Why I sold TTD (finally)

Investment Analysis Clubs Saul’s Investing Discussions
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Hi all,

So I sold all my Trade Desk (TTD) shares in the last two weeks and wanted to share some of my thinking/reasons:

1.) I was getting really annoyed with Jeff Green’s stock-pushing ways… For the last quarters every time growth is slowing but then the earnings cc starts and Jeff is just going on and on and on about how great the business is and how amazing the long term opportunity is, and it was never better… every time repeating to investors the investment thesis; as if we didn’t know that already?.. I want to hear something concrete, but then I have to go through for minutes about these general statements that I read and heard a million times… I get the feeling, the worse the numbers get, the more “bullish” he is. By the way, I never liked the way Jeff Green used Wall Street-jargon in his business reports. So you see, I was already a bit frustrated, right? :slight_smile: Well, that’s reason number one, and maybe the most important because I really couldn’t stand that, in Austria, we say “Dampfplauderer”, which means someone “who talks steam”. But there are other reasons too.

2.) This is a more fundamental one: Jeff Green said in the call that “Spend will migrate to what works best. Today it is connected TV and digital audio.” In my opinion that is simply a false statement. What about Google, Youtube, Facebook, Instagram, Twitter, Amazon, etc. -ads? Doesn’t EVERYONE in the ad business agree that these are the best channels to reach customers? Don’t these ads have the best ROI for advertisers by far? Aren’t these companies adding BILLIONS of dollars every quarter to their revenue, while TTD (who has the ads that work best; wink wink) grows by 30% at less than $1 billion in revenue? I’m currently reading a book about the “new rules of marketing and PR” and in that book the author, who knows a lot about advertising because he is in the field for decades, is trying to bring home the point constantly that advertising today is all about forming a customer relationship, trying to educate and engage your audience with content and information, being helpful first and then selling… The channels to do that through are Google, Facebook, Youtube, etc – i.e. the new world of advertising. It’s not anymore about the old concept of shouting out to the world: “Here I am! Buy my products they are great!” during the time I’m watching TV or listening to a podcast, basically disturbing me while I don’t even want to buy something. However, this is exactly the kind of ads that TTD is kind of promoting, although with a new touch – it’s old-world advertising clothed in “fashionable” digitization: programmatic. But it’s an old concept nevertheless…

Of course, that doesn’t mean that TTD doesn’t have great growth opportunities and won’t be a good investment. There is still a lot of really old advertising waiting to shift to something more modern and effective. But look at the growth: TTD is NOT the new groundbreaking technology to advertising. Facebook and Google were and still are. I agree with Beth Kindig on this, that the real value in the supply side (the digital real estate) not the demand side.

3.) More concretely, the company, as already mentioned, showed slowing growth in the quarter again, slashed guidance, and told us that Q2 will be bad; basically they have no visibility. Major contributors like the Olympics and sports won’t be here this year; some elections also won’t take place. It’s simply a very challenging environment right now.

4.) I also noticed that TTD is my lowest conviction stock during the meltdown in March. It was one of the first positions I looked at when everything fell. I didn’t, fortunately, sell (anything for that matter…). And I also thought TTD was beaten down too much in mid-march. But I realized then that TTD simply is not for me. I just never liked the investment thesis enough to really build confidence as time passed. Btw, I also don’t share Jeff’s vision that Netflix HAS to go to an ad-supported model one day. Hastings has been really clear on that – he doesn’t like the idea. Another example for Green pushing the stock to investors… He sure is a great salesman!

But enough of the rambling now… Apart from all of the above, I think that there are simply better places for my money at the moment.

Niki

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So I sold all my Trade Desk (TTD) shares in the last two weeks and wanted to share some of my thinking/reasons:

Niki, I have to tell you that I thought that that was a brilliant post. You not only analyzed your own feelings but you discussed clearly what the problems were with the CEO, with the company, and with its place in the market, as you saw them. That’s a tremendous benefit to other investors on the board, even if some may not agree with all your points. (I agree with you on 1, 3, and 4, by the way, and don’t know enough about 2 to make an intelligent decision, but I certainly have no regrets about exiting when I did, and sticking with high confidence companies).
Thanks again,
Saul

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This is a more fundamental one: Jeff Green said in the call that “Spend will migrate to what works best. Today it is connected TV and digital audio.” In my opinion that is simply a false statement.

Even if you take this as true, the most pathetic part of Jeff Green’s promotion is that he never has guts to share actual numbers… actual $ or % split among web, mobile, audio and CTV…

Every quarter, TTD puts out great y/y growth in CTV and Jeff takes half the call describing how great CTV is, we don’t know what portion of revenue today or expected from CTV.

This is the reason I got out of TTD long time back…

BTW - I like the Austrian expression… beware of Dampfplauderers

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Thanks, Niki, for the reasoning. For me it’s really simple why I will continue to hold the shares.

  1. TTD is and will continue to be the market leader. Jeff Green understand the business and is always ahead of the competition.
  2. TTD is making money right now even during it’s high growth phase. This is really important. For some other high growth companies, we even don’t know if they will ever make money.
  3. The market is growing and TTD is growing faster than the market.

So for a growing company which is the market leader in a growing market, already very profitable during its fast growing phase, I feel very comfortable invest in it.

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I just wrote Niki via Slack (in german), but I think it might be interesting for others as well. So here are my thoughts.

Hey Niki, thanks for your thoughts on TTD. I don’t think you’re making a mistake here. Follow the numbers. TTD is still a story, not reality.
On the other hand, if it becomes reality, the opportunity is huge.
On your point 2) I would disagree a bit. I agree with you that Facebook, Twitter, Google etc. work very well (I do performance marketing professionally), but no emotions can be transferred here. The big brands, the conglomerates - where the really big advertising budgets are - the McDonalds, Nikes, Lindts, Dr. Ötkers, BMWs, etc. that rely on emotions, where performance figures like CPCs, CPAs, etc. are not important - these companies urgently need their playground again, where they can let off steam.
Linear TV is dying, more and more is being consumed online, but online today means mainly via mobile devices, on YouTube etc. a) The small screens of mobile devices, which are often used without sound, do not allow any emotions. b) The user has everything under control, a video ad before or after a YT video does not have the same emotional effect as an emotional commercial based on data tailored to the target group, which the average citizen then consumes via Connected TV on a big screen with sound.
With the ability to reach users in a much more targeted way, the ad dollars from linear TV to CTV will not be transferred 1:1, but will be worth more. In the past, beer commercials were all that was available at a football match. Through data-driven, much finer targeting, companies will be willing to pay much more because wastage is massively minimized. And there lies the opportunity.
Therefore I will not sell my position, but I will also not hold it oversized like AYX.

mooo

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Niki,

Thanks for sharing your thoughts and they are tough to argue with, but I’ll do my best since I still hold a good sized position (~11%).

About Green’s cheerleading, I certainly see your point. If he weren’t so effective, not in his prose, but in his thinking and results thus far, I would definitely be in your camp. I won’t drone on about how he has skated to the puck, but he has thus far.

As to the walled gardens having the best ROI, I don’t believe there is any evidence of that and is a main gripe against advertising in walled gardens. Most certainly the walled gardens control a vast majority of the overall ad tech spend. On the other hand, walled gardens aren’t known for their transparency unlike TTD.

The slowing growth is correct except this past quarter they were guiding and on track to hit growth that showed a slight bit of acceleration if not for… I’d also point out as another poster already has, TTD is quite profitable.

For a few final thoughts, the company is well positioned as a neutral party providing benefit to advertisers across the full array of the internet including CTV. The TAM even with some pretty conservative assumptions built in, is pretty darn large.

With all of the above said, I have been wrong many times and there is a decent chance I’m wrong about TTD. May the money from TTD be put to good use. Good luck!

A.J.

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“Skate to the puck” or prepare for the playoffs.

Most of the folks here are smarter about what to buy this quarter than I am, and more likely to act on their convictions. There’s still a bit of LTBH in me. TTD is well positioned for post-pandemic advertising and screen-viewing behavior. IMHO. I continue to hold as my fourth largest position, with expectations of ‘eh’ in the short term, ‘yay’ in the long term, and a very, very damaged crystal ball.

Kip

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Wow, thanks for all the great replies and nice words!

I agree with most posters that my point Nr. 2 is probably the weakest argument to sell. I appreciate and agree with the comments from Moritz about emotional ads for big brands always having a place in the advertising world. Thanks for pointing that out and generally your input as an industry insider! I also like A.J.'s point about the advantage of the transparency of the TradeDesk-platform, and also its neutrality. Kevin made a great point about the kind of profitable growth TTD has, which is really rare. It goes without saying that I wish you all the best with your TTD investment going forward!

As I said I was just getting frustrated and uncomfortable with the investment and that’s the main reason I sold. I felt a big relief after selling and I’m already looking forward to the next earnings season where I will not read the cc transcript of TTD in frustration… :slight_smile:

Niki

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Hi Niki

Great post!

I’m not going to rehash any of the above rebuttals but what I would add as potential counter arguments to 2 and 4.

#2) His claim that connected TV and digital audio TV are where spend works best maybe true in terms of conversion and $/conversion but the fact is the volume of eyeballs or ears aren’t there yet. So advertising is consumed up to the point of saturation. As these channels expand then they will get a disproportionate redirection of spend as the spend in the high volume market place is there only because of the size of the target pool not because of the conversion or $ per conversion. By the way TTD’s % growth is much higher than Google or Facebook core revenue growth.

The good thing about TTD as an investment is that Google and Facebook don’t have to fail for TTD to succeed.

#4) He might be right about Netflix. Hastings might not like the idea of advertising but frankly eventually the unit economics of spending more on content creation and distribution than it generates in revenues is not sustainable. TTD on the other hand is profitable and has unit economics on its side.

There’s a reason why these meagre 30% growers like SFDC, ServiceNow, Adobe etc keep posting very attractive share price gains at high levels of Market Cap and that’s because of profitability supported by robust unit economics and leverage.

I hold TTD but am likely to top slice some just as I did with MDB (only to watch it go to ATHs) and redistribute, however I see TTD as exhibiting rock solid long term conviction rationale just as Amazon does, it (just as the case for Amazon), probably isn’t likely to hold the highest short term conviction.

Ant

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Solid post Niki.

Touché on Jeff Green’s cheerleading. It borders denial. My concerns extend beyond investor communications. Glassdoor ratings have been falling hard for 2 years (posted about it here: https://discussion.fool.com/4056/culture-concerns-brewing-344942…) and it hasn’t been addressed. One review that stood out to mentions Jeff Green dismissing the Glassdoor reviews as “irrelevant”. https://www.glassdoor.com/Reviews/Employee-Review-The-Trade-…

There’s no denying the market opportunity is large and that’s why I haven’t sold. Probably won’t either but would like to see more transparency from leadership.

Palbir