Last week, digital advertising companies showed off a strong third-quarter comeback from a second-quarter slowdown. Some marketers had eased up on the ad spend accelerator during Q2, while some others pressed paused on entire campaigns. But it looks like marketers were back in Q3, benefiting companies who make the bulk of their money from digital advertising.
Investors are likely hoping for a similar acceleration in The Trade Desk's (NASDAQ:TTD) business. When the tech company reports earnings on Thursday, it will give investors a look at one of the hottest areas of digital marketing: programmatic advertising, or data-driven advertising in automated marketplaces competing for digital ad spots.
Here are three areas investors should check on when The Trade Desk's third-quarter results go live.
After reporting a strong year-over-year revenue growth rate or 33% in Q1, this growth swung to a sharp decline in Q2. Revenue growth fell 13% year over year during the period.
The "advertising industry hit the pause button early in the second quarter due to uncertainty around the COVID-19 pandemic," said The Trade Desk CEO Jeff Green in the company's second-quarter earnings release.
Fortunately, however, things were looking much better as the quarter ended, Green explained.
[W]e saw substantial improvement in ad spend as the quarter progressed. Indeed, the month of June ended strongly with ad spend growth turning positive on a year-over-year basis. This improvement comes as marketers recognize the role that data-driven advertising plays in driving business growth as markets start to reopen.
Highlighting now management is expecting a return to growth, The Trade Desk guided for third-quarter revenue to be between $177 million and $181 million. The midpoint of this guidance range implies 9% year over year growth.
CTV ad spend growth
One bright spot in Q2 despite the negative impact of COVID-19 on the quarter was connected TV (CTV), or internet-connected television. Ad spend in this channel still managed to grow 40% year over year in the quarter.
Better yet, management said in The Trade Desk's second-quarter earnings call that it expected its year-over-year growth rate in CTV ad spend to double in Q3 compared to Q2. "We believe the COVID pandemic has permanently accelerated the growth of connected television, changing the TV landscape forever," explained Green.
Finally, investors should check in on The Trade Desk's guidance for its fourth quarter. So far, digital advertising companies seem to be expecting a strong finish to the year.
"Assuming that the current favorable operating conditions persist, and that the holiday season materializes in line with what we have experienced in prior years," explained Snap (NYSE:SNAP) CFO Derek Andersen in the company's fourth-quarter earnings call, "we believe that year-over-year revenue growth of 47% to 50% is attainable in Q4." Pinterest (NYSE:PINS) expects a similarly sky-high growth rate of about 60% during the holiday period. Meanwhile, though Facebook (NASDAQ:FB) is growing much slower than these smaller social networks, the company did say it expects its fourth-quarter 2020 year-over-year growth rate in advertising revenue to be higher than the 22% growth it saw in Q3.
Analysts seem to also expect a strong quarter from The Trade Desk in Q4. On average, they're expecting 17% growth -- up from the 9% growth The Trade Desk management guided for in Q3 and a year-over-year decline in Q2.
The Trade Desk is scheduled to report its third-quarter results after market close on Nov. 5.