Last weekend TTD was ~13% of my holding, this weekend its 0%.
Here is simple reason - it reported revenue growth rate of 41% where i was expecting something in 50s%… more importantly, the call did not address this drop, and even more importantly, the investor presentation posted projected 35% growth next year…
Is 41% bad? not in isolation… but it is >10% drop… and it matters when valuation is high…
will TTD continue to grow as a company? I believe so… I believe it may continue to grow in 30%s and 20%s for a long time to come… and that will help it “grow into” its $8.6B market cap it fetches today…
question to me is not if the company will continue to grow OR even if stock price will grow… question to me is - do i expect market to pay much higher price than here 12 months from now? or 2 years or 3 years… whatever the window one looks at.
Based on the reduced growth rate, that expectation for me have changed with this earnings call.
Now before you accuse me of stupid numbers focused guy, let me also explain my thoughts of qualitative challenges with this company.
- It is not a number 1 in the market and unlikely every will be. Google and Facebook are not going to be falling in TTD lap anytime soon.
Why is this important? Because it brings the headroom down significantly.
In business world, they describe this as difference between TAM and SAM.
TAM = Total Available Market
SAM = Serviceable portion of the Available Market.
(think of Burger King as restaurant… TAM will be all restaurant biz but SAM will bring it down to only fast food biz).
Now I knew this before the call and still had large holding - thats because it is harder to understand the SAM of TTD’s market. And the reduction in revenue growth rate tells me that the SAM is lower than I thought based on last 4 quarters growth rate.
Now - I recognize that TTD is driving many more initiatives to continue to grow… they talked a lot about growth in Europe and launching China etc. And that all is good… but thats what will take them to grow at 40%s and 30%s for next few years… it is not clear to me that those initiatives will take growth rate back to 50%s…
- CCTV, HULU and such: You just need to contrast TTD report and market reaction to ROKU report and market reaction.
Point is CCTV may be lower value market for TTD because companies like HULU, ROKU and others have various ways to monetize their inventory, not just programmatic ads.
- Large portion of TTD business is sourced via 4 large agencies… they may or may not become risk to TTD but this has been continuous concern to me.
To be sure, I would be very interested in buying shares of a company growing at 40% or even 30%, but at a price that would be promising to see gain for my holding… at today’s price, with such large drop in revenue growth, I am out of TTD for now.