Fundamentals of Streaming Are Strong: Needham's Martin

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00:00Let me do this. What is Trade Desk? What does it do and does it do it well?

00:08What an excellent question. Okay, so Trade Desk is a demand side platform, a DSP.

00:13And so when you load a webpage of a news article you're watching, Trade Desk delivers an ad in

00:19real time in milliseconds. And that ad has actually gone to auction in those milliseconds

00:25because they know who you are and they know how much money you make and they know that

00:29you're in the financial industry. So your ad units that are getting served to you in milliseconds

00:34are very valuable, much more valuable than like, you know, my kids who earns no money

00:40and lives at home. So Trade Desk delivers those in milliseconds having bought them at auction

00:44and they represent the largest 200 advertisers. I think technically they have, you know, 4,000

00:51ad buyers, but they only represent ad buyers, typically top of funnel without a performance

00:56metric associated with it. And they're doing strategic upgrades, cocci, they say, is giving

01:01them more power than ever. It's interesting, Laura, they're obviously delivering on a technology

01:05front, but there's got to be a resilient desire to be advertising this moment. We've seen that

01:09from Meta, we've just seen it from Pinterest as well. From your perspective, is the advertisers,

01:14the marketers, are willing to spend in this environment?

01:16So every company has now reported earnings on every call. They've gotten asked since April

01:242nd tariffs, have you seen downdraft? And with a couple exceptions, everybody else has said

01:29no. Trade Desk said no. To date, it's been five weeks since April 2nd. They have not seen

01:34downdraft other than in areas like autos or home appliances is down like 40% with one company

01:43I talked to since April 2nd. And you guys probably saw it, like the ports are empty. They've turned

01:48around these container ship carriers and they're going back home rather than try to empty in the

01:53ports and pay the tariffs. So I think this might be a gathering storm, but so far Trade Desk has not

01:59seen impact of tariffs. Laura, this week in Europe, we had the semifinal of the Champions League,

02:06which makes me think about Paramount. You know, just as a case study, they showed some streaming

02:11strength. But on aggregate, what have you learned about the streaming landscape this far and

02:17particularly consumer attitudes to all of the platforms available to them?

02:22Right. So let's talk, we can talk about Disney, Warner Brothers Discovery and Paramount, like

02:27all together, big streamers, which is the source question. But from a stock point of view, first,

02:32I just want to make a distinction because Paramount revenue fell 10%. Warner Brothers fell 6%.

02:41And both of them were projecting negative 4% revenue growth this year and flat next year,

02:46which begs the question, why do you need to be in these now? Because they're still not growing.

02:50Disney, by contrast, revenue up 7%. We're showing revenue up 4% this year and 4% next year.

02:58A lot of that is driven by streaming. So that's where I get to the answer to your question.

03:03A lot of that is driven by, you know, not only does Disney have better,

03:06have more diversity of assets, of course, but it also has better films, which helps,

03:11although films less than 15% of the business at Walt Disney these days. But streaming is what's

03:16really driving that outperformance compared to Paramount and compared to Warner Brothers.

03:21Paramount has the overhang of, can its deal get done? That's a big, that's a big, like cloud on

03:26Paramount. But the fundamentals of streaming are a bright spot. But if you can't make good films,

03:32or you can't sell good TV, it's, or you have a big linear TV business, which both Paramount does

03:38and Warner Brothers Discovery does, like, it's a problem, like, because it's drinking too fast.

03:44I mean, also what's a problem is if you're suddenly going to have massive costs on your movies going,

03:50well, anywhere, being able to make content abroad, being able to bring foreign-made produced content

03:56into the United States that has been proposed by the administration, seems to be hurting the

04:01very industry that they're trying to protect right now. What is the impact on Paramount? What

04:05is the impact on Disney if this does go into full force?

04:08Right. No, it's an excellent point because he is trying to help the industry. But as you know,

04:13films take three years to make. So the tariffs immediately would hurt a film that started three

04:18years ago before this policy existed, before the companies could react. So every film trying to

04:23come back to America that's been made offshore, whether it's tax advantage or not, you watch Mission

04:28Impossible, they aren't going for the tax breaks, right? They're going for these really exotic

04:32locations. And they don't, like, money isn't the reason they're offshore. They're offshore for the

04:37art of it, like, for where, like, the plot line. So now those films are coming back over the next two

04:42years, and they're all going to be taxed at 100%. Like, that is not helpful for the industry.

04:47I mentioned it at the top of the block about Alphabet and Google, right? It's been an astonishing

04:55week, frankly, about revelation in the antitrust context. You focus a lot on YouTube historically

05:01when we talk about the streamers. But just in that antitrust context, have you sort of recalculated,

05:07remodeled the future you see for Alphabet and its various properties, largely search?

05:13Yeah, like, our policy, as you know, we do evaluation of YouTube as a standalone entity

05:18every single quarter. This company, my opinion, is Google is worth more, Alphabet is worth more in

05:24pieces than it is together. Because it's my opinion that people within the Alphabet holding company

05:30framework get subsidized by search. So they are not required to make money as if they're a general

05:36manager of their P&L. I think the best thing that could happen for ad tech is for them to be forced

05:41at the September hearing to spin off the ad server and the SSP, their supply side, which is the

05:47marriage piece to trade desk. If they got that, would be really great for ad tech. It would also

05:52be good for not the Google perimeter that stayed behind, but the Google asset, the managers that

05:58happen to have to compete for the first time and not get the benefit of being tied to search data

06:04and YouTube data, which is best in class, like consumer data. So and I think the more Alphabet

06:11gets smaller, the more they can focus on what matters, which is solving the search problem now

06:15that AI is here and making sure YouTube remains the number one streamer on earth.

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