How Trade Desk Skirted Apple on Ads and Won Big
Changes made to the iPhone and iPad operating system (iOS) were supposed to be apocalyptic for advertising technology companies. Despite headlines, that did not happen.
On Nov. 8, The Trade Desk (Nasdaq: TTD) reported that sales soared 39%. More importantly, executives at the ad tech firm said Apple (Nasdaq: AAPL) iOS 14 changes had no material impact on financial results.
• 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 was in lockstep 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 iOS would devastate the market for digital ads.
Meta Platforms (Nasdaq: FB) added to this view with a carefully orchestrated campaign against Apple. CEO Mark Zuckerberg spoke repeatedly about the damage iOS changes would do to small businesses and e-commerce 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 users, ad buyers must pay a flat 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 are old. Most of the industry has long since transitioned to more sophisticated tools. The only companies caught unprepared were those with special relationships with Apple, like Snap (NYSE: SNAP).
When Snap, a messaging 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 The Trade Desk Q3 results hit.
Revenue at the programmatic digital ad platform was $301 million, a 39% increase from a year ago. Excluding political spending related to the U.S. elections last year, growth was up 47%. And Unified ID — its ad tech platform standard — continued its strong industrywide momentum.
Unified 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 The Trade Desk.
CEO Jeff Green 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.
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Yet the investment case for The Trade Desk is not only about Green’s visionary leadership. The firm is riding a 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.
The 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 (Nasdaq: GOOGL) and Meta. This programmatic approach is fast, measurable and reliable.
• International Data, 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 that money will be tied to programmatic digital advertising campaigns.
I have been pounding the table since 2018 for investors to buy The Trade Desk. Shares then were only $5.75 adjusted for splits. Today, the stock is trading at $100.33 at the time of writing. That’s a 17-bagger and counting.
What was obvious in 2018 is even more apparent today: Digital is the future of advertising because all of media is headed online.
The 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.
Investors should consider buying The Trade Desk on any decline to $85.
Best wishes,
Jon D. Markman
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