The Trade Desk, Inc. (TTD) focuses on data-driven advertising on the open internet, by operating a cloud-based platform that allows buyers of advertising to obtain better results, explains Hilary Kramer, growth stock expert and editor of GameChangers.
In turn, it stands to grab its fair share of a nearly $1.0 trillion global advertising market. Simply put, The Trade Desk’s platform enables customers to create and manage more expressive digital advertising campaigns across all media formats and channels.
TTD’s platform fits the demands for today’s new digital advertising, as it enables advertisers to integrate their own customer data into creating campaigns. Campaigns are also able to reach the multiple platforms that exist in the new paradigm.
The platform has also proved popular with advertisers as it is easy to use and customizable, helping advertisers focus on the key factors impacting campaigns. The platform also provides great clarity, showing clients the costs of their advertising, and provides performance data on the success of their campaigns.
An example of a successful utilization The Trade Desk platform is Walmart Connect, which helps put Walmart (WMT) vendors in front of Walmart’s 150 million weekly customers.
Through use of The Trade Desk Platform along with Walmart’s vast customer data, Walmart vendors can conduct targeted digital campaigns that can help them reach customers online and in stores, allowing for more effective ad spend for vendors.
One vendor, home goods manufacturer BirdRock, was able to realize an 83% increase in sales at Walmart, while reducing cost per ads by 21% through Walmart Connect.
The Trade Desk’s customers include advertising agencies, brands, and other ad-related technology companies. And the company earns revenue from its platform by charging a percentage of a customer’s total advertising spend and by providing value-added services, such as data.
The Trade Desk has enjoyed significant growth in recent years, with sales nearly quadrupling from 2017 through 2021, increasing from $308 million to $1.196 billion. Margins over the same period narrowed as the company spent big for future growth, but EPS still increased from $0.16 to $0.91.
The company had a strong start to 2022, with revenues up 43% to $315 million, and EPS increasing to $0.21 from $0.14. However, increased investment will limit profits growth the remainder of the year, and the company expects operating income in the second quarter to be flat compared to the first quarter, despite a 15.5% increase in revenues from the first quarter.
The increased investment, concerns about the ad market, and the general sell off in NASDAQ has caused TTD shares to fall more than 50% from its November peak of $114 a share. However, I believe the shares are now reasonably valued at 40X this year’s EPS estimates of $1.00, given that revenues should continue to increase at least 20% over the next several years.
While The Trade Desk is 85% penetrated in major U.S. advertising agencies, the decentralized nature of these agencies means there is still room to grow within them. The Trade Desk also has plenty of room for international growth, as their platform does not have the same penetration rate in ad agencies in foreign markets as it has in the U.S.
In addition, CTV (Connected TV) will be another major avenue for growth, with streaming services now starting to utilize advertising in their business models.
Despite some economic-related uncertainties, I believe the overall risk vs. reward characteristics of Trade Desk are compelling at the present price. The Trade Desk is a play on the new ad world. Buy under $50. My target is $60.