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The Trade Desk: Moving Higher, Getting More Expensive

Mar. 02, 2020 5:27 AM ETThe Trade Desk, Inc. (TTD)46 Comments


  • The Trade Desk has seen an excellent year in 2019, delivering far stronger results than anticipated.
  • The company guides for continued growth in 2020, yet multiples have only increased with shares being on a tear again in 2019.
  • Still admiring the company a great deal, I recognise that expectations have only increased over time.
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The Trade Desk (NASDAQ:TTD) continues to defy the law of gravity as the operational performance remains off the chart. A year ago I looked at the company after it reported its 2018 results, concluding that the company was not just delivering on growth, it was delivering on accelerating growth as well.

I concluded that the company remains one of the most impressive growth stories out there. While recognising that the company might be conservative in its guidance for 2019, I could not put myself to chase the shares following that momentum run, despite the great prospects.

The Former Thesis

The Trade Desk is a great growth story as it has developed a platform through which advertising buyers send messages to consumers, essentially creating a huge real-time advertising marketplace. These services are in great demand as buyers look for the best ROI on their advertising budgets, as even concerns relating to personalisation, privacy and the Facebook (FB) scandal did not have a real impact on the growth story.

While I was very impressed with the performance, I unfortunately have been scarred by the painful implosion of Rocket Fuel, which was a somewhat similar business a few years before. Another concern was that the "cut" of The Trade Desk was very large. For every dollar on advertising spent on the company's platform, the company generated 20% in sales.

Trading at just $23 in the autumn of 2016 after the public offering, with the company valued at just 4 times sales, shares looked compelling. After all, the company was growing sales by 80% per year, while the company was profitable already. On the back of continued growth and low multiples, shares hit the $100 mark in the summer of 2018. Shares rallied to $200 in February of last year as the company reported strong 2018 results and provided a strong outlook for 2019.

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This article was written by

The Value Investor profile picture

The Value Investor has a Master of Science with specialization in financial markets and a decade of experience tracking companies via catalytic company events.

As the leader of the investing group Value In Corporate Events they provide members with opportunities to capitalize on IPOs, mergers & acquisitions, earnings reports and changes in corporate capital allocation. Coverage includes 10 major events a month with an eye towards finding the best opportunities. Learn more.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.

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Comments (46)

Tcostant profile picture
Time to buy at 50% discount, Purchased some at $142 on 3/18.
Truth_AndMovement profile picture
Started a position yesterday after the discount. Not exactly the kind of "value" play i look for, but wow, what a company!
hawk007 profile picture
....this is ALMOST as good as SHOP
Truth_AndMovement profile picture
You read my mind because I like SHOP too. Hoping for another discount there...its on my short list for this week
Pegasus5 profile picture
Better then shop, my opinion, special at this prices
Barry Robbins profile picture
when people mention TLRA and RUBI, I wonder how big is TTD's moat? if they are enjoying incredible growth, what prevents a tech giant from coming in as a competitor ?
Pegasus5 profile picture
With that logic no company would never be big/giant because already exists one in that industry thats a giant.

Its always a risk, sure, but if the TAM its huge, there's space for many good companies, and if you a good product and a good managment you are half aways to there.
TTD to the moon
The industry it is operating in is only just getting started.
Pegasus5 profile picture
The CEO was very clear in last Quarter conference, they will be very agressive in grow to catch as much % as possible of the future 1T TAM,meaning spending a lot in Development and Marketing, and still TTD its profitable, you dont see many companies likte this one.

When they achieve some maturity the margins will be a lot better and the earnings even better.

Im just sad i only have 10 shares at $202 sold 7 shares to start a position on Telaria and Rubicon, if in the next weeks the stock will drop to less then $220 i will add more shares and will be a lot more then 10 shares.

This is an amazing company, with top managment and a huge TAM.

Telaria and Rubicon can be the next TTD, their value right now its around $600M for each company
Actually, it' super common to see people scared to put money to work. Current stock prices are a reflection of the optimism or pessimism of the future outlook to the company and the market as a whole.

For me, it's worked well to buy the dips in TTD near the 200 MA, save some money and buy it again when fear grips the stock. This has worked well since the stock IPO'ed. I"m confident that their EPS will be north of $10 in just a few years, making my investment pay off. My last purchase was 242 last week which I added 5% to the overall shares I own.

Maybe the author should tell you what a good entry point would be v.s just saying how expensive the stock is. That would actually be a help to most people.
BigBoeing profile picture
Look at the CTV numbers. They're shouting at you. Over 5 MILLION people "cut the cable" in 2019 and went to CTV, or "streaming." Over 200,000 people cancelled their AT&T DirecTV subscriptions in December 2019 alone. Those numbers are increasing every day. The advertisers are fully cognizant of this sea change and shifting their efforts towards CTV accordingly.

I own the "Triple Crown" of programmatic advertisers, TTD, TLRA and RUBI. All are beautifully positioned to take advantage of this massive shift in advertising dollars. I'm also studying the Toronto firm AcuityAds (TSX:AT, OTC: ACUIF) that's traded on the Toronto exchange in Canadian dollars, and works the buy side of programmatic advertising. It's small, but run by very capable, bright CEO Tal Hayek. AcuityAds is reporting Q4 2019 results tomorrow morning before the open.

AcuityAds latest investor promo: https://youtu.be/Y-B2cwSqLiM
AcuityAds web site: https://www.acuityads.com
AcuityAds Toronto Listing (in Canadian dollars): stockhouse.com/...

Good luck to all! May you prosper!
Acuity is a winner trading at sub 1x revenue and sub 10x EBITDA and profitable. Great call. It’s very illiquid but really feels like the Canadian version of TTD in its infancy.
With over $100m of TTM revenue so not minuscule.
Acuity is a DSP btw.
OptionLover profile picture
High valuation in the corona virus times is not justified, and will be beaten down as it is nit realistic when the economy heads to recession after ISM releases.
CTV works in this environment
is that why they raised guidance last week in the middle of it?
Compound Novice profile picture
They didn't raise guidance, they issued 2020 guidance for the first time. Calling for 40% growth in Q1, which looks pretty good. Since the quarter is already 2/3 over, I expect them to know how they're doing and easily beat that guidance.
Compound Novice profile picture
"the $3.69 non-GAAP earnings per share number is not that meaningful with the difference entirely resulting from stock-based compensation expense, a very real expense to shareholders of course."

You literally wrote "earnings per share". Issuing new shares already influences EPS by increasing the share count. If you count SBC as a real expense, it hurts EPS twice.
Thats why I prefer non-GAAP numbers. Or just cash flow. Accounting doesn't mess with cash flow.
Appanage profile picture
Making an essentially earnings only valuation of a growth growing this fast, at the revenue level, that's making this amount of money is the definition of "go evaluate growth stocks instead." If $TTD isn't right for you now, it's never going to be.
Long TTD . . Going to ATHs soon
EriCoin profile picture
In at 189 out at 220...what a silly mistake I made.
You are allowed to buy it back and hold it for years.
EriCoin profile picture
I know. Holding for years is easier said than done. There are stocks I'm far more delighted to hold for years.
lets here them?
Bray King-Wynn profile picture
Thank you for the article and your perspective.
Tcostant profile picture
Very much like a food critic going back to a restaurant he hates, loving the food, but worried about mice he can't see.
hawk007 profile picture
...great analogy......if it gets any lower....I will have to "nibble" at the great food....and hope they do any internal clean-up on their own!!!
I find it strange that you can be so bullish on a company but are afraid to buy it based on the latest valuation. In the last year, you had multiple opportunities to buy it @ or below 200 usd. If you believe in the growth story, even at this price, TTD can go a lot higher. The latest earnings call was of the charts.
You’ll be chasing this one for awhile...2020 is the Year of the CTV revolution as well as the Elections
The "year of the hockey stick" :)
Yes they just reported a spectacular quarter this past Thursday. And said on the call they expect revenue from connected tv to double again in 2020! Wow!!
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