The Trade Desk (TTD) is reporting earnings tomorrow and I’m very excited. Last quarter, the company reported fantastic earnings and the CEO, Jeff Green, said, “nearly everything went right.” I know this company has flashed across these boards before but I think it is being under-appreciated in the grand scheme of things.
I will attempt to make a case for why The Trade Desk should be a good investment and, in advance, I thank you for your opinions as they sharpen my own thinking. If my outline is not convincing, RuleBreakers has already twice recommended it and I believe it has been in the last three Best Buys Now.
If you are not familiar with The Trade Desk, it is a software company that provides an ad-bidding platform for ad agencies. In a nutshell, its technology enables ad agencies to maximize spend through leveraging data. It is called programmatic advertising.
My thesis hinges upon three main points: huge and growing TAM, differentiated business model, and great management.
- The yearly advertising market was 652 billion in 2016 and is expected to grow to $767 billion in 2020 (4% CAGR). Within that, digital advertising spend was $205 billion in 2016 and is expected to grow to $340 billion in 2020 (13% CAGR). And most importantly, programmatic was 19 billion in 2016, expected to be 42 billion in 2020 (22% CAGR). This is not to mention that programmatic TV spend is expected to leap from 240 million in 2015 to 17 billion by 2019 (CAGR- a lot).
TAM does not matter if you cannot exploit it effectively and efficiently though. The Trade Desk has been proven to be scalable. First, it is a self-service model so sales and marketing do not make up a crazy percentage of revenue like most of these fast growing software companies. S&M was 23% of revenue las quarter. This allows TTD to spend more on R&D and innovating rather than “convincing” people your product is good enough. I am a fan of self-service, so long as your product is as good as you think it is. With that said, TTD’s revenue expansion rate was over 170% in the last quarter. To put that in perspective, Talend brags about a 120+% expansion rate. So it seems like TTD’s platform is solid to say the least.
- The Trade Desk works with ad agencies. The company is very focused on helping these agencies help their clients rather than squeeze a quick buck out of them. Traditionally, ad-tech companies have bought up ad inventory and then re-sold it at higher prices, ad arbitrage essentially. This type of practice certainly does not have your customer’s best interests in mind. TTD is different and simply provides the platform and the tools to enable the best ad spend. Another benefit of this relationship with ad agencies is access to vast amounts of data. These agencies trust TTD so they will plug in their proprietary ad data into TTD’s platform. This, in my mind, seems like a huge long term advantage that TTD may capitalize on in ways I can’t even yet think of.
The Trade Desk is also omni-channel so they do not solely operate in mobile as do some ad-tech companies. TTD is getting into audio and TV which are both growing very quickly.
The Trade Desk is huge on transparency. All they are doing is enabling ad agencies to get the most out of their ad spend. The focus is on the buy side because ad inventory outweighs demand and thus it seems to be a buyer’s market. TTD sees this and is giving agencies the tools to advertise most effectively.
- The CEO is Jeff Green and he is one of the pioneers of programmatic advertising. With that said, he owns well over 300 million in stock and I haven’t seen a company with higher Glassdoor ratings. TTD is a 4.8 overall, 98% would recommend and 100% of people approve of Green. Unreal.
As I said, the company is huge on transparency and enabling rather than back stabbing. Management made is known they are in this thing for the long haul and I hope to continue to see this kind of language and action.
At a 2.2 billion dollar company, The Trade Desk looks very promising. On top of all this, it is profitable. Unbelievable right!? Revenue grew 78% in the last year to 225 million and net margins were about 12%. Because of a tax break this past year, the PE is only 55 but that may be slightly deceiving. But all in all, a growing TAM, a unique business model and great management make for a promising investment.