How The Trade Desk Has Pioneered the New Era of TV Ads
The growth of connected TV is soaring and The Trade Desk, Inc. (Nasdaq: TTD, Rated “C”), a programmatic advertising platform, should continue to reap most of the rewards.
The Ventura, Calif.-based company reported spectacular sales and earnings growth on Thursday. Consumers are switching from cable and satellite to streaming, and advertisers are following.
Admittedly, I’m a huge Trade Desk bull. I have been aggressively recommending the stock since 2018 when shares were trading at only $120. What I saw then was a business with the right software to grab a huge share of an advertising marketplace that was set to grow exponentially.
Connected TV, or CTV for short, is any media streamed over the internet that does not require a satellite or cable TV subscription.
Since 2007, when Netflix, Inc. (Nasdaq: NFLX, Rated “C+”) managers decided to make the jump from mail-order DVDs to streaming video on demand (SVOD), this category has been growing like gangbusters. Today, consumers can get CTV from smart TVs, dongles like Roku, Inc. (Nasdaq: ROKU, Rated “D”), Amazon Fire Stick and Google TV, game consoles like Xbox and PlayStation and dedicated over-the-top boxes like Apple TV, just to name a few.
CTV is a category killer being pushed by every major technology company, with others joining the fray every day.
From The Walt Disney Co. (DIS) to Comcast Corp. (Nasdaq: CMSCA, Rated “B-”) and Warner Media, the race is on to build big streaming media businesses. CTV applications from Disney+, Peacock and HBO Go all bypass cable and satellite providers.
And despite fearmongering about privacy from Apple Inc. (Nasdaq: AAPL, Rated “B”), it’s a good bet much of this content is going to be ad-supported. Roku, Amazon.com, Inc. (Nasdaq: AMZN, Rated “B”), Disney and Comcast currently have connected, digital ad models in place. Others are certain to follow.
Related post: The Trade Desk Enables New Generation of TV
With that said, the Trade Desk has become the cornerstone in the new digital media reality. Its programmatic advertising platform allows advertisers to buy digital ads in real-time across everything that is not Google or Facebook, Inc. (Nasdaq: FB, Rated “B”).
Because the company owns no media, Trade Desk has been able to strike AdTech deals with Disney, Amazon.com and Chinese internet behemoths Alibaba Group Holding Limited (NYSE: BABA, Rated “B”), Baidu, Inc. (Nasdaq: BIDU, Rated “D+”) and Tencent.
At the same time, the company has become a trusted partner for giant ad buyers like The Proctor & Gamble (NYSE: PG, Rated “B”). These buyers are looking to purchase digital ads because they are effective and measurable, unlike traditional linear TV.
A perfect example is sports on CTV platforms. For traditional TV, advertisers buy spots in advance. However, that strategy can be fraught with problems. Commercials targeted for the eighth inning of a blowout major league baseball game are wasted because nobody is watching. One the other end, content providers are often forced to give away spots during extra innings, the most watched time, because their models are not built to account for extended play.
That’s where the Trade Desk makes things easy. It optimises the cost of all ads in real-time based on data. It’s a win for ad buyers, content providers and the programmatic platform.
eMarketer, a digital ad research firm, predicts advertisers in the United States will invest almost $80 billion in programmatic advertising during 2021, up 16.5% from 2020.
Late last week, The Trade Desk reported $216 million in third-quarter revenues, up 32% year-over-year. CTV sales were up 100% during the same time frame. Per-share earnings surged to $1.26, three times higher than expectations according to FactSet.
Shares now trade at 196 times forward earnings and 41.5 times sales. Investors are clearly betting the business will get much bigger. That’s a fair bet; as the number of applications grow, digital ad spending and the total addressable market shoot higher.
The stock is up 215% this year, almost $700 above where I first recommended investors buy in 2018.
This is a profitable, well-managed business on the ground floor of the future of digital media. The opportunity is still enormous, though clearly no longer undiscovered.
Shares are currently trading near $790. Investors looking to get in should be patient and wait to buy shares into any substantial pullback.
Jon D. Markman