Why Should You Own The Trade Desk?

Summary

• The markets TTD is in are growing quickly, and the growth runway for the company is long.
• International expansion, mobile, and connected TV are the fastest growing segments for TTD.
• Competitive advantages include scalability, transparency, an omnichannel presence, and high-quality management.
• Competition seems to be the biggest risk factor.
• Valuation is high, but growth investors shouldn't shy away.

Company Details

• Founded in 2009 by Jeff Green
• IPO’d on September 21, 2016, around 28/share
• Latest price: $56/share
• Latest market cap: 2.3 billion
• Sector: Software
• Industry: Programmatic Advertising

History of Ad-tech/Industry Background

Before getting into some market and company-specific analysis of The Trade Desk (NASDAQ:TTD), let’s look at the evolution of advertising technology to give us some context. Over the past 15 years, the ad tech industry has transformed from advertisers having direct relationships with site publishers to the development of RTB (real-time bidding). As the landscape has shifted, The Trade Desk’s CEO, Jeff Green, has been at the forefront of the innovation as he now looks to capitalize on the growth of programmatic advertising. The history of this industry is a testament to how quickly the relationship dynamics and technology have changed. Therefore, it is so crucial for leadership to be innovative as Jeff Green has proven to be.

• 1993 – First ad banner on a website (publisher: Wired Magazine)
  • CTR (click-through-rate) for this first banner was 42% compared to nowadays a good CTR is around 2%
  • Advertisers had direct relationships with publishers
• 1995 – WebConnect, the first ad network (changed the direct publisher to advertiser dynamic)
  • Variable pricing based on audience; ad network (middle-man who provides scale for advertisers and publishers)
• 2002 – AdWords
  • Google (GOOGL) (GOOG) focused on relevance as well as CPC (cost-per-click)
• 2005- Early “ad exchanges”
  • AdECN (founded by Jeff Green) was launched in 2004 and then bought by Microsoft (MSFT) just three years later at a price around $70 million
  • Mini-auctions that pair the ad networks and publishers for inventory needs
• 2007- DSPs
  • Demand-side platforms that work with the ad networks to maximize their spend
• Now- RTB (real-time-bidding)
  • Automatic bidding that goes on when you load a YouTube video or a webpage
  • The Trade Desk specializes

Analyst’s Disclosure:I am/we are long TTD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Research was done by Ryan Reeves of DX2 Capital Management