Introduction
Company profile
The Trade Desk (ticker: TTD), an independent digital advertising agency, was established in 2009. The reason why it can establish a leading position in the industry is mainly because the founder and CEO Jeff Green has 20 years of experience in the advertising technology industry. years of experience. He and co-founder David Pickles met at Microsoft in 2007 after the company acquired AdECN, an early real-time digital advertising auction company founded by Green.
The Trade Desk discussion in my books
In my two recent books, I have discussed The Trade Desk, especially 7-2, pages 368-373 of the book “The Rules of 10 Baggers“, where there is a whole section dedicated to introducing this company. These include:
In my book “The Rules of Super Growth Stocks Investing“:
- Section 3-4, page198-202, discussion on software companies.
In my book “The Rules of 10 Baggers“:
- 6-7, page 328
- 7-2, pages 368-373, section dedicated to the introduction of this company
This article will not repeat what I have mentioned in the above two books.
The difference between The Trade Desk and rest of peers
Advertisers who are different from Alphabet and Meta must use Alphabet (tickers: GOOGL and GOOG) and Meta (ticker: META) to belong to their own closed advertisement subscripting program in order to place bids on both platforms (so called is a pay gardon), The Trade Desk is a neutral digital advertising bidding platform.
In particular, it should be pointed out that the stylized digital advertising company The Trade Desk is a DSP (Demand-Side Platform, advertising demand-side platform) operator, not an SSP (Supply-Side Platform, advertising supply-side platform) digital advertising operator.
The Trade Desk is a major player in the ad tech space, operating the world’s largest independent online advertising demand-side platform. Thanks to DSP, agencies, advertisers and trading desks can programmatically bid on ads. They are at the opposite end of the ad supply chain than seller-side platforms (SSPs), which help publishers sell their own ad inventory.
Company History and Events
The following are the major events worth mentioning since the establishment of The Trade Desk:
- On September 21, 2016, The Trade Desk: became a listed company with a listing price of US$18 per share.
- In 2017, The Trade Desk: integrated connected TV buying and measurement directly into its platform, acquired marketing company AdBrain, and partnered with fraud prevention company White Ops to block fraudulent ads.
- In 2018, the company began to invest heavily in the Asia-Pacific region, launching its programmatic advertising buying platform in China, and establishing partnerships with Chinese media companies such as Alibaba, Tencent, and Baidu. The Trade Desk also launched an artificial intelligence forecasting engine called Koa, a new user interface, a strategy tool called The Trde Desk Planner, and a new strategy called Unified ID 2.0, please see section 7-2 description of “The Rules of 10 Baggers“) proprietary global user identity resolution tool.
- In 2019, the Connected TV (CTV) application integrated with Amazon’s (ticker: AMZN) service was launched, allowing the purchase of advertisements for third-party TV content providers through Amazon’s Fire TV device.
The Trade Desk is worth studying
How big is the digital advertisement market?
Advertising is a huge market, with global spending reaching about $750 billion in 2019, according to IDC. As consumer preferences shift to mobile, smart TVs and other digital media, ad dollars are also shifting to digital channels. Statista predicts that by 2027, 82% of total advertising revenue will be spent on digital advertising, and 84% of digital advertising revenue will come from programmatic digital advertising platforms.
Digital advertisement market in bear market
Since the beginning of 2022, the stock market has plummeted, pessimistic and confused. One of the mainstream views is that as the economy slows down, the performance of the advertising industry will fall off a cliff. Of course, advertising budgets will come under scrutiny in a tougher environment, but that doesn’t mean every company in the digital advertising industry is doomed. Among them is the Trade desk, a company that is particularly well-positioned not only to weather a difficult economy, but also to extend its lead over the long run. Therefore, although many people are afraid of the market prospect, smart investors should take advantage of the bear market to carefully study some of the competitiveness and business advantages of the company, so that they can enter the market and buy when the price falls to a reasonable price.
Bear market revenue has not seen a sharp decline
2022 will be a difficult year for many technology companies, as they must face the brutal test of slowing growth and cause stock prices to collapse. For example, the growth of Alphabet Inc. has slowed down significantly; Meta’s negative revenue growth necessitated the first major layoffs since the company’s establishment, laying off more than 13%; Microsoft (ticker: MSFT) also laid off a large number of employees.
However, the Trade Desk’s revenue in the second quarter of this year can still increase by +34.6% year-on-year, and in the third quarter it will also increase by +31.6% year-on-year. Not only is that much better than many other tech companies this year, but it’s better than most digital agencies.
It is worth mentioning that all companies in the advertising industry are sensitive to the economic background, and advertising budgets will fluctuate with the strength of the economy. As a result, the advertising industry has been under pressure for more than a year. Nonetheless, the Trade Desk has shown its resilience by handling the harsh environment well, as evidenced in its quarterly earnings reports for the most recent year.
What is it capable of?
Here comes the question: What does the Trade Desk rely on for its revenue growth? Although there is more than one reason, this article hopes to examine the competitiveness of the Trade Desk from the two aspects of potential opportunities and future business catalysts.
The Trade Desk Potential Opportunities
Flexible Business Model
The Trade Desk operates a programmatic advertising platform that enables its clients (typically the marketing departments of companies and ad agencies) to be in front of the right audience at the right time. The Trade Desk enables users to maximize return on advertising investment and has been a leader in programmatic advertising. The company generates revenue by charging customers a percentage of the total advertising spend on its platform.
Despite the ad pay garden — mostly tech giants like Alphabet, Meta, Amazon and Microsoft with proprietary networks and mobile apps — the tech giants capture the lion’s share of programmatic ad spending. But everything beyond the pay garden is an opportunity for other companies to grab, and The Trade Desk is one of the best.
With economic uncertainty looming and businesses struggling to optimize costs, adopting a programmatic advertising platform appears to be a more compelling option. So while there is no business that is recession-proof, The Trade Desk’s leadership and technology in the industry make it a relatively resilient business model.
Leading Technology Platform
As a recent example, The Trade Desk launched the Solimar platform in 2021 after two years of product development work. Solimar features simpler processes, advanced location capabilities, effective campaign tracking, and a robust user experience, making it easier to adopt and stickier for customers.
Digital advertisers have long relied on the technology of cookies—small pieces of data placed on users’ devices by websites they visit so that websites can track users’ browsing habits, general interests, shopping preferences, and more. In order to protect consumers’ privacy, Alphabet announced a few years ago that it planned to stop supporting cookies on Alphabet’s Chrome browser by the end of 2024. This decision shocked the entire advertising industry, because Chrome is the world’s largest web browser by market share, with a market share of more than 67% in 2022.
Removing support for cookies would impair advertisers’ ability to effectively target customers. The Trade Desk foresaw the impact of this change on the downstream, and proposed the concept of Unified ID 2.0 – a unique encrypted user identifier, which can help advertisers display relevant advertisements to potential customers, while Protect their privacy. The Trade Desk calls on industry partners to increase the adoption of the Unified Identifier 2.0 framework to build a new advertising ecosystem for a world without cookies.
Judging by these achievements, The Trde Desk is not just another typical advertising agency. As I commented on it in the book “The Rules of 10 Baggers” : it is an industry-leading technology platform that sets new standards for the digital advertising industry.
OpenPath
OpenPath will gain more traction
Perhaps one of the most underrated catalysts for The Trade Desk’s business is its recent launch of OpenPath. Just a few months after its launch in February 2022, The Trade Desk said over 100 publishers had already expressed interest in the product.
This proprietary product gives publishers the opportunity to connect directly to The Trade Desk’s platform. This, in turn, lets advertisers have direct access to premium digital advertising inventory. While The Trade Desk doesn’t make any money directly from this arrangement it offers publishers, OpenPath helps streamline the supply chain and removes a middleman for those who utilize it: supply side platforms (SSP), not only commission saved, but also the advertisement place efficiency improved. A more efficient supply chain, The Trade Desk believes, is critical to long-term growth in programmatic advertising.
Strong Financial Strength
The Trade Desk’s platform has resonated with customers, and the company’s revenue has grown tenfold from 2015 to 2021. Even in an environment of economic contraction, the company’s revenue in the second and third quarters of 2022 will reach annual growth of 35% and 32%, respectively.
About 95% of EThe Trade Desk’s revenue comes from long-term customer service agreements, which means its business model is relatively reliable and repeatable. Unlike many other fast-growing companies, The Trade Desk has been free cash flow positive since 2016. As of June 30, The Trade Desk had more than $1.2 billion in cash and short-term investments and no debt, giving it further financial flexibility.
Investors are worried about the near-term prospects of the advertising industry due to the economic downturn, but with Green’s leadership, the long-term tailwind of programmatic advertising, the company’s early leadership, and the strength of its technology platform, The Trade Desk is very well positioned to continue its dominance for the next few years.
The company’s shares may still look expensive on a price-to-free cash flow or price-to-sales basis, but they’re still significantly cheaper relative to the three-year average. All of this means that investing in The Trade Desk now could pay off handsomely over the long term for investors.
Three Favorable Catalysts
Objective neutrality
First of all, as the largest independent and objective advertising buying platform, The Trade Desk has structural advantages. For example, unlike Alphabet and Meta, The Trade Desk does not own any content that monetizes ad space.
Plus, the company only makes money from ad buyers. This means that marketers and ad agencies who buy ads using the The Trade Desk platform can trust that the company is working hard to find the best advertising opportunities on the open web. “This is our biggest advantage in the market,” Tim Sims, chief revenue officer of The Trade Desk, said in a speech at the company’s investor day this year.
Transparency and Maximum Returns
Another driver of The Trade Desk’s growth — especially effective in an uncertain macroeconomic environment — is the data-driven operating model of the The Trade Desk platform. As businesses face economic uncertainty, ensuring that every dollar spent on advertising is getting the most out of it is more important than ever for all businesses. This has led to an accelerated shift of advertising budgets to the most objective, data-driven platforms, such as The Trade Desk, because it can achieve the greatest return on advertising spend for clients.
Connected TV
Finally, The Trade Desk is well-positioned to benefit from one of the biggest catalysts in digital advertising to date: the shift of advertising budgets from traditional TV to connected TV (CTV). As a result, CTV is becoming a must-buy and, in some cases, the most important part of a marketer’s digital media plan, as CEO Green said during the company’s second-quarter earnings call.
Green has often said that CTV is one of the company’s most important catalysts because, unlike the search and social media ad channels, the CTV ad market is highly fragmented. This means that Alphabet has a larger presence in the CTV ad opportunity than any advertiser compared to Alphabet and Meta, unlike its smaller positions in search and social media.
It’s hard not to stress how important CTV is to The Trade Desk’s business. The company’s chief financial officer, Blake Grayson, said in the company’s second-quarter earnings conference call that CTV was the company’s fastest-growing advertising channel during this period—in fact, since the company went public, with CTV, It has always been like this.
Business performance in bear market
Comparison with major competitors
| Company | Q3 2022 revenue growth | P/E | Stock performance between 1/1/2022 to 11/16/2022 |
| The Trde Desk | +31% | 595.11 | -40.56% |
| Alphabet | +6% | 20.18 | -32.11% |
| Meta | -4.5% | 11.17 | -66.42% |
| Roku | +15% | 50.06 | -74.67% |
| PubMatic | +11% | 14.62% | -50.74% |
Bear market resistance
The above is the annual growth rate of the quarterly revenue of several major competitors of The Trde Desk in the third quarter of 2022 when the bear market is headed; Meta even set an embarrassing record of negative quarterly revenue growth for the first time since the company was established 19 years ago. Only the The Trde Desk family performed outstandingly. What is even more rare is that the five consecutive quarters of revenue growth rates from the third quarter of 2021 to the third quarter of 2022 when the bear market began were +39.3%, +23.7%, +43.5%, +34.6, +31.1% respectively ; with little volatility, a rare achievement that demonstrates the business’s ability to withstand economic downturns. Other advertisers are almost the first victims of the budget cuts in the bear market, and their revenues have been hit hard.
I am the author of the original text, the abridged version of this article was originally published in Smart monthly magazine.
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