COVID-19 has wreaked havoc on many industries in recent months. One area where it's done significant damage is advertising. But there are some channels within advertising, particularly in digital advertising, that may come out of this pandemic firing on all cylinders. In fact, The Trade Desk (NASDAQ:TTD) says its most important catalyst -- connected TV (CTV) -- has already rebounded sharply.
Here's a close look at why The Trade Desk investors can still count on CTV to be a major growth driver for the company.
When a strength becomes a weakness
The Trade Desk CEO Jeff Green has been bullish on the opportunity for data-driven digital advertising on connected TV for years. But that catalyst was tested during the coronavirus pandemic when the economy came to a screeching halt and many marketers slashed their advertising budgets or even paused advertising entirely. The greatest benefit of programmatic advertising -- its agility -- turned into a weakness when fear about the economy spiked; advertisers indiscriminately took the axe to their ad budgets in the second half of March -- CTV included.
This pummeling of CTV and other channels led to first-quarter revenue that missed management's guidance for the period, despite a strong first two months of the quarter.
"In early April, we saw more advertisers slow spend or hit the pause button across every channel. Some verticals cut most of their budgets, such as the travel vertical," explained CEO Jeff Green in the company's earnings call last week. Revenue during the quarter grew 33% year over year to $160.7 million. Management had guided for revenue of $169 million.
An explosive rebound
But Q2 kicked off quite differently than Q1 ended. The agility of The Trade Desk's data-driven approach to buying digital ads rapidly turned in the tech company's favor in April, as signs that the economy would begin reopening started surfacing. According to Green:
Through the first 20 days in April, we estimated connected TV spend on our platform increased by about 20% year-over-year. Over the last 10 days in April, connected TV spend accelerated even more. During that period, we estimated that connected TV spend increased about 40%.
Even this doesn't fully capture CTV's momentum. Green said he believes CTV is the biggest winner of advertising in a post-COVID-19 world because of the lessons learned during the pandemic about the downsides of the big upfront commitments required in traditional television advertising. "They're asked to commit billions of dollars to content they don't know that much about and chasing audiences that they can't measure quite as well as anywhere else," Green explained. In CTV, however, "they have the freedom to be more deliberate, agile and data-driven in their TV ad investments."
As a result, "traditional media companies are adopting even faster to the on-demand nature of CTV," Green said. To this end, ad impressions have jumped 30% in just a few weeks in late April and early May as content providers make more content available to meet the high demand for more ad spots.
As the economy recovers, CTV could ultimately come out of this pandemic with more momentum than it had going into it.