finnCap Tech Chat | Going round in cycles

Peloton captured the market’s imagination through 2020, as after an IPO with a market cap of $8bn in September 2019, it reached $45bn by the end of 2020. As gyms have reopened and demand has changed again, it’s now frozen hiring, downgraded forecasts, and is back to a market cap of $15bn. The impacts of COVID-19 have driven volatile rates of change over the past 24 months.

Amazon’s divisional breakdown highlights another cycle. As the world locked down, its Online stores revenue grew +49% yoy in Q2 20 to a staggering $45.9bn, maintaining +37-43% yoy growth each quarter through to Q1 21. But as the world has opened-up again, Q3 21 Online stores revenue grew just +3% yoy to $49.9bn.

To deliver a still impressive +15% Q3 group revenue growth, two of Amazon’s divisions have stood out. One is AWS – its growth has accelerated from +29% in Q2 20 to +39% in Q3 21 and $16.1bn of revenue, and as we’ve covered on numerous occasions, digital transformation and migration to the public and hybrid cloud are structural changes. The other, 'Other', division is more interesting. It’s grown +49% in Q3 to $8.1bn, or half the size of AWS, including an exceptional +83% yoy growth in Q2 21 over a weak Q2 20. The 'Other' division ‘primarily includes sales of advertising services’.

In Q2 2020 some advertisers froze in response to COVID-19. In heavily impacted sectors such as travel and hospitality, advertisers pulled campaigns and collectively cut spend across digital and traditional media by 20-40%. But, as consumers accelerated adoption of digital media such as Connected TV/CTV (which is just a TV connected in some way to the internet so that you can stream), advertisers experimented and adapted to more effectively reach consumers. As they’ve experienced the benefits of new media, and economies have reopened, they’ve continued to shift spend: US digital advertising spend is expected to increase at least +20% yoy in 2022.

Tremor has been capitalising on the accelerated adoption of CTV through its integrated platform. Structural drivers are powering the change – linear TV has been attracting $65-70bn of US ad spend each year compared to CTV spend of $9bn in 2020 and $14bn expected in 2021 (+44% yoy), and advertiser experience and demographic changes will continue to fuel adoption from linear. We don’t expect organic growth will return to the +196% that Tremor delivered in Q2 21, but do conservatively expect at least +19% organic growth in FY22 (noting we’ve upgraded 8 times since June 2020).

US podcast advertising revenue has equally resumed strong growth with +60% in 2021 after +19% in 2020, and it’s expected to grow +30% and +25% in 2022 and 2023 to over $2bn. With only 28% of the US population listening to a podcast at least once per week from 7% in 2013, and the UK lagging the US by c4 years, podcasts are still near the start of their structural growth. We were delighted to be appointed by Audioboom earlier this week, and as we highlight in our in-depth initiation, we expect it will be excellently positioned to capitalise on the growth in podcast advertising. To earn premium pricing, its LIRICAL platform enables highly engaging host-read adverts on 250 premium podcasts. To then capture the growth in its premium back catalogue and over 8,000 podcast channels, yesterday’s launch of SHOWCASE will enable it to automate the sale and delivery of over 250m ad impressions per month through its proprietary technology and a new self-serve portal. Our revenue forecasts of +33% and +28% in FY22 and FY23, or modest outperformance of the industry, look conservative.

As you settle in for the weekend, and watch some connected TV, listen to a podcast, or maybe even use a peloton while watching connected TV and listening to a podcast, advertisers will be trying to reach you. If you’d like to temporarily switch to an ad-free environment and find out how these businesses work, then we cover both in depth in our free-to-all research on our Tech Hub. You can even watch an hour-long demo of Tremor talking through how its platform works, with one to follow on Audioboom in the coming months. We’ve experimented and adapted our tech too.

Happy Friday