Did Amazon Just Say "Checkmate" to The Trade Desk?

Globe and Mail

7 hours ago

Amazon (NASDAQ: AMZN) made a name for itself by leading not just one industry, but two. The company, known for its smiley-faced delivery boxes, has long been the dominant force in e-commerce as the world's largest digital retailer. If that weren't enough, Amazon Web Services (AWS) is the undisputed leader of the cloud computing industry it pioneered.
In recent years, Amazon has been focused on an area that has become the company's fastest-growing business: advertising. What began as a way for Amazon to capitalize on the digital real estate on its website is now getting an increasing amount of attention and resources. In fact, a couple of recent developments have put Amazon on a collision course with The Trade Desk (NASDAQ: TTD), one of the leading names in programmatic advertising.
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Did Amazon just say "checkmate" to The Trade Desk? Let's see what the evidence reveals.
Poaching customers?
The Trade Desk is the leading independent provider of programmatic advertising services via its demand-side platform (DSP). This self-serve platform helps advertisers and ad agencies purchase digital advertising space and provides a magnitude of data and analytics to track progress and help manage their ad campaigns. What sets The Trade Desk apart in the digital advertising space is its industry-leading technology and the long-term partnerships it has forged with the world's largest ad agencies.
Furthermore, each of the "walled gardens" -- including Alphabet 's Google, Meta Platforms, and Amazon -- has a vested interest in directing ads to their own sites, creating a clear conflict of interest. The Trade Desk's independence has helped attract new business and fuel its impressive growth streak, as the stock has surged 2,350% since the company's IPO in late 2016.
However, evidence suggests Amazon is doing its level best to poach The Trade Desk's customers. A recent report by Adweek suggested that marketers have been moving millions of dollars in ad spending from The Trade Desk to Amazon. Advertisers have been attracted by cut-rate pricing, the growing reach of Prime Video, and access to the company's exclusive live sports programming, according to the report.
On its own, this normally wouldn't raise an eyebrow, but Amazon recently made another move that suggests the company is coming for The Trade Desk.
An eye-opening partnership
Last month, Amazon announced a strategic partnership with Roku (NASDAQ: ROKU) that will provide advertisers with access to "the largest authenticated connected TV (CTV) footprint in the U.S. exclusively through Amazon DSP," according to the press release. It goes on to note that the pair reaches an estimated 80 million CTV households, representing more than 80% of all CTV households in the country. The partnership includes many of the most popular streaming channels, including ad-supported offerings by most of the major players.
Early results are impressive. Advertisers using this new integration reached 40% more unique viewers with the same budget. Perhaps more importantly, it reduced the number of times a person saw the same ad by almost 30%, solving a common problem in CTV advertising.
Roku's reach in the U.S. is undeniable. The streaming pioneer closed out 2024 with roughly 90 million streaming households and more than 34 billion streaming hours -- which works out to more than four hours of viewing per household per day.
Does this spell trouble for The Trade Desk?
It's important to view these developments in the context of the overall trajectory of the industry. Total ad spending has doubled since 2016 and is expected to climb roughly 9% and surpass $1 trillion in 2025, according to eMarketer. Digital advertising is the fastest-growing segment of the industry, accounting for roughly $764 billion in ad spending this year. The growing market size represents a greater opportunity for all the major adtech players.
Wall Street seems to have mixed feelings about these developments. Analysts at MoffettNathanson believe this shows that Amazon is "chipping away" at The Trade Desk's moat. On the other hand, analysts at Citi cite channel checks in concluding that The Trade Desk is "the clear market share leader" and best-performing DSP. Despite the growing competition, analysts at Evercore ISI posit that Google might actually have more to lose, since more of its business overlaps with that of Amazon.
So, did Amazon just say "checkmate" to The Trade Desk? I would respond with a resounding "no." During the period in which Amazon was reportedly siphoning away "millions" from The Trade Desk, Amazon grew its advertising sales 18% year over year, while The Trade Desk's revenue grew 25%. This helps to illustrate that this isn't a zero-sum game, and there will no doubt be more than one winner.
Furthermore, The Trade Desk recently released its cutting-edge Kokai platform, which integrates artificial intelligence (AI) throughout the ad buying process, providing greater transparency and better outcomes for users.
Given The Trade Desk's industry-leading market share, state-of-the-art technology, and enduring relationships with ad agencies, I would argue that The Trade Desk remains ahead of the game. And, at 34 times next year's earnings, the stock is trading at a significant discount to its three-year average, representing a compelling opportunity at today's price.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Citigroup is an advertising partner of Motley Fool Money. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Danny Vena has positions in Alphabet, Amazon, Meta Platforms, Roku, and The Trade Desk. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, Roku, and The Trade Desk. The Motley Fool has a disclosure policy.