Jefferies downgrades ad-tech PubMatic; sees upside for Trade Desk, IAS
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Jefferies has downgraded advertising technology firm PubMatic (NASDAQ:PUBM) to Hold from Buy, in more fallout from the macroeconomic-worry storm set off by Snap's stock-crushing warning on guidance.
Macro indicators are "deteriorating at a faster pace," analyst Brent Thill says, with more cautious spending patterns as the upshot (and getting worse as an economic slowdown deepens).
While that pain will be widespread, hitting big spaces like e-commerce: "For businesses, one of the first things to get cut is advertising spend, which can happen very quickly," Thill says.
For PubMatic (PUBM), that means risk in reaching its 2022 guidance for 25% revenue growth. Jefferies' $23 price target now implies 14% upside, after PubMatic's 3.5% drop Tuesday.
Meanwhile, attendance at the Programmatic I/O conference gives Thill more confidence for another pair of names in the space. The Trade Desk (NASDAQ:TTD) is set to become even more dominant in the ad-tech ecosystem, he says.
"One industry participant said that TTD is no longer the 'David' fighting against 'Goliath' (i.e. Google), as its influence over the ad tech supply chain continues to grow," Thill says.
The Trade Desk should also benefit from increased retail media adoption, he says, noting that major retailers like Walmart and consumer-facing platforms like DoorDash and Instacart have a "massive" opportunity to monetize first-party customer data - actually accelerated by the depreciation of device IDs as the retailers don't need cookies for measurement. "We believe TTD will benefit from this move given their recent partnership with WMT will help CPG advertisers reach consumers across the Open Web."
Meanwhile, the loss of Apple's IDFA and the coming disappearance of third-party cookies should also benefit Integral Ad Sciences (NASDAQ:IAS), he argues. Many sessions at Programmatic I/O focused on solutions like data "clean rooms," retail media networks and contextual targeting.
"We believe IAS is best positioned to succeed in a post-cookie world given its Context Control product (41% of its Programmatic revenue) drives ad performance without identifiers," Thill says.
Ad-tech stocks took a painful hit from Snap's warning last week.