TTD and 2020

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I was reading Saul’s end of year update and had some questions for the board.

Here are Saul’s comments

MY BIGGEST MISTAKE THIS QUARTER
It turned out to be reducing the size of my Trade Desk position as much as I did, because Trade Desk just kept on going up. However I didn’t feel I had much choice at the time. Trade Desk’s results looked very weak to me for a company that supposedly has the world by the tail.

Revenue was $164 million, up only slightly (2.5%) sequentially from $160 million, and up 38% yoy, which was down from up 42% the quarter before, and down from up 50% a year ago.

Adj EBITDA was $48 million, down $10 million from $58 million sequentially, and was only 29% of revenue, down from 36% sequentially.

Adj Net income*was $36 million, down from $46 million sequentially, but up from a year ago, and was 22% of revenue. In addition my wife and I watch little TV except for sporting events and I had no way of evaluating all the initials that were being tossed around on the board. I thought I had much better choices. It turned out I was wrong. On the other hand, I do have a lot of confidence in Datadog, Alteryx, Crowdstrike, Okta, and Coupa, which are my largest positions, so while I have some regrets about The Trade Desk, they are cushioned by my contentment with the stocks I have, and which had blow-out quarters.

Since TTD’s results are subpar, relative to DDOG, AYX, and CRWD, why has TTD the stock performed so well over the past year, up over 120%? I believe it’s because of the ever-improving outlook for 2020 that hasn’t impacted the numbers yet.

Some of those reasons are:

  • Audio and Connected TV grew 145% and 160%, respectively. Those channels will represent a larger portion of overall revenue going forward.
  • An anticipation of increased ad spend because 2020 is an Election year.
  • Partnership with Amazon Publisher Service and Fire TV as a demand-side platform partner.
  • Anticipation of other walled gardens opening up to TTD just as Amazon has done as way to prevent regulatory pressure (Facebook and Google, perhaps)
  • Accelerating growth Internationally, including China.
  • Continued growth of existing ad-supported streaming services plus new streaming services coming online (disney+, etc)
  • Ad dollars following customers from traditional tv to streaming. Overall ad spend should increase but ad spending for traditional tv shrinks while streaming grows.

A lot of tail winds there! I’m sure I’m missing a few there so please comment and give me your thoughts.

With all of the above baked in, what kind of stock appreciation should we expect in 2020? Should we expect the stock to grow 120% again? 50%? 20%? Interested to hear the thoughts of those who hold TTD.

-AJ

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We can all play the “what-if” game at any time and kick ourselves forever. We will NEVER have bought the stock with the greatest appreciation at the low nor sold at the high. That’s 3 things to get perfect. We’re lucky if we get close to one of them. At least for me.

For instance, all this teeth mashing about TDD makes me wonder why we aren’t also talking about SHOP. Many here sold out in 2018 for about $150/share. Probably felt good as shares dropped to under $125 by the end of the year. But in 2019 shares went on a tear, exceeding $380 in Aug last year before dropping 25%. I’m on record in early Sept pointing out that at $380 SHOP was too high as the stock price increase was not associated with any business fundamentals (If you have a Fool premium service you can read: https://discussion.fool.com/4056/do-want-to-point-out-that-this-… )

I subsequently lightened my position, then started buying back as it dropped to $300 (and a tad below). It’s now back to $380, actually over $400. While I had some analysis that contributed to these moves, in retrospect I think I was just lucky. I need to relook at the business metrics to see if the current $400 price is warranted and if I should continue to hold here, or sell and redeploy the funds elsewhere.

If anyone here is still tracking SHOP, I think a discussion about it would still be appropriate for this board, no?

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For instance, all this teeth mashing about TDD makes me wonder why we aren’t also talking about SHOP.

My sentiments exactly, Smorgasbord1. I actually held and continue to hold TTD, which is currently a 15% allocation. I happened to sell out of SHOP the same time frame that you did but I never bought back in. I considered creating a larger post to include SHOP but in the end left it out.

I’m just trying to learn here why in this specific case of TTD the market has it different than the current financials currently show. Either the market has it wrong, and I should get out now…or there is something to learn here that some of us may be missing.

-AJ

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For instance, all this teeth mashing about TDD makes me wonder why we aren’t also talking about SHOP. Many here sold out in 2018 for about $150/share.

Relevant article - “The Art of (Not) Selling” : https://www.akrecapital.com/the-art-of-not-selling/

…SNIP

"We have learned to be very careful about the reasons we sell.

We try hard to tune out concerns about politics and the economy.

In addition, we try to resist the temptation to sell (or trim, even) on the basis of valuation alone. We are unfazed when our businesses are quoted in the market at prices above what we would pay for them. It might be worth reading that last sentence again for emphasis.

Why? For three reasons…

First, when selling because of valuation, it is often with the idea that there will be an opportunity down the road to buy back in at lower prices. In our experience, it seldom works out this way.

Second, of the thousands of publicly traded companies, there are probably fewer than one hundred that meet our criteria, and opportunities to buy them at attractive prices are few and far between. Unlike average businesses that can be traded like-for-like on the basis of valuation alone, growing and competitively advantaged businesses are just too hard to replace.

Third, the very best businesses tend to exceed expectations. What may seem like a high price today may be proven to be perfectly reasonable in hindsight."

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If anyone here is still tracking SHOP, I think a discussion about it would still be appropriate for this board, no?

Of course!
Saul

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Re:

I have some TTD. Its about 3% of my TMF investments. I think its worth holding because its serves a growing long term need and will be around for a while. Clearly that is an intuitive rather than a strictly quantitative analysis but I’ve been doing that for 60 years now. In 2020 I’d anticipate of the order of 100% growth. I have no idea about possible stock price . My plan is to hold for a while.
When this years crop of hot stocks cool off, I may buy some more.

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Re Shop

I have some SHOP .At 400 its represents a triple for me. By any reasonable metric its too high. e.g. just consider the PE. I think it has a great future and I don’t believe in market timing.
Still I’d like to know how others see it.

I noted (somewhere) that the company projected 50% growth for each of the next 5 years. That augurs well provided they expand their bottom line. I expect a bit of a roller coaster between now and then if indeed the future bears out the prophesy.

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Draj,

You must mean something different than this:

In 2020 I’d anticipate of the order of 100% growth. I have no idea about possible stock price

There is almost no way The Trade Desk will grow revenues next year 100%. If they do, I can answer your question about the stock price almost assuredly. It will rise significantly.

Revenue growth last quarter was 38% and TTM revenue growth is about 48%.

A.J.

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Sorry. Very badly put. Just a blunder. I meant to suggest a repeat of this year’s growth rate.