The Trade Desk - a moderately deep dive

Investment Analysis Clubs Saul’s Investing Discussions
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The sample sizes are relatively small, but the Trade Desk has materially better ratings with customers than Adobe. Although they get ratings for multiple different industries and product categories, in general the ratings I am seeing for Adobe are pedestrian and the ones for Trade Desk are top notch:

https://www.gartner.com/reviews/market/ad-tech/compare/adobe…

For whatever it is worth, Trade Desks ratings are materially higher than Adobe, and as stated above, given the ratings I have seen in multiple other product categories, Adobe’s are not so great.

Small samples, but consistent. The only thing I think it means is that it is likely TTD does produce an excellent product, as management describes. It is also probable that Adobe produces a product that is less excellent than is TTD’s product.

Whether or not this difference is material, I don’t know. What I do see is TTD being profitable where no one else really seems to be, and with a Rule of 40 that is better than anyone else’s.

Yes the CTV growth is for PR sake. Obviously the numbers are still too small to mean anything. When it means something is when we will really find out. But from the literature I have read, TTD is always brought up first, called the “titan” {well not titan but I forget the word to me best or largest that is used) and is referenced to betting their future on CTV. It does appear to me that CTV is a done deal that is inevitable. It is not of course inevitable that TTD dominates it. Roku has their own media, and will take a lot of the CTV money, Amazon and Google and Adobe will of course want to sell into the market, etc. I also think it will be more difficult to target CTV. That is unless much of CTV is done directly on the internet. Then it just becomes another internet targeting problem, that TTD can omni sell across platforms.

It is one of those things either you want to get in ahead of the curve, or you are good giving up upside to get in behind the curve, but while there is still market beating growth. We will really not know the competitive landscape until there is enough business to make it meaningful enough for competition to enter the market. I do not see how Adobe or Amazon are conflicted when it comes to CTV. So TTD is not the only neutral party across media. However, when the numbers match the narrative and the rhetoric, then that produces some real credibility. Still, the surprises at Talend and Nvidia have been quite harsh.

In the end, and I have mentioned this multiple times, bear markets expose weaknesses. Talend was exposed, Nvidia was exposed (at least its chink in the armor). At the same time TTD only demonstrated strength in the midst of a market exposing weaknesses elsewhere. Perhaps just timing. At present TTD appears to be one of the most timely investment opportunities. Right up there with Twilio, and as MDB has been. OF these MDB has the least amount of financial backing to support itself (what it has is revenue growth, mind share, and customer numbers, but nothing close to scaling towards economic success - and it of course does not need to at this point in time, as it is land and expand), but Twilio and TTD are financially quite sound and showing potential earnings leverage (TTD the most of course).

I do not know what it all means, but I follow the numbers and the relative strength an the market believes TTD is for real, and the numbers support the narrative, and the narrative support the market. Things can change, but TTD may actually be on to something that its predecessors (other than those that actually owned the media like Google or Facebook or Amazon) were unable to do successfully enough to be worth investments. That is still an overhang over TTD. TTD is proving it wrong every quarter to date.

Tinker

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https://www.trustradius.com/compare-products/adobe-media-opt…

Well, that is frustrating. I posted these links but it did not save to my last post. Here are two other links I looked at regarding relative rankings.

Tinker

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Friggin eh, what is it, one link per post!
https://www.g2crowd.com/compare/adobe-audience-manager-vs-th…

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Any time the competition has articles titled “why you should pick us over TTD” I take that as a good sign. It just solidifies TTD (or whatever company they are trying to convince you not to go with) is the perceived current gold standard in the industry. Adobe compares themselves to TTD on their website.

To me it means TTD is a thorn in their side.

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25

Hi 12x, your explanation makes sense. Since a large portion ad business is aggregated by top agencies, they should rightly be largest customers.

However, it doesn’t reduce the risk.

Hi Tinker, thank you for sharing your thoughts and convictions. I wouldn’t deny that even with the risk (which is long term in nature), in near term, TTD may be a lot tailwinds.

May be I need to rethink my position size. Because I buy only with intention of long term holding, to me, it will never be same as enterprise SaaS companies. But that doesn’t mean it’s less significant opportunity in near term.

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It certainly does help, such as with TTD, to have a degree of diversity, thus you are more likely to just do nothing until it was really time to do something. I will never advise elsewise.

There is a video (we discussed it on NPI 2x now) of Buffett stating that if you really know how to analyze a business that these can be once in a lifetime opportunities and one should not let them go. For such persons, 6 stocks is as many as one needs.

I do not claim to be such a person. I seem to be quite good at medium term investing, and sometimes short-term, with the rare (fortunately) but occasional fiasco (Nvidia). Nvidia may vey well come back. It is rather, as Goldman Sachs feels (my reading between the lines), a betrayal when management is $700,000,000 off. Let that sink in! It is very hard to believe that management, as competent as Nvidia has been, and who has been in this market since the 1990s, did not know better. Yes, there was a historically large insider sale by the CEO. $40 million or so. I should have paid attention to that (I did not even hear about that until after the fact).

In this context the rhetoric from TTD has to be taken with suspicion because, like also with Talend, TTD is not giving us the underlying dollar amount. It is quite likely that Indonesia or Singapore, growing at more than 100% is a very small relative number. I do not believe that TTD gave us the relative size of the international component of their business. If someone knows it, let us know, but if not, that is a very easy to give number, that would cause no competitive disadvantage, that we should know.

As such, TTD has to be taken with reasonable suspicion. It does indeed appear, however, even with that, that TTD is in the thralls of leading a disruptive market that is starting to explode and they happen to be there as the best executing player in the business. No one can guarantee this but insiders. It would be much nicer if TTD gave us all the numbers.

Say what you will about Nutanix, but Nutanix gives us almost all the numbers. The only ones they do not give us is the breakdown of specific products. Such as Nutanix Files is their “fastest growing” product in their history. But nothing more specific than that. But that could, arguably, be a competitive issue.

Pure Storage is withholding a large chunk of their future business from us. FlashBlade. They refuse to give us any numbers or color on how FlashBlade is doing. To invest in Pure requires you to just accept this. This I do not like.

That is our burden as passive investors however. We sometimes get “betrayed” by what is otherwise considered to be a remarkable management team (and perhaps it is innocent and real mistake and crypto is a historically one time event that did not have a precedent). But come on! This is a multi-billion business that hires very expensive MBAs to check on these things. Did they really not know! Really!

As such, a bit of diversification is indeed wise. We are not Buffett, we do not get to talk to insiders, etc. But then again, many of us have outperformed Buffett over the last decade or so give or take. So who knows.

I am presently very interested in Abiomed. It has SaaS like recurring revenues. But it also has (whereas Nvidia was an effective monopoly in several fields - it still had nagging competition that appeared to saturate the channel) no competitoin at all other than existing balloons that are a 20-30 year old technology. It is quite similar to ISRG in many respects. ISRG was growing faster, but Abiomed is, despite the similarities a much different company. That is if I became more conservative. And being conservative is what usually gets me in trouble. Nearly every time.

Just going on to say, if you feel not comfortable holding too much of TTD, then diversify until you are comfortable to hold it without having to do much with it until a real time (hopefully years from now, but possibly sooner) arrives.

Tinker

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