TTD - A Stock on a Mission

Today marks the 14th day in a row that the TTD stock price has moved upwards. Its last day in the red was on September 24, when it closed at $453. Since then, the stock has taken one step up the stairs after another. It is currently trading around $670, up 47%.

It has left me scratching my head. What has gotten into this stock recently? Let’s take a look back at their most recent earnings, reported on August 6.

TTD reported revenue growth of -13% YoY. That’s right, negative growth. Prior to this qaurter, TTD had grown revenues from a range between 33-43%. AYX has been getting torched for their growth slowing from 76% to 17%, meanwhile the market just shrugs as TTD reports a massive drop in growth.

While the top line struggled, the bottom line showed no sign of improvement.

Adjusted EBITDA margin decreased from 36% to 10%
Adjusted EPS decreased 3% from $0.95 to $0.92

Obviously, this quarter was negatively impacted by COVID, but it feels like they were just given a hall pass this time around. The day following the report, the stock rose 2.5% and is up 40% since August 6.

I know the market is forward looking, but this is getting flat-out ridiculous, in my opinion. Prior to the second half of this year, TTD had never traded at a EV/S above 24. Today it sits above 44. So you mean to tell me, TTD just reported the worst quarter in the history of its existence, and the market rewarded it by nearly doubling the multiple?

These were the comments from Jeff Green in the August press release -

“While the advertising industry hit the pause button early in the second quarter due to uncertainty around the COVID-19 pandemic, we saw substantial improvement in ad spend as the quarter progressed. Indeed, the month of June ended strongly with ad spend growth turning positive on a year-over-year basis. This improvement comes as marketers recognize the role that data-driven advertising plays in driving business growth as markets start to reopen.”

Saul raised the question this week for Okta, and I am raising it today for TTD. What am I missing here? Is this the Jeff Green effect? Does the market anticipate Q3 & Q4 will be a blowout for TTD? Or is this just a case where the market is mispricing this stock?

Full disclosure, I have owned TTD for over a year and it is currently 8% of my portfolio. I do not trim solely because I believe a stock is overvalued, but TTD has left me quite perplexed recently.

Rex

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I think it has run up a bit and is ripe for a pull back, but I find encouraging articles like this that keep me invested for the long term because the trend in programmatic advertising is not going away:

https://seekingalpha.com/news/3622086-trade-deskplus-2_7-nee…

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Needham’s new price target on TTD goes to $750 this morning. https://seekingalpha.com/news/3622086-trade-deskplus-2_7-nee…

I held TTD because I felt it would benefit from the political ad season. I never imagined it would run like this.

Rob

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Saul raised the question this week for Okta, and I am raising it today for TTD. What am I missing here? Is this the Jeff Green effect? Does the market anticipate Q3 & Q4 will be a blowout for TTD? Or is this just a case where the market is mispricing this stock?

I personally think you answered your own question with the title of the thread. While TTD’s price represents a stock on a mission right now, this board tends to gravitate more toward performance evidence of a company on a mission. I admire Jeff Green a great deal and do believe he is onto something. That being said, at this point in time TTD is a bet on what might be when we have alternatives that are a bet on what is.

That obviously doesn’t make TTD a bad investment, but I believe it does shed some light on what you are observing.

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Rex,

I was just wondering the same thing this morning, in the last month TTD has increased more than 50%. I agree that advertising spend is increasing since last report but I can’t see a beat in the next report that would not already be baked in. Wish I had not decreased my position to a very small 1% after last report.

Sam

I am a long-term holder of TTD. I can’t find any specific news and have no hard data to explain these moves.

What we do know is:

  1. Roku streaming hours are up significantly during the pandemic, rising 80% in April.
    https://deadline.com/2020/05/roku-kills-it-in-q1-revenue-up-…

  2. The return of pro-sports in the third quarter brings back high-quality content that advertisers love to buy. The NBA finals had poor ratings, but they attribute that to the glut of sports content. Which is positive for advertisers.
    https://www.sportico.com/business/media/2020/nba-finals-rati…

  3. An election year should spike ad-buying overall. Spending in the 2020 election is expected to reach $10.8 billion, a record-shattering amount, according to an independent group that tracks money in politics.
    https://www.cnbc.com/2020/10/01/election-2020-campaign-spend…

If you believe that TTD will emerge as the leading streaming TV buying platform, as it’s the only neutral player in the ecosystem, this all points to a huge beat.

But, no one knows for sure :slight_smile:

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Yeah, well, I noticed FSLY has moved the ‘same’ 50% in the ‘same’ timeframe, basically, too.

Hard To make a case this is about specific companies?

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Prior to this qaurter, TTD had grown revenues from a range between 33-43%. AYX has been getting torched for their growth slowing from 76% to 17%, meanwhile the market just shrugs as TTD reports a massive drop in growth.

My take would be that AYX was supposed to be built for this work from home situation. When their revenue growth slowed, in a time they should have been primed for, that was viewed as a giant negative.

Advertising, on the other-hand, is well known for being hit hard during this time, when advertisers are tightening their budgets left and right, knowing that all travel/entertainment/etc are completely hamstrung. So for TTD to report only a -13% drop, knowing that advertising is coming back hard in the near future, was likely viewed as a positive.

Brandon

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Yeah, well, I noticed FSLY has moved the ‘same’ 50% in the ‘same’ timeframe, basically, too.

Hard To make a case this is about specific companies?

Arguably, FSLY has had the overhang of TikTok somewhat removed, which accounts somewhat for their rise.

I have been trimming TTD for a while now, of course only to see it continue to go up. I had decided that I would hold through the election and likely move back into AYX which is at least still growing.

I think TTD is seen as a play on election ads, and also connected TV, so as the pandemic continues on they have two things helping to drive enthusiasm. Also, their perceived market is huge, which is undoubtedly a reason they are given a higher multiple despite relatively slower growth.

TTD is one of my biggest holdings and while I am not complaining about the run up in recent weeks, I am also surprised about how much it’s moved up without any new news. I added to my TTD twice this year, earlier in the spring at about $300 thinking I would have an opportunity to buy more at a lower price (never happened) and then last month I added again around $425. In retrospect, at least right now, I wish I bought more.

I have no expectation that TTD will have a great quarter for the period just ended, which they’ll be announcing next month. And I have no expectation that they are going to surprise to the upside with guidance for the following quarter either. Yes, political ads should help this month, but I don’t have any reason to think that spending isn’t already baked into what analysts and investors are expecting.

I look at the Trade Desk as a company whose stock is probably always going to look expensive, but I feel like they are going to be such a high profit (they’ve already been consistently profitable for the past few years already), ultimately, dominating, critical force in the advertising world, that their future will be so bright that it almost doesn’t matter what price you buy in at. They are part of a big change in a huge market, that adds tremendous value to their clients, and I don’t see how they are going to get beaten at their own game for a very long time.

In my September portfolio writeup two weeks I made a comment that TTD could be double the market cap of any of my other holdings in the next year or two (no, I don’t own ZM, unfortunately), despite it not being nearly my highest valuation company at the time. After posting, I considered whether I should have included that comment, but I do still feel that it might come true.

I won’t be surprised at all of TTD has low growth for the next couple of quarters. I also won’t be surprised at all if TTD’s stock price pulls back quite a bit when they announce earnings in November, even if they give strong guidance, simply due to the recent runup. But I also won’t be surprised if the stock price continues to climb even despite low growth.

I expect there will be a time in the not too distant future when TTD’s revenue suddenly grows at a very high rate, maybe +100% or more, out of nowhere, without warning. The nature of their business is that they have already done the hard work. The big ad buyers are already set up in their system and the big sources of inventory to display ads are already in their system. Once they are set up, they deal directly with one another on the platform and TTD collects their fees without much of any additional manual touches. This will make for the big future growth that I foresee to be at ultra high margins to TTD.

This pandemic has been sneaky for analyzing TTD because ad spend is way down (hence TTD’s revenue lower) but behind the scenes, it probably accelerated the move to programatic advertising (what TTD does) because a) people are spending more time than ever watching streaming and other on demand content (which lend themselves to programmatic ads) and b) advertisers can’t afford to overspend and throw lots of useless ads at the wall hoping some stick, they need to make sure they are using those budget dollars where they can best target them at the consumers where they will provide the best bang for the buck. So when the ad spending starts to come back, I believe much more of it will be via the Trade Desk’s platform, than in the past. I would argue that the fact that their revenue is down as little as it is the year YTD during such an economic stoppage and companies limiting unnecessary spending, suggests that they are already getting a bigger piece of the pie, despite it showing as a lower total gross revenue number.

So TTD is positioned to ride this wave where they don’t need to do or spend much, and their their revenue, and profit, are going to likely move up suddenly and significantly. When? I have absolutely no idea. But it won’t be years away (unless the economy stays as depressed as it was in 2020 for an extended period). But I just know I wanted to have my TTD shares before it happens.

And all of that is before you even consider additional potential future tailwinds if the a) “walled gardens” of Facebook, Google, Amazon etc ever open up to an opportunity for TTD (maybe the recent government critiques and scrutiny of the biggest tech companies are giving the stock market reason to believe this is more likely to happen than previously expected) and b) China - Due to the nature of how TTD structured their partnerships with companies in China (Tencent, Baidu, etc), it gives TTD’s customers easy access to the China market that would be much more difficult, and potentially less secure, to access via traditional, direct means. A possible change in administration this year certainly won’t hurt the prospects of additional business activity between the US and China.

So while I’m surprised at how consistently and dramatically TTD’s stock price moved recently on no news. I do believe that the Trade Desk is going to be worth much, much more in the not too distant future than it is today.

-mekong

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There are a few macro trends that are working out in favor of The Trade Desk. To his credit, Jeff Green has predicted this, but I imagine he’d even admit that it’s happening faster than he would have thought. For the sake of expediency, I’m going to focus this on the rise of AVOD (ad supported video on demand), which is but one revenue stream for TTD. I would argue this has very little, if anything, to do with the election or the NBA Finals or other ‘current events’.

1.) E-marketer reports that for the first time, there are more households without cable than with cable.
https://www.emarketer.com/content/q2-2020-digital-video-tren…

2.) The switch from OTT to streaming is not new. What IS new is that ad spending is moving that way. Case in point, P&G is pushing for MORE availability. The upfront market was completely disrupted this year. $7B in spend has moved away from upfront.

https://www.thetradedesk.com/blog/ctv-market-evolves-rapidly…

https://variety.com/2020/tv/news/tv-upfront-adveritsing-chan…

3.) For many, the content on AVOD is less than compelling. But for how long? Since the viewers are there, the content is heading there fast. Tubi was acquired by Fox. Vudu is owned by Comcast. Viacom owns Pluto. Not to mention that Peacock and Hulu have ad supported offers. Has the ‘game’ even started yet? This is the very beginning of what the streaming future is going to look like (a reminder that TTD doesn’t have the opportunity to represent advertisers anywhere but AVOD)

4.) Ampere Analytics has reported a couple of critical pieces of information, beginning in January and with a recent report, which stated that 17% of people surveyed (4000) have viewed AVOD. That’s up from 11%. They also reviewed the size of the content library. Tubi is a close 2nd behind Amazon Prime (and over twice as big as Netflix). Feel free to “get caught up” on The Dick Van Dyke show or Family Affair or others from the era.

https://www.v-net.tv/2020/01/17/prepare-for-an-avod-avalanch…

5.) eMarketer’s August 2020 projections are for an incremental (ie, extra) 25% added to ConnectedTV (CTV) revenue, plus an extra 11% video ad revenue, and 6% higher programmatic ad sales in 2020E. TTD benefits from these trends in 2020 and beyond." (from Needham call in my newsfeed)

6.) And finally a link to a FT article (need a subscription) and a cross-post to the premium board from Starrob. TTD is increasingly the choice to work with agencies.

https://boards.fool.com/4056/an-advertising-minnow-outgrew-t…

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The Motley Fool had a good article on TTD back in July. Basically, a long runway, lots of good technology in a growing market, plus burgeoning international opportunities.

https://www.fool.com/investing/2020/07/22/the-trade-desk-is-…

I think the pandemic has accelerated cord-cutting (the live sports was, prior to the pandemic, the most compelling reason to keep cable tv), and that benefits TTD.

TTD is the biggest demand-side platform (DSP) outside Google and Facebook (and Facebook is struggling with advertising). TTD reported a record 3.1 billion spend in fiscal 2019.

David

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Me:Yeah, well, I noticed FSLY has moved the ‘same’ 50% in the ‘same’ timeframe, basically, too.

Hard To make a case this is about specific companies?

IRDoc: Arguably, FSLY has had the overhang of TikTok somewhat removed, which accounts somewhat for their rise.

On further looking at the charts of the two, the movements are not even slightly similar, so the 50% in the same timeframe has a lot of coincidence…

So, I’ve been asking the same question.

Outside of the fact that I want exposure to the Connected Advertising Society (ROKU, TTD)… I can’t find numbers backing up the following:

TTD Price to Sale Expansion over the MAX P/S in the past year: 105%
TTD Revenue Growth YoY last quarter: -13%
TTD Revenue Guidance: +10%

Many of our stocks have seen significant P/S expansion, those over 100% are:

  • TTD, DOCU, TDOC, SHOP

My guess is the expansion is COVID related acceleration guesses… which proves out in all except TTD

For comparison on P/S expansion:
ZM: 62% on 300% Revenue Growth
TWLO: 16% on 46% Revenue Growth
DDOG: 68% on 66% Revenue Growth
CRWD: -3% on 85% Revenue Growth
AYX: 17% on 24%* Guided Growth

Following for any theories. My theory?

Markets value runways and competition.

Long TTD, TDOC, DDOG, CRWD, AYX

Just a Fool

I’m currently living in Ireland and all of my viewing is via streaming. Alongside the subscription services, I watch one advertising supported channel. Six months’ ago there would typically be 2-3 adverts in each ad break. Now it’s more likely to be 7-10.

You can see in advance how many adverts are coming and the first time I saw 10, I thought it was my eyesight, as this is an unprecedented number of adverts for one ad break!

Anecdotal I know, but this says to me that there’s increasing demand for the available slots.

Alex

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Well I top sliced at ~465 but the remaining stake is still a 10% holding for me. I personally feel in the short term the SP has run way ahead of itself but I believe the reasons have been identified in this thread:-

  1. The long term TAM is massive - one of the largest out there and the pandemic has only increased that and made the transition to digital and programmable advertising more certain and more imminent.

  2. TTD is clearly on a mission

  3. TTD and Green have done a masterly job in selling TTD on the vision and not the next quarters numbers

We can’t argue with the real time numbers but clearly they don’t explain the share price performance.

I expect to top slice again at this stage and possibly redistribute back to either Fastly on today’s news, NET or Roku.

Ant

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