During 2020, eMarketer estimated 6.6 million Americans dropped their cable TV subscriptions. Why? Because of streaming video services like Netflix (NFLX), Hulu and Amazon Prime, observes Tony Sagami, editor of Weiss Ultimate Portfolio.
There’s simply no question — on-demand streaming video programming is transforming the way we watch TV. As a result, advertising is also changing dramatically.
For decades, advertisers shoved commercials down our throats regardless of our age, sex, income or interests. TV companies were content because they got paid whether we watched the commercials or not.
That doesn’t cut it any more in these days. Social media platforms, search engines, e-commerce stores and payment processing companies collect so much personal data from us that they can pinpoint exactly who we are and what we’re interested in. That highly personalized information is digital gold for advertisers.
This highly targeted, highly personalized and highly accurate form of advertising is called “programmatic advertising”. It’s characterized by the use of big data and artificial intelligence instead of human opinion.
This not only gets the right ad seen by the right eyeballs, but it’s cheaper and more effective. Plain and simple: Programmatic advertising is much better mousetrap than traditional advertising.
Programmatic advertising is also real time. An ad in the fourth quarter of seesaw, nail-biting Super Bowl is much more valuable than an ad in the fourth quarter of a blowout regulation game.
Programmatic advertising offers real-time auction, so an ad buyer is never going to get stuck paying top dollar for a spot that nobody is watching. The buyer will pay the dynamic, fair market price for that spot based on real time statistics.
Enter The Trade Desk (TTD), the world’s largest digital advertising placement platform for the buying and selling of digital ad inventory.
It essentially controls every piece of internet advertising that isn’t Facebook (FB) or Alphabet (GOOGL), which control and sell their own advertising.
The Trade Desk has lucrative and exclusive deals with most major content providers like The Walt Disney Co. (DIS) and Amazon (AMZN) in addition to Chinese firms Alibaba Group Holding Limited (BABA), Baidu (BIDU) and Tencent Music Entertainment Group (TME).
eMarketer estimates that programmatic ad spending hit $68.5 billion in 2020, a 19.5% year-over-year increase. And they predict it will hit $79.8 billion by 2021. The Trade Desk is grabbing a huge chunk of that business.
Last quarter, Trade Desk reported record revenues of $319.9 million, a 48% year-over-year increase and profits of $3.71 per share, a whopping $1.83 more than Wall Street was expecting.
For the year, Trade Desk pulled in $836 million, a 26% year-over-year increase as marketers took advantage of the extra time consumers were spending watching videos. The company also enjoyed a $1,558% increase in free cash flow. You read that right — a 1,558% increase!
Lastly, CEO Jeff Green owns 10.7% of the company, so he has every incentive in the world to grow it and goose the price of the stock. Too often, CEOs don’t behave like owners because they don’t have enough “skin” in the game. But not Green; his financial life depends on the success of Trade Desk.
In addition, Trade Desk has a pristine balance sheet: $624 million of cash and not a single dime of debt. We rate the stock a buy.
