TTD

Folks,

Was thinking more re: our companies here and Saul’s post of https://discussion.fool.com/why-my-investing-criteria-have-chang…

I know TTD boasts a customer retention rate of 95%. Question. Do we know how their revenue model works? Is it both from supply side and demand side? Is it recurring?

Love the product and the fact that they go above/beyond traditional walled gardens i.e., FB, GOOGL, AMZN. Hoping to learn that their revenue model may be more recurring as opposed to transactional.

Okay, I should have pluralized ---- questionS. :slight_smile:

Jay

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Well, just because revenue is transactional does not mean that it isn’t recurring. Do you mean transactional vs subscription? In this case, I believe that it is not a subscription service. I bought The Trade Desk because of a recommendation from one of the Fool subscription services, and it’s worked out so far. That said, I don’t know much about how their model works, or at least, its been long enough that I’ve studied up on it, and its a bit fuzzy in my mind at this point, a year later. I seem to recall that it does work from both the supply and demand side. I think TTD is a bit like Nutanix in that it’s quite hard to figure out what the company’s product actually is/does. There’s a high noise to signal ratio on this one. I looked around a lot, and what I mostly see is people speculating on The Trade Desk based upon their understanding of existing advertising businesses, but the little I have gleaned leads me to believe that The Trade Desk is doing something qualitatively different from other add companies, and some of the traditional assumptions should not apply. I just see the growth numbers, the profits, and the TAM, and that’s enough for me.

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Here is how TTD describes how it receives revenue from its clients from their SEC form 10-Q.

The Company charges clients a platform fee, based on a percentage of a client’s purchases t hrough the platform, and the transaction price is determined based on the consideration to which it expects to be entitled in exchange for the completion of a transaction, that is, when a bid is won. The platform fee percentage is based on the level of pur chases by the client through the platform during the month. The Company recognizes revenue for its platform fee at a point in time when a purchase by the client occurs through its platform, which is when a bid is won.

That sounds to me like it is a transactional business model. Calculating total revenue compared to ad spend on the platform they receive about an average of 20%.

http://secfilings.nasdaq.com/filingFrameset.asp?FilingID=129…

Hope that helps.

Darth
Long TTd

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They are entirely demand side. All of their revenue comes from the ad purchasers.

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Thanks Darth. Got it. That is consistent w my hypothesis. Bottom line ---- demand side/from advertisers and transactional.

Wish it were contractually recurring, but w their product, they are consistently achieving a 95% retention rate…good on that.

Also, I believe a larger chunk (unsure what %) of their business is “wholesale” (my words) ---- in that TTD sell their demand platform to large advertising agencies who in turn sell to their customers (end advertisers). I’m sure a big chunk of that business while technically is contractual ---- more practically is recurring.

So, no truly recurring revenue in contractual format. Yet, their moat so to speak ends up likely being the additional capabilities and users on the platform…and stickiness. More capabilities on the TTD platform w mobile, global, cTV, more suppliers on the platform, more demand side advertisers on the platform…sort of becomes the defacto standard if done right (despite competition)…and makes it difficult to switch (as an advertiser).

I do believe that Jeff Green is onto something very big here.

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TTD is very interesting indeed. It has the upside potential of a consumer company, while being a B2B company. It appears, at least in some jurisdictions, that it is the leader in programmatic TV advertising, which is the biggest of the biggest of all future programmatic ad markets. And it does appear that they are moving and leading their market.

But I cannot say this with any reference to anyone else they compete against, because for the most part, it is difficult to get information about their competitors. Forrester has TTD still as a middle of the pack leader with smaller market presence. So we can perhaps infer TTD is a market disruptor. And the evidence we have for this is TTD growing at 2x the pace of the market in general, and the language coming out of TTD. So you need some faith here.

This all said, TTD taking a 20% chunk is a big commission, and yet they maintain 95% client retention quarter after quarter. I have no insight as to the nuances of what this means. It could be misleading, as for example, you still retain a client even if the client decides to cur its spending with you by 90% and move that spending elsewhere. So this 95% retention rate is not necessarily a valuable metric, unless we know how TTD is deriving it.

The advertising business itself, as with Saul, is not something I like either. True, Mongo’s founders were the original internet ad guys with Doubleclick (that they eventually sold out to Google), but TTD is already quite profitable, and doing far better in that regard, while still rapidly growing revenues, that practically any company of its ilk in any SaaS market. TTD is clearly doing something very right.

The market remains edge about TTD. Perhaps TTD is suffering from some of the issues Nvidia is suffering from as if Nvidia had much in common with AMD at all. I do not know what it is with TTD. Perhaps the market considers TTD to be very cyclical with the advertising cycle. But since programmatic is disruptive and taking marketshare (like Arista did from Cisco, but at a faster rate it seems) cyclicality may not be an issue.

Jeff Green, the CEO is clearly one of the better CEOs in our universe, and visionary in his field. My sense is that TTD is the disruptive leader, and the more data and intelligence and product refinement TTD makes, the greater its moat grows to any upstarts, or any legacy companies. How do you catch up to something moving that fast? You do not. Then the worry becomes what if Google goes programmatic big time, and Amazon does the same? I think that is a constant worry. I would imagine TTD would remain just fine, particularly as it is so focused on Asia where Amazon and Google have a much smaller presence.

What I hold now I want to continue to hold and have no interest in selling some off to buy TTD or anyone else at the moment. But I may simply be wrong not to do so for TTD. But it is advertising…and as Saul indicated earlier today, you do not need to own every company.

I have not run my Tinker Ratio in my head in much depth about TTD, but my impression is (and was a year ago as well) that TTD is doing something of the like that only a David Gardner catches early, and that the rest of us become to biased against or skeptical (advertising - yuck :frowning: ). It is not that Dave has not been wrong before on companies like this. Most of these ad enhancer companies have disappointed and under performed, and David has been in quite a few. We all have our biases. TTD may be the exception that puts all that behind for advertising and marketing intelligence companies.

It is hard to say that TTD is not in a “Tornado” if that applies to their field fo business. There small businesses (that some day will be their largest businesses) are growing at a fantastic rate comparable to Mongo’s Atlas (as an example).

I have no great insight however, and thus that metaphysical wall turns me off. It is just one of those things where you have to have faith and understand as a passive investor you sometimes just have to go with it when a company starts to grow and dominate as TTD appears to be doing. I feel that this is one that I may miss out on, but regardless, I don’t care at the moment.

Tinker

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I bought TTD a few months before their last earnings release. I bought as part of my diversification efforts after it was clear I held ANET too long and was missing moves up in other stocks.

Their last earnings release was the second time the stock had a huge upswing after earnings. The first time the company said the quarter was just a period everything went right. Actually the issues Facebook was having with privacy drove advertisers to TTD. Then last quarter google’s issues drove advertisers to TTD.

Facebook and google control over 50% of the online advertising spend. So when I saw they were stumbling I bought TTD. That and the TMF breaker recommendation (which admittedly does not thoroughly explain how their business model works) were enough to make me buy. Their revenue growth rates are increasing.

I am not sure how long Goog and FB will be out of favor for advertisers spending dollars. It is really up to TTD to execute and I know it’s human nature to forget about things (people will get over Cambridge analytica). But right now they are giving TTD tailwinds.

Here are a few articles that help explain how they work and what’s going on.

https://www.google.com/amp/s/amp.businessinsider.com/the-tra…

https://www.google.com/amp/s/www.cnbc.com/amp/2018/08/10/goo…

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JKB:

You do seem to have a good grasp on the basic tenants of the TTD investment but please allow me to add a bit more color. This company has been extensively discussed at the NPI going back to May 2017.

  1. TTD does work primarily with ad agencies rather than the direct seller (however they recently branched out to some larger enterprises directly). Hence, one could argue that their potential customer base is quite small compared to the landscape of all sellers who might opt to cut out the ad agency itself. In many ways then, TTD’s future is dependent on ad agencies future and vice versa…they need each other to thrive. That said, TTD has done some deals without an agency middleman.

  2. The programmatic ad space is littered with failed stocks and ventures…that soured investors on the whole sector…TTD has been the one exception…why is that? It would be a good excercise for you to contemplate this before investing in it. This was discussed at length on the NPI in 2017.

  3. Jeff Green thinks there will never be another meaningful programmatic advertising company. That was also discussed at lenght at the NPI and there are some audio tapes of Green speaking explaining why.

  4. TTD’s strategy against the “walled gardens” of the FB/GOOG/AMZN is really 2 fold:

A) Multichannel (Omnichannel) - CTV, Audio, Mobile, Internet…go where they are not.
B) Multiregional - go where they are not…like Asia

Ideally there will come a day when the whims of the walled garden news doesn’t affect TTD’s stock price. I suspect that is coming soon by virtue of TTD’s broad Omni approach.

  1. The risks to TTD are both similar to standard ad agency risk (economic downturn and drying up of advertising dollars) and those special to programmatic (privacy laws prevent data sharing or Apple locking down their phone searches, etc.).

  2. TTD is much more than just advertising…they are an AI company…massive massive data that they can analyze and have been for some time. Keep in mind that the ad decisions are being made in a fraction of a second…not over seconds.

  3. Green believes CTV is the future of ads…and that sector is growing at a very high growth rate BUT…it is still a small absolute portion of ad revenue…CTV may be the future of ad revenue but that “future” is a few years out IMO.

You have no doubt already perused their web site here:

https://www.thetradedesk.com

Just a quick note as I know this board doesn’t care for the clutter.

Best:
Duma

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Just a quick note as I know this board doesn’t care for the clutter.

Hi Duma, you gave a lot of information helpful for analyzing a rapidly growing growth company. That is exactly the kind of “clutter” this board DOES care for. Thanks.
Saul

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I found this article on SA very helpful in describing the digital advertising space and how TTD fits into it https://tinyurl.com/y8h49bbv (subscription required). Although a subscription is required, I think I can provide a few nuggets that are either public knowledge or could be a good advertisement to subscribe to SA to get this article without stepping on proverbial toes. IMO if you’re interested in TTD, a one-month subscription might be worth it just for this article.

“The Trade Desk has developed a business that is scalable, takes nominal capital to grow, and is very difficult for any new competitors to enter the field.” The article explains why this is.

Jeff Green “helped pioneer the ad tech industry…His goal was to create a platform where advertisers could value media inventory through data-driven decisions. With the ability to buy and sell advertising inventory electronically or programmatically, advertisers could use data to make better decisions on what, when, and whom to show an ad impression…[H]is goal was to ‘build a company for the next 100 years’…He decided to build a demand side platform because he believed the demand side of the advertising transaction will always have the advantage.”

The targeted advertising that TTD provides for is far more effective and cost effective than the traditional “spray and pray” approach.

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I’m not sure much can be added to Duma’s post except on thing as it was excellent.

Only one thing I can think of and it was mentioned in the thread but seems to have been brushed over.

Essentially, it boils down to a first mover advantage that you cannot ignore. Green long ago saw the inherent conflict of being on both sides of the demand and supply fence. The company has specifically tailored their solutions to the buyer and has an enormous data advantage because of that.

Just wanted to add that thought. This company is quite high conviction for me.

A.J.

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