and Google.

“This can be seen in The Trade Desk’s Unified ID, Criteo’s Shopper Graph, and LiveRamp’s IdentityLink product,” he said. “Every scaled company is pushing to drive the adoption of their own ID graph.”

Just about every company in the sector has had to contend with the headwinds of regulatory constraints, primarily in the guise of GDPR enforcement (in particular, Google’s cessation of sharing its DoubleClick ID) since May 2018, as well as targeting restrictions from Apple on its Safari browser.

Arete’s Kramer noted how both Apple and Google’s restrictions were driven by regulatory scrutiny as well as the strategic advantage such parties enjoy over independent ad tech, primarily due to their vastly superior first-party data sets. Although, he did note how Criteo, which had notably suffered due to the rollout of both GDPR as well as Apple’s ITP, was “promising a return to growth” by broadening the scope of its product offering.

Meanwhile, Vidakovic noted how the implementation of ITP was likely a bigger threat to ad-tech companies as well as some of the largest names because “it’s such a blunt instrument.” The threat may not end there, as Mozilla is to roll out similar restrictions in its Firefox browser and Google itself is said to be considering likewise measures.

“Once the issues of freely given consent, tracking walls, and legitimate interest get ironed out, GDPR has the potential to throw a serious wrench into the business models of the leading ad-tech platforms, including Facebook and Google,” he said. “Meanwhile, in the U.S., there is a great deal of uncertainty as lawmakers and lobbyists work towards shaping the CCPA and a potential federal data privacy law.”

Heightened scrutiny from marketers

Chris Kane—CEO of Jounce Media, a consultancy that predominantly works with buyers to improve the efficiency of their programmatic media trading—recently published an assessment of the digital advertising market indicating all growth would be subsumed by the industry’s walled gardens.

He went on to tell Adweek that the predicted shrinkage in ad budgets controlled by independent demand-side platforms (down from $17.5 billion in 2018 to $16.2 billion this year) would likewise be accompanied by some headwinds for ad exchanges such as Rubicon Project.

This pressure on sell-side players has been driven by the emergence of header bidding, a means of impression allocation that lets publishers conduct multiple simultaneous ad auctions.

“The outcome here is that both buyers and sellers are putting pressure on technology providers to create high-performance supply paths,” he said. “Among the 50 ad exchanges that conduct RTB auctions, only a handful have the technical sophistication and business discipline to be trusted marketplaces for buyers and sellers. Duplicate auctions will continue to exist, but the smart money is quickly consolidating to a short list of high-performance supply paths.”

The CTV chase

Executives at most of the companies reporting to Wall Street were keen to emphasize the growth opportunities each of them potentially faced with the emergence of connected TV.

Adprof’s Vidakovic told Adweek the “industry-wide chase for CTV budgets” was evident in all of the recent calls. “Given the nature of connected TV inventory—higher media prices and a hard-to-measure environment—it represents an attractive opportunity to ad-tech companies, especially with the promise of linear TV budgets shifting to digital,” he added.

However, Brian Wieser, global president, business analysis, GroupM, told Adweek that while “CTV is a real thing,” it is important to realize the growth rates are from a small base and that competition in the sector is likely to be intense.

@ronan_shields ronan.shields@adweek.com Ronan Shields is a programmatic reporter at Adweek, focusing on ad-tech.