Netflix is teaming up with Amazon, and it's dragging down adtech rival The Trade Desk's stock
News Summary
Netflix announced a partnership with Amazon, enabling advertisers to use Amazon's Demand-Side Platform (DSP) to buy ads on Netflix starting in Q4. This move directly competes with The Trade Desk, a publicly traded adtech company and also a Netflix DSP partner, whose stock subsequently fell over 10% and is down over 60% year-to-date. Morgan Stanley analysts downgraded The Trade Desk's stock to equal-weight from overweight, lowering their price target from $80 to $50. Prior to the Netflix deal announcement, analysts cited “lingering execution concerns, softness in the open web ad market, and intensifying competition in CTV,” specifically noting Amazon DSP's growth. Amazon has been aggressively securing key media partnerships in the connected-TV (CTV) space, similar to recent deals with Roku and Disney, which had previously given The Trade Desk an edge.
Background
A Demand-Side Platform (DSP) is an adtech software that allows advertisers to manage and buy ad inventory from multiple sources in an automated and efficient manner. The Trade Desk has long been a leading independent DSP in the open internet and Connected TV (CTV) space, offering advertisers the ability to buy ads across a wide range of publishers and devices. Amazon's DSP, initially focused on its own properties, has significantly expanded its capabilities and partnerships in recent years, aiming to challenge The Trade Desk and Google for DSP market leadership. This Netflix-Amazon partnership, following similar deals with Roku and Disney, signals Amazon's aggressive expansion strategy within the rapidly growing CTV advertising sector.
In-Depth AI Insights
What does Netflix's partnership with Amazon signify for the open adtech ecosystem? - This partnership underscores the imperative for large media publishers to maximize ad revenue, even if it means forging deeper alliances with platform giants. - It blurs the lines between open platforms (as championed by The Trade Desk) and 'walled gardens' (operated by Amazon and Google), suggesting that even proponents of the open ecosystem may partner with the latter for scale and revenue. - While not an outright loss for The Trade Desk, as Netflix remains a partner, it does indicate that premium content assets are becoming less 'open,' potentially eroding The Trade Desk's unique advantage in accessing top-tier inventory. What are the broader implications for adtech valuations and the competitive landscape given Amazon's increasing aggressiveness in the sector? - Amazon's aggressive expansion, leveraging its vast user data and shopping intent signals, poses an existential threat to pure-play adtech companies. - This will likely lead to margin compression and heightened competition across the adtech sector, as Amazon can subsidize its DSP services to gain market share. - Investors may adopt a more cautious stance on the future growth prospects of independent adtech firms, especially if these companies cannot offer the deep, integrated data and media assets that giants like Amazon or Google possess. How might The Trade Desk adapt its strategy to counter Amazon's increasing dominance? - The Trade Desk must emphasize its neutrality and transparency advantages for advertisers, which become even more critical when platform giants may have inherent conflicts of interest. - Invest in innovative data privacy solutions and measurement tools to remain competitive in an increasingly regulated environment. - Focus on serving advertisers who seek to avoid single-vendor lock-in and desire maximum control over their ad spend and data strategy.