TTD Growth Potential, is it time to add?

Investment Analysis Clubs Saul’s Investing Discussions
1

Not sure if anyone caught this from Zacks today. They picked TTD as their bull of the day, and fluff aside, there was some insightful content.

LINK: https://finance.yahoo.com/news/bull-day-trade-desk-ttd-09000…

I have a relatively small 2% position currently, and I’m considering adding, especially given the recent pullback. But I’m trying to learn more about TTD’s growth strategy.

The part that intrigues me is the OTT tech. Is this really a groundbreaking new tech that will revolutionize advertising, or is this overblown? If it does get the traction Zacks thinks it will, then how long does TTD have before the competition moves in and fragments the market; 6, 12, 18 months? If it is so lucrative, wouldn’t Facebook, Google and Amazon want a piece of this too, aren’t they likely to leverage their size and add this as a channel offering relatively easily?

TTD partnering with Baidu, Alibaba and Tencent seems like a brilliant and bold move to tap the Chinese market, which apparently has > 1 billion users. But I keep hearing cable is dying, so isn’t that a challenge for OTT and by association for TTD?

Highlights:

The Trade Desk is a next generation advertising platform that allows marketers precision access to billions of consumers using hundreds of websites, apps, web-connected TV channels and other digital content providers like streaming music sites that slip ads into the experience.

The Trade Desk technology gives advertisers all of this information and access in a real-time “mission control” platform that allows two important functions:

(1) consumer behavior data and research across digital media “channels” and verticals to obtain precision targeting; and

(2) complete automation of ad-buying programs that can participate in virtually unlimited auctions – lasting just 1/10th of a second – for omnichannel advertising “real estate” that suits their requirements and audiences.

CEO Jeff Green even compares their platform to the modern stock exchange where automated algorithms are responsible for over 70% of the trading volume.

“Ads are the currency of the internet. Ads are the currency of nearly all media.” - Jeff Green, CEO of The Trade Desk

When advertisers circumvent traditional ad-buying and placement channels with networks and cable to get their commercials onto TV shows using the internet, it’s call[ed] “over the top,” or OTT.

Initially named in reference to devices that go “over” a cable box to give the user access to TV content, OTT advertising is also delivered via an internet connection rather than through a traditional cable/broadcast provider.

This is probably one of the biggest new markets for The Trade Desk.

Valuation Part
With this year’s revenue projected to hit $650 million, representing 36% growth, this $10.25 billion company is trading for over 15 times sales. That’s not cheap, but it’s also not out of line with many young software high-fliers like Veeva Systems (VEEV) or Shopify (SHOP) that have high margins and are growing revenues between 30% and 50%.

And since The Trade Desk doesn’t create content or sell products, it’s never in competition with any platform, marketer, or retailer. It is merely the exchange for hundreds of ad brokers and thousands of companies to get the right ads at the best price.

Finally, The Trade Desk has some of the highest margins in all of software and the company is projected to grow the bottom line to $3.60 EPS next year for over a 20% advance.

/--^–^–/\

Invest wisely my friends

45 Likes
2

Not sure if anyone caught this from Zacks today. They picked TTD as their bull of the day, and fluff aside, there was some insightful content.

Really? Occasionally I get baited into clicking on a link to a Zacks article. But I’d swear all their articles are auto-generated. If the one you found had anything insightful, I’d consider that a lucky anomaly.

Mark

5 Likes
3

They do put out a lot of trash, but once in a while you find a gem.

/--^–^–/\

Invest wisely my friends

1 Like
4

Just a couple of quick comments on the questions you raise. First, TTD promotes itself as the alternative to Facebook and Google and emphasizes that its independence of these two other mega-platforms attracts users. Also, there’s a hint that the investigations into GOOG and FB are helping.

As far as cable dying, I think that refers to cable TV but not the internet, which is also delivered over cable for the most part.

1 Like
5

The part that intrigues me is the OTT tech. Is this really a groundbreaking new tech that will revolutionize advertising, or is this overblown? If it does get the traction Zacks thinks it will, then how long does TTD have before the competition moves in and fragments the market; 6, 12, 18 months? If it is so lucrative, wouldn’t Facebook, Google and Amazon want a piece of this too, aren’t they likely to leverage their size and add this as a channel offering relatively easily?

These are good questions and let me wax philosophically for one moment in regard to their technological lead and this pertains to most companies we follow.

These companies are pouring vast amounts of money into singularly focused ideas. It seems rare that we see technological disruption in these disruptors, and that is the reason. They have huge head starts in software development with very specific focus. Yes, there are companies in the SaaS realm that fail and likely more than succeed; however, those succeeding seem to be doing so based on their software which is really a ridiculously pedestrian statement to make, but it is the truth.

So to answer your question on The Trade Desk’s technology, yes, I do believe they have a significant lead. Their platform was just massively upgraded and they are devoting vast sums of money toward growth areas such as China and CTV. The company’s anonymous UserID tech has been adopted by many players in programmatic advertising. TTD gives that away for free. That is an extremely bullish sign on where they believe the future of advertising will be and their ability to capitalize on it.

A.J.

20 Likes
6

Thanks A.J. That is an interesting perspective.

I appreciate the importance and value of the first mover status, which seems to be the core of your point and TTD’s (and others’) key advantage. The best first movers often tend to maintain their lead by extending and innovating from a core breakthrough, which launches them into a new and highly disruptive realm that breaks old established trends or opens an entirely new market. But in some cases the young companies spread themselves too thin before they have enough structure in place, and then collapse when they get squeezed by their competition. I guess most of us who believe in TTD and some of the other board favorites think the hits will keep coming for some time.

The issue for many of these young companies becomes scale, as we see with a company like Tesla. It’s tough enough to innovate and carve out niche, but it is possibly even more challenging to grow within that niche before the more established and better capitalized competitors make their counterattacks.

Where do you see TTD going in 2-3 years from now?

/--^–^–/\

Invest wisely my friends

2 Likes