IAS - As ad-techs report watch CTV retail media and new alliances - Morgan Stanley

2023-05-02 18:28:41 ET

It's that time again for advertising technology companies to post their first-quarter results -- and Morgan Stanley says there are three trends it's keeping focus on as it parses the prints.

Criteo ( CRTO ), Integral Ad Science ( IAS ) and Yelp ( YELP ) will post results this week. They'll be followed next week by The Trade Desk ( TTD ), Quotient Technology ( QUOT ), and Innovid ( CTV ).

And running through these results is one key theme, analysts Matthew Cost and Brian Nowak note: that connected TV is "arguably the key secular tailwind" for the group.

CTV has been a "rare area of strength in turbulent online ad markets" over the past year, the analysts said, estimating the vertical grew 28% last year vs. the overall online ad space's 9% -- with those players most exposed seeing clear outperformance (The video line at The Trade Desk ( TTD ), they noted, outperformed broader online video ads by an average of 22%).

Two CTV factors are front of mind into results, they said: Much of the excitement has been over new inventory coming on line, such as the ad tiers at Netflix and Disney, though it's not clear how much will be available for programmatic bidding, or when; and "we believe the market is still in the early stages of the transition from linear to connected TV," so choppy macro conditions might drive some short-term fluctuations in that transition.

If CTV is the key secular tailwind, the biggest potential upside driver for ad-tech is retail media, the analysts said, highlighting a $130B opportunity by 2025.

"New retailer activations/integrations remain the key item to monitor in the space, as we look for evidence that the ad markets view retail media as an increasingly important channel," the analysts said, noting an important proof point in the expansion of a partnership between Criteo ( CRTO ) and Shopify ( SHOP ), as well as renewed efforts by Dollar General. And they added that new or expanded partnerships are a big opportunity for ad-tech companies to drive scale by integrating (see: "IAS partnering with NFLX as well as META/TikTok, while in retail media we have seen WMT work with TTD and TGT partner with CRTO").

Along with the report, the analysts boosted the price target on Integral Ad Science ( IAS ) to $19 from $14, now implying 22% upside. But it cut three other price targets: on Quotient Technology ( QUOT ), to $2.40 from $2.60 (14% downside); on Yelp ( YELP ), to $26 from $28 (9% downside); and on Innovid ( CTV ), to $1.10 from $2.20 (still 24% upside).

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