Changes made to the operating system used by iPhones and iPads were supposed to be apocalyptic for advertising technology companies. Despite scary headlines, that did not happen, says Jon Markman, growth-stock specialist and editor of Strategic Advantage.
Investors should buy Trade Desk shares into weakness.
Many tech watchers believed that digital ads were doomed when Apple decided in April to require users to opt-in to ad tracking. Before iOS 14, the Cupertino, California-based company had been in lock step with the rest of the industry. Users had to specifically opt out of the cookies and other ad tech tools that help ad buyers track users across the internet.
The common-sense view was that iOS would devastate the market for digital ads.
Meta Platforms (FB) added to this view with a carefully orchestrated campaign against Apple. Mark Zuckerberg, chief executive officer, spoke repeatedly about the damage iOS changes would do to small businesses and ecommerce in general. Investors inferred Meta would also fall victim. Except, that was never really going to be the case.
Facebook, Meta’s largest asset, is an online destination. The platform is a gated community where ad buyers must pay to play. To market to Facebook user’s ad buyers must pay a fee to Meta, regardless of the device being used by patrons.
The other part is more complex.
The cookies and other ad tech targeted in iOS 14 is old. Most of the industry has long since moved on to more sophisticated tools. The only companies caught unprepared were those firms that had special relationships with Apple, like Snap, Inc. (SNAP).
When Snap, a message platform, reported Q3 earnings in October, investors were shocked by the magnitude of the earnings miss. Shares collapsed 27% following the release of financial results. Mark Zgutowicz, an analyst at Rosenblatt, predicted that Snap might lose one-third of its core iOS-related ad revenue.
Others foolishly rushed to downgrade the entire ad tech sector.
Then, Trade Desk Q3 results hit.
Revenue at the programmatic digital ad platform was $301 million, a 39% increase from a year ago. Excluding political spend related to the US elections last year, growth was up 47%. And Unified ID, its ad tech platform standard, continued its strong industrywide momentum.
Universal ID is an open source ad tech standard that supersedes cookies and other antiquated browser tracking tools now blocked by default in iOS. The tech was developed in house at Trade Desk.
Jeff Green, chief executive officer, told analysts that as he predicted, the most recent iOS changes had no material impact on business, and he expected that to remain the case moving forward.
Yet the investment case for Trade Desk is not only about Green’s visionary leadership. The firm is riding a really big tailwind.
Digital ads are the future of advertising. Companies were always going to find a workaround for changes made by Apple. Ad buyers want to be able to use data to inform their digital campaigns, and they want to do this in real-time. Trade Desk provides an open platform that lets them buy ads using algorithms in the blink of an eye across all parts of the internet not controlled by Alphabet (GOOGL) and Meta. This programmatic approach is fast, measurable, and reliable.
International Data Corp., an analytics company, predicts that ad spend will rise from the current $750 billion annually, to $1 trillion by 2025. Green says that eventually almost all of that money will be tied to programmatic digital advertising campaigns.
I have been pounding the table since 2018 for investors to buy Trade Desk. Back then shares were only $5.75 adjusted for splits. Today, the stock trades at $100.33. That’s a 17-bagger and counting. For this letter we recommended it on April 20 last year at split-adjusted $22.50, and it’s now $105.40, up 369%.
What was obvious in 2018 is even more apparent today. Digital is the future of advertising, because all of media is headed online. Trade Desk is taking a leadership role in setting the standards and it is winning the biggest and best clients.
It’s naïve to believe Apple can materially alter this course. Even after the recent moonshot, it’s still only a $46 billion company. Newcomers can buy Trade Desk on any decline to $85.