Wow…we have different views of the industries out there for sure.
I took small positions in PSTG and ANET, largely due to initially hearing about it on this board, but they are 1 year plays for me likely at most. I like their P/S ratios and when I think about the market share out there still, I can see growth. But like JNPR, NTAP, and every other IT company out there, I think it plateaus in a hurry due to too much competition and simply not enough of a moat. Every major storage vendor does flash, for example, and has for years, as an example. SDN is not a new concept and every major networking company has done it for years, as another example. Again - I just opened small positions, especially after ANET came down from their highs. Hopefully these two pay off this year, but they largely each do 1 thing.
TTD is in the advertising business. Not comparing them to Google, but when you realize that is how Google makes their revenue, you realize the TAM is huge for advertising…always has been and probably will continue to be. The markets are moving to digital and programmatic. AT&T buying TimeWarner so they can have enough content to stream. Disney buying Fox for same reason. Netflix set the trend and everyone is racing to catch up. Amazon already there with their Prime Video investments. CBS just put their big new Star Trek show on streaming channel. Sling TV is growing, ROKU (more a shovel in this space) is growing, etc etc… On conf call yesterday TTD announced new CTV partnerships with NFL network, FX, TNT, and Travel channel as more examples.
CEO Jeff Green has consistently called out the biggest areas for growth as: CTV, Asia/China, and Mobile. Mobile just grew to be the largest segment of their biz, just surpassing Display for the first time. In Asia, the Google/Facebooks of the world (Baidu/BABA, etc) have partnerships with TTD and are NOT following the “walled garden” model of GOOGL/FB, and they have the largest mobile users and growing middle class in the world. Before you assume China will have new companies that are “The TTD of China” and ruin Green’s plans, you realize that what TTD brings to China, as stated by Green, is the US Brand relationships…so a win-win for China and TTD to partner up.
So if the company has been growing rapidly (which they have) WHILE the market transitions from the legacy non-programmatic model, AND their stated growth market targets have just started to grow from a small base, then you realize that the slowing revenues from more traditional (Display) will be offset by the faster-growing and eventually-larger markets of CTV, China, and Mobile.
You don’t even need Google/Facebook to drop their Walled Garden approach for TTD to be successful, but in the likely event they eventually do, as Green points out Google can better monetize YouTube that way, then you have even more upside.
While not exactly apples-to-apples as switching standards tend to offset each other naturally as companies upgrade over time, an easy way to think about it would be if ANET had never done 100gb and instead had been hot and heavy in 10gb only, with an emphasis on the 400gb market down the road. You would (rightly) point out that 10gb market is not growing as fast as it used to and would point to the 400gb growth as a mirage because it was such a small base.
The move for TTD is not going to be linear (which Green mentioned yesterday on conf call) as it would be for ANET transitioning from 10gb to 100gb to 400gb. TTD is making more of a 10gb to 400gb move. That base will be small for now, but will grow exponentially.
You also mentioned their # of clients…they already have half of the 200 largest advertising brands. Green has stated before, I think even in the interview with TMF, that client retention and a bigger SOW with existing clients is the play right now vs a focus on new clients. Again - many/most brands are just now making the shift to programmatic and/or they are just now allocating more and more of their advertising budget to programmatic. TTD wants to sell those clients on CTV, on leveraging China, on operating more in Mobile, than those Brands are doing today.
I noticed that small-cap companies with this kind of growth tend to have P/S over 7, and many times closer to 10. At the projected $400m revenue for 2018, that would put them at a $2.8-4b market cap. They are sitting at $2.3b after todays spike up. I do not sweat their earnings because Green has repeatedly stated it is “land grab” time and reinvesting in the business is key. The company, unlike a lot of TMF-recommended small growth companies, is and has been profitable…but growth and revenue is more important to Green right now.
-Dreamer