The Trade Desk (TTD -8.72%) investors are understandably bullish about the company’s future. Under founder and CEO Jeff Green, shares have exploded since its 2016 IPO of $1.80 (split-adjusted) and are now trading above $80, providing investors with 4,500% returns.
In a digital advertising industry controlled by Alphabet, Facebook, and fast-growing Amazon, The Trade Desk has carved out a space to become the largest independent programmatic demand sell provider. In fact, Amazon’s recent results might have pointed to a massive opportunity for the company.
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The Trade Desk’s next opportunity is a “sleeping giant”
In a July 29 blog post, The Trade Desk discussed the tremendous opportunity for retail media advertising. Investors and marketing brands mostly view digital marketing as working alongside major publishers like The New York Times, ESPN, etc., or on social media sites, to drive traffic to ecommerce sites or local stores.
While that’s a major part of digital advertising, The Trade Desk is drawing attention to the advertising space directly on ecommerce companies’ internal websites, calling it the marketing industry’s sleeping giant.
In the article The Trade Desk noted:
- The 16th largest website in terms of U.S. traffic is Walmart.
- Amazon’s last quarter was boosted by 77% year-over-year growth in its other unit, mostly advertising.
- Retail media is expected to grow from $20 billion to $50 billion in the next five years, according to MediaLink.
This is a huge opportunity for both brands and for the ecommerce sites by lowering the friction in the buying process. Conceptually, it’s akin to receiving in-store marketing versus on an outside billboard or on TV. The closer ads are to the buying process, the more effective they will likely be and the greater value they will provide for all stakeholders in the process including buyers.
In the short run, more effective marketing at the “tip of the spear” will help marketers better handle the “cookiegetton.” Apple has already banned third-party cookies (3PCs) while Alphabet is ending the practice in 2023.
Banning third-party cookies will result in a decline in retargeting – you know, when a product you don’t buy stalks you around the Internet -- and limit the effectiveness of digital ad campaigns.
Consider this an added growth lever
One thing I look for in my investments is optionality and The Trade Desk has it in spades. The company continues to benefit from mobile and desktop advertising as more marketing dollars follow eyeballs that are defection from radio and print media.
While The Trade Desk will continue to have less market share than Facebook and Alphabet, digital advertising is not a winner-take-all market. For those looking to advertise outside of these walled gardens (what The Trade Desk considers the “open Internet”), the company’s Unified ID 2.0 opt-in based 3PC replacement should win share from publishers looking to collect more data from their visitors.
In the short run, it will likely be The Trade Desk’s connected TV (CTV) business that will power the top line. Even television executives are hedging their bets when it comes to subscription-based cable and are seeing significant viewership growth in advertising supported video of demand streaming services.
Earlier this year Last year Fox Corporation acquired AVOD streamer (and UID 2.0 partner) Tubi for $440 million and promised it would be a billion-dollar business. ViacomCBS’s free AVOD Pluto TV is growing approximately 80% per year and is on track to produce $1 billion in full-year revenue by 2022.
An expensive stock but worth it
The biggest risk for The Trade Desk investors is its expensive valuation. Currently shares trades at 46 times sales with a forward price to earnings ratio of 141. The company will need to continue showing strong growth to keep investors satisfied or these multiples could quickly reverse.
So far, the company appears to be handling the pressure well. The Trade Desk recently reported second-quarter earnings, growing revenue 101% and diluted EPS 100% over the prior year’s corresponding period. As the recent blog post shows, The Trade Desk has multiple growth levers to pull and long-term investors will be rewarded.
