TTD, WPP, and the Big 4

Investment Analysis Clubs Saul’s Investing Discussions
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This is a cross post from another board. It’s about The Trade Desk, the company, and its relationship with ad agencies…

What prompted this post is a good 3Q report from WPP (London-based - one of the big 4 agencies on the planet). Investing in TTD means we believe their business plan of working with, through and for agencies rather than a direct-connect to publishers web-pages. Independent from Google Facebook and Amazon but working through agencies; giving (selling) agencies access to the Trade Desk platform is how we do things and have success.

WPP is on my watchlist, not because I own or want to own WPP (though I do have a few £ to deploy), but to monitor what’s going on with the ad-world.

I noted WPP is up today based on 3Q report here
https://www.wpp.com/news/2019/10/third-quarter-trading-updat…

and the headline from my broker news feed: “WPP PLC (WPP - the ADR ticker) rose 6.4% pre-market trading to $62.00 after the company reported an improvement in performance across major markets and sectors for the third quarter, while reiterating it’s full year guidance. ©Benzinga”

From the WPP presser regarding commitment and attaining goals “In the last 12 months, WPP has taken decisive action and made substantial progress on many fronts: we have fewer, stronger agency brands; new leadership in many of our companies; enhanced central teams supporting our companies; and a renewed commitment to creativity, powered by technology. We have cemented our position as the largest partner to the world’s leading technology firms and, most importantly, the work we do continues to be highly valued by our clients as we adapt to their changing needs in a dynamic marketplace.”

Note the use of technology = The Trade Desk, and probably others. Here’s what TTD says in their 10K about the big 4 (includes WPP - London, and Publicis - Paris-based global communications)…

For Publicis Groupe and WPP plc, we enter into separate contracts and billing relationships with various of its individual agencies and account for them as separate clients. We do not have any contractual relationship with Publicis Groupe or the holding company WPP plc. Publicis Media
Inc. (formerly VivaKi, Inc.), which is affiliated with Publicis Groupe, accounted for 20% of our gross billings in 2018, 22% in 2017 and 15% in 2016.

Mindshare, which is affiliated with WPP plc, accounted for 10% of our gross billings in 2017 and 11% in 2016.

I think the TTD plan is a good one. I like being the picks and shovels behind the deals between WPP and Mondelez and eBay (two recent WPP wins).

Mondelez brand ads here in a 2 min You Tube
https://www.youtube.com/watch?v=X1lmojTdwso

BTW the other 2 of the big 4 are Omnicom and Interpublic. Again from the TTD 2018 10K . Our
contractual and billing arrangement with Omnicom Group Inc. is at the holding company level and accounted for 10% of our gross billings in 2018, 11% in 2017 and 13% in 2016

Joe
Owner TTD
Community Fool - Coverage Fool for CRTO (so far, since 2018, an also ran platform - how fast things change)
click link for my profile & holdings
http://my.fool.com/profile/CMFJambo/info.aspx

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I view it as the Big 4 Agencies Plus.
Meaning if you add those %s, you see the Big 4 is a bit over 50% of their revenues.
That still leaves an awful lot of revenue to come thru either direct relationships or smaller agencies.

The agencies have been undergoing their own transformation from old-school Mad Men type stuff to more tech, and they can either try to invest and replicate what TTD has already spend years perfecting or they can just outsource that to TTD (which they do, and it seems to be an equitable arrangement for both parties).

I followed Publicis for a while, much like you did WPP, just to get a feel for ad agency world and health of their business. Was talk for a while of consulting firms like Accenture even buying Publicis or at least encroaching into the agency business. The WPP positive report is indeed, imo, good for TTD.

As was the news that AMZN ad revenue grew rapidly and they are getting ready to take on Google for search rev. TTD is only set up today for fireTV-related ads, and not sure how much it ever could expand, but what was interesting is that DataXu (sp?) was one of the initial DSPs approved to partner with Amazon Publishing via FireTV, and Roku just bought DataXu, which on the surface seems to indicate more Amazon business for TTD over time (but I could be reading too much into that nuance).

Either way, TTD reports on Nov 7th, and I expect all the usual tailwinds are intact and further progress has been made on CTV and China and elsewhere. China is a wildcard with the trade tensions, but huge upside for 2020/2021 and beyond.

CTV is literally just starting, especially as Disney+ hasn’t even launched yet, and ATT’s HBOMax, NBC/Universal’s Peacock, and the combined CBS/Viacom are all ramping up their streaming services, and all should have ad-supported models. Unclear what the Apple model will be, but not sure anyone really cares at the moment…can’t name a single show they are producing yet.

A little thing called the 2020 election should be a boon for next 12 months. Once that dies down, CTV and China should be ramping up to offset. Future looks bright to me.

The Walled Gardens remain…and any removal or partial removal of those walls is further upside not even baked into TTD growth models. YouTube would be the big one, in my mind. Facebook/instagram behind that.

TTD did 41% in Q1, 42% in Q2, and I will go out on a limb with a MASSIVE increase to 43% in Q3, and yet another beat-and-raise.

Dreamer

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