Investment Thesis:
The Trade Desk's (NASDAQ:TTD) platform empowers buyers of digital ad inventory, playing into the pervasive secular trend of digitization. As the largest independent demand-side platform (DSP), The Trade Desk is an excellent long-term investment idea.
My investment thesis is summarized in the following points:
1. The Trade Desk's programmatic platform leverages artificial intelligence and big data to automate and optimize the purchase and targeting of digital ads. This means ad buyers can spend their budget more efficiently.
2. The Trade Desk's market opportunity is enormous. Digital ad spend is expected to grow at 10% annually, to reach $526 billion by 2024. But the programmatic market is growing even faster, indicating that programmatic advertising is taking overall marketshare.
3. The Trade Desk is growing revenue quickly and is profitable on a GAAP basis. Since 2016, revenue has grown at 41% annually, operating cash flow has grown at 30% annually, and free cash flow has grown at 21% annually.
Business Overview:
The Trade Desk provides a cloud-based, demand-side platform (DSP), meaning it's used to buy digital ad inventory. But DSPs not only enable the buying of ads, they also provide the ability to target audiences, set bid parameters, collect and analyze data, and optimize campaign performance.
Before moving on, I'd like to define another term: supply-side platform (SSP). In contrast to DSPs, which help buyers of ad inventory maximize efficacy of ad campaigns and marketing budgets, SSPs help sellers of ad inventory maximize profits.
As a DSP, The Trade Desk facilitates the programmatic purchase of digital ads by allowing users to place real-time bids on available inventory. The Trade Desk can purchase this inventory from over 95 ad exchanges, supply-side platforms, and ad networks.
This means marketers have access to ad impressions across a range of media: websites, mobile applications, social platforms, video, audio, and others. And
