The Trade Desk is the Future of Online Advertising

Stock (Symbol)

The Trade Desk (TTD)

Stock Price

$71

Sector

Data is as of

Expected to Report

Company Description

Sharek’s Take

The Trade Desk is a cloud-based software platform which allows advertising executives to manage digital ad campaigns across different spectrums — such as TV or the Internet — utilizing real-time data. The company specializes in programmatic advertising, which uses computer programs to purchase ads geared to people who might be interested in buying a product. Programmatic ads are growing 20% per year, which is 5x the rate of total ad growth (source: Magna Global) and I think this company will hit its tipping point in 2021 when Connected TV is expected to flourish. What makes The Trade Desk unique is that it pushes ads without a conflict of interest. The company doesn’t own media itself, nor does it keep names, phone numbers, social security numbers or email addresses. The Trade Desk has partnerships with Roku, TikTok, Google, Alibaba, DIRECTV, AT&T, and Spotify. The Trade Desk conforms to Chinese law and launched operations there in March 2019. In Asia, trade partners include Baidu, Alibaba, and Tencent. You can also get Connected TV ads for the Superbowl, NFL Playoffs, the World Cup, the NBA playoffs, and the World Series. The company has a few catalysts going for it:

• Solimar: The Trade Desk recently launched Solimar, a new platform version allowing advertisers to precisely measure campaign performance metrics. Solimar features simple onboarding of first-party data and goal setting that allows TTD’s KOA AI technology to optimize campaigns for the trader. Solimar also allows advertisers to integrate off-site data, such as in-store sales or foot traffic.
• Unified 2.0: The Trade Desk  developed the new industry standard in at programmatic ad targeting with Unified ID 2.0 (UID2), a new approach to internet identity that’s an upgrade and replacement to third-party cookies. With UID2 people sign in with their email address, then opt in site-by-site just once per app or channel. In return for opting in, the consumer gets more relevant ads shown to them. UID2 is backed by Omnicom, AMC Networks, and Snowflake among others.
• Connected TV: CTV, which includes Roku, has been the fastest growing channel outpacing all other channels in the company. Connected TV inventory is coming from networks such as ABC, CBS, NBC, Fox, Discovery, ESPN, TBS, TNT, Hulu, and A&E. Free channels (apps) on Amazon Fire have Trade Desk ads. According to management, their CTV platform has the most effective advertising tool in the industry because it uses Advertising Video On Demand model (AVOD) and can precisely target around 50% more audiences than traditional TV.

Here are some additional facts and stats:

• Trade Desk had $4.2 billion in ad spend on its platform in 2020, $3.10 billion spent in 2019, and $2.35 billion in 2018.
• The total ad industry is estimated to be $1 trillion in about 7 years and 2/3 will come from international.
• Programmatic ads were estimated to be a $34 billion market in 2019, that’s less than 5% of total ad spend.
• Marketers and advertising agencies rank Trade Desk 3rd among platforms, behind Google & Facebook (source: Advertiser Perspective) and 60% of Fortune 500 companies have ad campaigns on the Trade Desk platform.
• Around 75% of the Ad Age top 200 customers spent at least $100,000 on the Trade Desk platform in 2019.
• The Trade Desk gets 20% of ad spend that goes through its network.
• The company reached over 87 million households by CTV in the U.S. alone, last qtr.
• The number of brands spending over $1 million in CTV more than doubled while the number of advertisers spending over $100,000 also doubled.
• In the second half of 2021, Walmart will launch a demand-side platform using TTD’s platform. Management estimated the gathered retail data from Walmart is worth $200 billion.
• Last week (October 20) the company announced a partnership with Hong Kong’s Xiaomi, the world’s second largest smartphone maker, that allows advertisers to access Xiaomi’s audience through mobile ads.
• Named one of the Top 100 Software Companies of 2021 by The Software Report
• Won Adweek’s Readers Choice: Best Tech for Demand Side Platform and Innovator of the Year (2021).

The Trade Desk is one of the fastest growing and most profitable software companies in the world and this stock has growth opportunity comparable to what Google had years ago. But we are now in a time when Apple’s operating system is taking a chunk out of ad revenue for some companies. Thus, I think this stock has a chance of declining after the company reports earnings. People are doing more outdoor activities compared to a year-ago, when the COVID-19 pandemic kept them indoors. TTD is a top holding in my Growth Portfolio. I’m bullish on the company long-term.

One Year Chart

Qtrly profit growth has been great the past four qtrs, and now Estimates for the next two qtrs are tough because of this.

The P/E of 101 is below my Fair Value P/E of 125. The stock’s P/E was 122, 126, 163, and 181 the past four qtrs.

The Est. LTG of 32% a year increased from 29% last qtr, but I still continue to believe this Est. LTG should be 50% to 65%.

Earnings Table

Annual Profit Estimates all increased with good profit growth expected in the coming years:
2021 $0.71
2022 $0.83
2023 $1.05
2024 $1.75
2025 $2.29

Qtrly Profit Estimates are for 15%, -35% , -21%, and 11% the next four qtrs. the 2QtrsOut estimate is tough as the company made record high $0.37 per share that qtr, which broke the previous record of $0.15 set one year earlier.

Fair Value

Bottom Line

I originally purchased Trade Desk (TTD) for the Growth Portfolio at $5 on May 15, 2017 when the stock was soaring after the company beat the street. It’s been a ten-bagger for us. 

The Trade Desk’s been flat this year, but the stock had a fantastic 2020 as the stock rose from $26 to $80. Now, its digesting some stock gains. Also, the social media platforms are underperforming expectations as people are getting outside more than they did a year-ago, when the pandemic was keeping people indoors. 

TTD moves down from 9th to 11th in the Growth Portfolio Power Rankings. I think the softness in the social media space may be a factor in next qtr’s earnings report.

Power Rankings

11 of 33

Aggressive Growth Portfolio

N/A

Conservative Stock Portfolio

N/A