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
