Netflix Needs The Trade Desk to Catalyze Its Ad Business

Shares of streaming TV company (NASDAQ: NFLX) fell on Tuesday, even as broader indices notched a gain. The streaming TV service specialist's shares declined more than 3% by the time the market closed. The pullback was likely primarily driven by a report from The Information saying Netflix's recent move to replace its ad sales chief with executive Amy Reinhard was part of the company's efforts to drive more growth in its nascent ad business following a period of worse-than-expected performance. Through June of this year, ad sales and ad-supported subscriber additions were both only half of the company's internal expectations, according to "people with knowledge of the matter."

Even though Netflix's early start in advertising may have been underwhelming, the company isn't likely losing any sleep over it -- and investors shouldn't either. Management has emphasized on several occasions, including during a September meeting with analysts, that it is still in the "crawl" phase of the crawl-walk-run rollout of its ads business. Things aren't expected to go right during a crawl phase. It's where experimentation occurs and strategy is formulated. Investors, therefore, can forgive the company for stumbling early on; even the best-case scenario during a crawl phase would likely have been borderline immaterial to Netflix's business.

But the stakes are much higher in the walk and run phases. Fortunately for Netflix, there is one relatively easy way it could get things rolling quite quickly: partner with data-driven ad-buying platform The Trade Desk (NASDAQ: TTD). Doing so would almost certainly unlock a massive stream of incremental demand and set the company up nicely for an increasingly data-driven advertising marketplace.

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Source Fool.com