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…
I think this is a really interesting discussion both Nilvest’s original decision and the highly inconsistent range of reactions for a host of reasons. I don’t have the answers but I do have a view.
First I actually think growth expectations across the board are unrealistic. Whilst high growth opportunities in the past may have been 15-20/25% growth rates historically, we have seen small-mid size tech opportunities nudge 30-50% which we all agree has never been seen before. A few have reached 60-75% growth rates with innovative product launches or acquisitions - however no large caps have ever managed to achieve this consistently.
Whilst I’m all for the ruthless search for the highest growth opportunities possible and grabbing them when they represent high quality, long runway and large addressable market opportunities we seem to have thrown in an expectation of achieving these growth rates consistently. Billion $ run rate companies do not grow at 50%+ period. That hasn’t stopped Amazon or Microsoft etc producing amazing returns but they just have not delivered those kinds of growth. SaaS might be an entirely innovative business model that allows for asset light incredible margin businesses and very steep uptake on launch but the SaaS in itself doesn’t produce high growth rates - it is more likely to produce higher margin and higher forward sales visibility (deferred revenues etc).
TTD is maybe a year away from being a billion $ run rate company. Expecting this to grow 60%+ or even 50%+ is just unrealistic. I have stuck with SHOP as I do not think it is realistic for it to be a 1.5bn $ run rate firm growing above 50% - same for Twilio who’s organic growth rate (minus Sendgrid) has dropped significantly. The fact that it still grows at 50% should be considered remarkable but a lot of us are focused on the failure to sustain 60/70% growth. TTD’s 41% may have disappointed many but I feel that is more to do with unrealistic expectations than a failure of TTD to deliver. It’s starting to hit the big leagues and is killing it still.
Secondly - the point about declining growth rates held against a valuation I understand however again, TTD now after its pull back is not at an EV/S of 30 that makes a growth rate of 41% look like a stretch or precariously priced - it has an EV/Sales of 15.6 from what I can see from 3 sources. I don’t see many companies growing at 40%+ on an EV/Sales so again I wouldn’t be selling out on valuation basis.
Thirdly - The TAM and SAM is huge. Advertising is one of the largest markets in the world - look at Google. Digital advertising is massive, digital advertising without the wall gardens is massive enough. I do not see a company better positioned to attack as large a target market as advertising. eCommerce is one of the few sectors that is larger but otherwise TTD without offline and without walled gardens still has a massive opportunity to penetrate and the tail winds of the programatic advertising growth rate of 20% should support it (just as 20% growth rates are supporting Ali Baba and Shopify).
The one concern I do share is the saturation of major clients and the disproportionate role a ~4 large agencies have on the TTD business. Having said that though, they have proven themselves able to land and expand, they are not dependent on new campaigns just selling matching space and viewers on a programatic basis so again I don’t see TTD being affected by recession as much as the advertising agencies themselves who might suffer if customers don’t commission new campaigns and re-run existing ones etc. I don’t remember Google or Yahoo or TVs left with blank slots during recessions. People still search and watch TV in recession.
I’m considering topping up my ~5% stake in TTD however I would be looking to see how the decline in growth plateau’s out. There are plenty of companies that are delivering 30% year in year out (New Relic, Service Now, Ring Central) that don’t face concerns of deteriorating growth and at some point we are going to need to reconcile these stalwarts vs shooting stars as they head towards terminal growth levels. on this point I don’t have the answer at all. Saul’s philosophy is to keep looking for the next shooting star and not look at the steady growers but then again we have never lived in an era where there are steady growers growing 30%+ let alone being out grown by 50-70% growers.
Ant