The DSP Squeeze and Nike's Doom Loop

Speaker 0 · 0:00

Hello. Welcome to this week's Media Unfiltered podcast. We're calling this episode falling out of the S and P. In the Trade Desk's case, it's falling out of the S and P 500. And in Nike's case, it's falling out of the S and P 100. And we're gonna go straight in and look at the trade desk. Now headline numbers, stock is roughly down 60% year to date, 70% over twelve months, and 90% from its peak in late twenty twenty four. Sadly, 15% of the workforce is being cut, and there's all sorts of other problems associated with the business. And in the DSP space, what you can see is the big platforms are taking up the share of trade disposition. You've got Amazon who are coming in, and, obviously, DV three sixty are doing incredibly well. So, Ian, from your perspective, looking at all the commentary that you've seen from Wall Street, the expectations, on the business, is it a company now that looks like it's going to be acquired? Are you are you bullish, bearish on the prospects of Trade Desk turning this around? What's your view?

Speaker 1 · 1:06

Look. I think I wrote about this a couple of months back. What you seem to be getting with the trade desk is a is a classic case where you get you you see this throughout history. You get three players, squeeze out the smaller parties from a particular space, And then what happens is the three gets squeezed two two, and the weakest of the three is the one that gets squeezed down. And this is exactly what we're seeing in terms of the DSP market. If you look at what's been happening, you've got a situation where Google and Amazon have both been taking share. Trade Desk has been relatively flat. Smaller players have been squeezed. What we are now seeing is essentially the Trade Desk itself being squeezed here. Now those sorts of situations, usually, they're very hard to reverse. If you get if you get that sort of pattern where what you've got is that you've got, you know, that third player sort of being weak, Usually, what happens is very, very unlikely that that player manages to reverse the situation, certainly not by just doing more of the same and certainly not by cutting roles. You know, that that to me is just the case of it it's the classic manage decline attitude that you have. I think if they are gonna survive, there's gonna have to be a fundamental reshaping of their of their products. And, of course, that's gonna have to be successful as well because the strategy that's been adopted by, you know, by Amazon and Google is very much more why do you need to use a trade desk when you can use us? We've got more scale and arguably also as well, we can offer a better price. What does the trade desk actually do with regards to that? Now when it comes to the m and a standpoint, you know, I think that's probably the most likely scenario at the moment. It's gonna be interesting who could actually look at that particular product. I think you could argue in terms of the tech platforms. You know, would they go to look at it with Amazon and Google go to look at it? You know, potentially. One thing I'd say is, obviously, in The States, you've had quite a lot of regulatory scrutiny. And if some of the federal cases maybe have lot lacked some bite, certainly, at the state level, there's been more wholesome wholesome sort of actions. So I think in the short term, probably no. But I think certainly over the mid medium to longer term yeah. Who knows? Look. There's you know, I I I think it's most likely. The other thing also to bear in mind as well, and this is particularly key when it comes to a deal, credit desk probably still has what? Your 29, 30% share of the market altogether. There's still quite a lot of squeeze that Google and Amazon can make without necessarily having to launch a m and a bid and make a requirement for a premium to the share price. So so, look, longer terms, I'd say, I think that's the direction of travel unless it can change things around pretty quickly.

Speaker 0 · 4:02

I'd be surprised if they could get away with acquiring this business considering Google just been in court committing monopolistic behavior and being convicted of that yet they don't have to break up their ad tech business and then you've got Amazon who who would who are growing at quite a clip, you know, both of them obviously have considerable amount of inventory that they sell themselves And, unfortunately, for the industry, if you look at trade desk, you know, it should they should be balanced and open. They should be accessible to all inventory sources. And it just shows that that's just not possible in this market. Although, when you look at them though, they've got good international growth still, and revenue is still actually growing. But, obviously, that growth is declining. So it's their growth that's declining. So are we all a little bit pessimistic towards Trade Desk? Because, actually, when you look at some of the numbers, they're they're not actually that bad. Or are you suggesting, actually, this is this is telling a story and the writing's already on the wall?

Speaker 1 · 4:58

Yeah. Look. I think they could turn things around, and and this is they're not at the catastrophic stage yet. But if you look at the actions that have been taken and and the reaction of the markets, You've got two things here. One is to signal that that sends. Yeah. And if you start to cut staff in those sorts of numbers and, you know, in terms of your commentary, then, essentially, the the market so the the the the sort of one, you know, the one arena where companies can't try and sort of, sort of disguise what's actually happening. They could try and sort of sort of massage the messaging, let's call it. But, you know, due to the regulations and due to the fact that boards have had due to be had issued due to shareholders, you know, they have to be honest in terms of of the underlying nature of the business and what's happening. So when you look at our actions, when you look at their words, it is clear from their standpoint that they are thinking that there is a significant issue that is is here. There's also a second issue here as well that when you tend to get these sorts of of actions being taken, they can become a bit self fulfilling because the signal it then stands for the market the other signal it then stands for the market is, you know, what's the long term viability of this particular player? And that's and that very sort of signal, usually subconsciously, sort of then sort of persuade can persuade people to say, well, actually, we've got a choice here as to who we use. Do we go with Trade Desk? Do we go with Amazon? Do we go with Google? Okay. Some of the news flow that's coming out of the trade desk isn't particularly great. Maybe let's go with one of the other players. Is it irrevocable? No. I don't think it is irrevocable. I think what they need to do, though, is they need to have a fundamental shift in how they think. And my concern would be, looking at what they're doing and the actions that they're taking, is that they're taking a very standardized route, which, yeah, is the pattern a lot of companies take but usually doesn't really need to a turnaround. I think they've got to this is a mindset issue, I think. I don't think it's a skill set issue. I don't even think necessarily it's a resource issue, although that's got some sort of that's got some, that that's got some implications. I think this is really a mindset issue sort of amongst the top management, and that's the change is gonna have to be there, and those things can be difficult to do.

Speaker 0 · 7:27

Yeah. I actually think it's a, it's an ecosystem issue beyond that. I think, if you look at it, Google are changing how buying works. They're trying to go direct, trying to take out as many, middlemen as possible. AI potentially will remove many intermediaries. You look at, the CTV and even broadcasters, they're recognizing that there's way too much value extraction within the, ad tech ecosystem. You also have a lot of people questioning not just not just the buyers, but the agencies also questioning the fees as well and the the opacity of those networks. So I think there is actually a systemic problem with the ad tech ecosystem as well and, and whether these systems are actually built around quality too. So So I think there are actually some structural issues as well that that's affecting their case. Another company who's moved out of the S and P 100 is Nike. Now it's been well reported what's going on within Nike's business, but from your side, you obviously you look at the markets, you look at the financial analysis of advisers and investors. What are they saying about Nike's fortunes and, and and future prospects like it? You look at their share price now. I mean, you gotta look at that and think, that could be a good buy. It's still a strong brand.

Speaker 1 · 8:37

I mean, it is. And, yeah, certainly, it's got a lot of strength. I mean, a lot of it was down to decisions that were, you know, certainly not sort of of under the previous management that you would look at and say, well, what you really sort of doing here is really undermining your fundamental strength within the company. I think, yeah, there there's been a lot of commentary on this in terms of saying, well, Nike is a classic example that a company that strayed away from brands, and, you know, all it really needs to do is worry is go back to principles, and it'll be fine. I think there's much truth in that. The that's absolutely right. But I think also as well look. You know, the thing with with something like Nike, and the question is whether the blame gets distributed to management consultants, whether it gets distributed to the marketeers, obviously, bad management or bad management decisions as well. Is and it this is a wider problem as well. Is that what Nike would do, we're really just going along with much of the accepted thinking of the time in terms of what they should be doing around, you know, their marketing efforts and trying to reach consumers. You know? Direct to consumer, there was a big push for for that in terms of, you know, the whole idea of maybe moving more to performance marketing and maybe moving a little bit away from, you know, sort of reallocating spend from brand. Now, you know, at the end of the day, it's the management's responsibility, and they need to you know, they're the ones who are ultimately responsible for for the actions they take. But I think also as well that we've got to look at this in the lens of thinking Nike is a brand that has been brought down by a variety of different factors. Some of them are least, you know, argued. Some of the the strongest factors could be argued to be marketing related. And those marketing related factors that seem to be at the heart of the issue have often or they were touted at that particular time as routes that marketers ought to take. And I think you've got a fundamental lesson from that, and my concern is that marketing tends to go in in, let's call, cycles. You know, there tends to be a time where we get a new you wanna call it a fad. A new fad comes along, And advertisers are told that they must market in a particular way and, you know, this is the new thing to do and everything you've done before has been needs to be rethought. The problem with that sort of thing is that fads tend to move on, and what doesn't happen is a proper analysis of what's gone wrong when there is a problem. And I think this is exactly sort of, yeah, the thing with Nike is I think there were many people who were rushing to give it advice on the marketing side so that that we're we're pushing the new pad. Nike thought, great. Let's try it. That didn't work. The people who were pushing those messages have moved on. So the and it's the company who's been actually left with the the responsibility and been left with the, yeah, the end result of having to pick up the pieces. So, yeah, I would think again, going back to what you were saying, is Nike still a good company? Absolutely. Is it still a company that's that's attractive in terms of consumers? Absolutely. Is it the case that in terms of management management and I are trying to get it back to its roots? Absolutely. But as we've seen also as well with Bud Light, these things can't be turned on a dime. And so one lesson that I think decision makers need to think about sort of when it relates to their marketing campaign and their advertising as well is when they're taking the sort of decisions that they do, so they, you know, to actually step back and say, okay. This is where the the this is the the the sort of latest message that we're being given. Is this necessarily the right one for our company? And I don't think in the marketing industry, we have you know, there is not the debate that's needed around that question. Because in my mind, the the problems that you've got at Nike are fundamentally, yes, come to bad decision making, but a core part of it also relates to the marketing.

Speaker 0 · 12:57

Yeah. Absolutely. And and there are other factors here. They they they had an aggressive direct to consumer strategy. They had issues with with athletes, which they lost out to to, competitors. So there are those factors. But, this is a excellent case study of what happens when you when you exclude your brand from something like like Nike. You know, they offered they sold things at at premium. Just they sold them just because they were Nike, and now they're having problems. 76% below their 2021 peak, roughly 50% down on the past year from the share price, which is absolutely crazy. They were in the S and P 100 for eighteen years. You know, that that's that's big news. Right? And this is a classic example of that the great analogy of, right, your brand sits at altitude like an airplane. Costs an awful lot of money and takes an awful lot of fuel to get to that altitude, but maintaining it there is actually really efficient. But when you drop altitude, to get it back up again takes time and it takes investment and it takes a longer term strategy. And it's interesting to see in today's world whether you have the time and the patience and the money in order to spend those years building that back up again. I saw this great quote actually from from James Herman. And again, I know we're going on about the media and marketing strategy, which they did do. They engaged a lot into this, performance world targeting consumers when and where they needed to be but James Herman said something brilliant which always stuck with me he said you act like the brand you are you know if you discount and market in environments that aren't inherent to your brand you'll be viewed as that And I think that's a really a really great quote. So I said at the beginning about their share price, lots of analysts are saying, you know, it's quite low. Do you think it's a good investment? Well, you know, we net, as usual. It's not best of advice. I know it's not. Investment advice. But it's looking cheap, though, isn't it? It's looking good.

Speaker 1 · 14:52

Yeah. I think maybe best not to go go in that direction. I think what let me put it like this. This is a company that still has a lot of landlords. He still has customers who are willing to pay for the product, still has a product that is very valuable. This is not a and, arguably, is not gonna suffer any of the the sort of catastrophes of bankruptcy or anything like that anytime soon. I think, you know, with those sorts of companies, at some point, as long as the management takes the right decisions, they turn around. And that's also fundamental as well. It's not just about the products they do. It's about the decisions that are taken. And when it boils down to it, it is really the decisions that are taken that are that are key to any company's success. Yeah. So, you know, when I when I view Nike view where it is at the moment, there is no reason why it can't turn around. It's not as though, for example, it's in a structurally declining market. It's not as though it's product, they've suddenly been outvanced by everyone else when it comes to either technology sort of or other factors involved. This is still fundamentally a strong company. Again, what I would argue is that the problem lies more in mindset than necessarily skill set. And that's if they are gonna get out of this I was gonna say and I think if they are gonna get out of this problem, it's really that they need to change. Come back to your point, your the quote that you just said, another variation of that is you are what instead of you are how you price. Yeah. It's exactly the same thing. Yeah. Yeah. It it's really getting back into that, and that's not something you can change overnight.

Speaker 0 · 16:55

No. And and I like that last line because one of the things I'm seeing for many of these brands is a crazy amount of discounting and following you around the Internet, offering you discounts and like I'm a I'm a big Nike buyer. I have the app and I cannot believe some of their top line shoes that they offer discounts on now. You never used to be able to do that. And I think that's a terrible cycle, and I'm seeing it with a tremendous amount of decent brands, to get you back into the app. They're offering discounts, and consumers aren't stupid. You know, you'll only buy them when those discounts are on. So it'd be interesting to see their margins and see if that has an impact. But, that's, for me, a a really bad cycle. I'm seeing it a lot with Adidas. I'm seeing it a lot with Nike. I'm seeing it with Lululemon as well, which is a brand that you could never get on a discount. They're obviously suffering terribly at the moment. And, once you're in those cycles, I think they're the it's called the doom loop. Did you know that? And it's very, very, very challenging to to get out of that and to go back to your to your roots. And, also, you know, when I talk to marketers who are in these situations, justifying a big switch of strategy that takes years that will see probably weaker returns in the short term, but then have longer term growth is incredibly difficult to justify to the CFO.

Speaker 1 · 18:13

Yeah. Yeah. Look. I think this is, again and this is one of the other problems that I think marketing has on an underlying basis. If you think about from a CFO's perspective, if you think about from a board's perspective, if you think about how so, you know, in recent years, if you think about where is it were just how important brand is to company's valuations, yet all the biggest examples you would give are arguably the negative ones. Bud liked the the campaign then. Yeah. Took away twenty years of market leadership. Jaguar Land Rover, where, essentially, yeah, if you said that you didn't like the campaign, sort of, there were comments around, you know, essentially boarding on, you know, you must have some sort of psychological issue or something like that. You know, what we've got here now with with Nike, You know, boards, when they look at it, they go, if we do a radical marketing campaign, then or something outside the norm, you know, the lesson that the the the past couple of of sort of of years has shown us is that that can be fundamentally damaging to our business. And I think what they struggle to see is the reverse of that. And I don't think that that means that radical reshifts are bad. Absolutely not. I think the problem is, as I say, is that you know, I mentioned this in a in a recent LinkedIn post. If you take a if you take a a sort of area like engineering, what the tech platforms are extremely, extremely good at is learning from their space. They go back. They analyze what went wrong when things do go wrong. Yeah. They sort of, continually try to improve. When you look at it in terms of marketing, you know, often what's said is they just didn't market in the right way. Mhmm. There's not a sort of and the same framework still gets sold. There's not a fundamental analysis of the problem whether the frameworks are correct Mhmm. Whether they identified the right issues, and whether actually they gave the right solutions. And this is why I say, I think that, you know, there's an inability of the industry to learn from its past mistakes and as it were to move on. And what it does is just move on to, as it were, the next new big shiny thing is proving to be one of the major causes of its downfall.

Speaker 0 · 21:02

Yeah. I I totally agree. And and what's so interesting about the Nike situation is Adidas did exactly the same thing prior to them. They saw what happened to it, and they went, yeah. Let's do that. It looks like a good idea. And it clearly Yeah. Had the same results. So I was talking to a client the other day, and what they're looking for is data points that justify a a shift in strategy. And one of the key metrics that a lot of clients use is cost per acquisition, which is, you know, a very digital sort of heavy metric, which makes sense. How much does it cost to acquire that customer? It's kind of nonsense because is that customer heavy? Is it light? Are you expanding? Are you is it new customer? And all the rest of it. So it's very hard to justify whether that's even a good figure, but people people are using that metric. But actually, what they were noticing within their business was actually the cost for acquisitions. The CPAs were were going up dramatically and they didn't know what to do about it. Well, they had poor awareness, I e brand. So what they did is that they did a short term strategy where they built their awareness, and what they noticed over time was the cost of that CPA going down. So that those sort of figures going into a boardroom or CFO and saying to them, actually, your CPA is now 15% more efficient, 20% more efficient. They are the sort of numbers that will, pick up the ears of, c suite of why you should invest in brands and sort of mass awareness, fame, whatever you want to call it, in order to make your digital acquisition and digital metrics way more efficient. Well, look, it's been a good chat. Next week, we have the new CEO of Barb coming on here for an interview, which we're very excited about. So so look out for that. Now we did talk about share prices and numbers and whether you should buy shares, but as Ian made clear, he did not give advice as to whether you should buy these shares or not because, as always, this is definitely not investment advice.

Speaker 1 · 22:46

It is as usual. This is not investment advice indeed. Thank you very much, everyone. Thanks for listening.