The Trade Desk: A Rising Star in the Digital Advertising Landscape

The Trade Desk: Riding Multiple Tailwinds In A $1 Trillion Ad Market (NASDAQ:TTD)

Though expensive at ~18x current-year revenue, this is still a company that will be substantially larger in several years, making near-term multiples more deceptive. This year's rally has largely been about the AI surge, but when we take a step back, the heart of AI is automation, and automation has been vibrant in many industries for years. Championing automation and efficiency in the gigantic advertising industry has been the bread and butter of The Trade Desk (NASDAQ:TTD) since its inception in 2009, and this year, the stock is rallying sharply (up nearly 40% year to date) on a driver that has little to do with AI: the rise of the connected TV. Growth is accelerating, pumping more and more value into The Trade Desk's stock. Generally, I'd approach these richly valued companies with a large measure of caution, and I'd err on the side of selling these off to invest in more value-oriented names. But in my view, The Trade Desk has that "special sauce" with multi-year growth drivers to justify its premium valuation despite the rally it has under its belt. I'm assigning a buy rating to this phenomenal growth stock. In my view, here are the core reasons to be bullish on The Trade Desk: In my view, The Trade Desk's growth acceleration this year is a testament to the largesse of its market, and helps to justify why near-term multiples are so elevated. And it's not just a "growth at all costs" story, either: the company's profits (it prides itself on having been profitable since 2013, truly a rarity for fast-growing tech stocks) are rising faster than the top line. Despite the strong YTD rally, I'd encourage investors to keep holding on for more upside ahead. Typical tech companies follow a predictable growth pattern: they burst with explosive growth rates at the beginning of their lives as they capture more share in their market, and then eventually they become a victim of their own scale and gradually slow down to more unimpressive, stable growth rates. But despite hitting over $2 billion in annualized revenue run rates, The Trade Desk is experiencing significant acceleration. Take a look at its quarterly revenue, trended over time: In its most recent quarter, Q1, The Trade Desk achieved 28% y/y revenue growth to $491 million, blasting past Wall Street's expectations of $480.5 million (+26% y/y). This accelerated five points versus 23% full-year growth in FY23. There are both secular and company-specific deal successes here, and we'll start with the broader secular themes. The biggest driver that we mentioned upfront is robust growth in connected TV. Growth in this sphere is coming from all angles: consumers are consuming more internet TV content than traditional or "linear" TV, device makers like Roku are putting out connected TVs at accessible prices for all audiences, and advertisers are also shifting their spend away from traditional TV and into the internet, with their ad dollars following where the viewers' eyeballs are going. But it's not just about more entertainment being consumed online versus on broadcast, either. Connected TV has the advantage of being able to target users more specifically (versus traditional advertising being more of a "spray and pray" approach), which is where publishers of digital content have an advantage over linear or broadcast. According to the Trade Desk, the CPM (cost per mille, an advertising term for the cost of reaching one thousand unique impressions or views) of traditional TV spend is $10, whereas connected CPM is $20. Clearly, content publishers are going to focus on selling inventory where CPM is highest. And on the advertiser (demand) side, more data and analytics are available for the success and results of internet advertising, often more than justifying the higher cost. Beyond these secular tailwinds, The Trade Desk has also achieved a number of enviable, high-profile deals. In particular, the company inked a deal with NBCUniversal to make ad inventory for the 2024 Paris Summer Olympics available via The Trade Desk. According to the company, it's the first time that the Olympics' ad segments are being sold programmatically, marking an important shift for marquee and legacy events away from analog buying and into automated buying. The company also inked similar deals to make more ad inventory from Disney (DIS) and Roku available via The Trade Desk's platform, strengthening the company's reach with two of some of the most important streamers in the industry. And as The Trade Desk has grown, so has its profitability. In its most recent quarter, The Trade Desk's adjusted EBITDA climbed 49% y/y to $161.7 million, with an adjusted EBITDA margin of 33% expanding five points versus 28% in the year-ago quarter. And that's just the beginning of The Trade Desk's profitability leverage; already in Q2 the company has guided to adjusted EBITDA margins of 39%, improving a further six points sequentially from Q1. The core risk to the bull thesis for The Trade Desk and its valuation are one and the same: investors are already banking on tremendous growth for this company and assigning a healthy premium to this stock as a result. At current share prices near $96, The Trade Desk trades at a market cap of $46.96 billion. After we net off the $1.42 billion of cash on the company's latest balance sheet, The Trade Desk's resulting enterprise value is $45.54 billion. Meanwhile, for the current year FY24, Wall Street analysts are expecting The Trade Desk to generate $2.42 billion in revenue (+24% y/y), and next year in FY25 to grow a further 20% y/y to $2.90 billion. This puts the stock's valuation multiples at: It's a steep valuation vis-a-vis other software companies that are growing at a ~20-30% y/y clip; but rather than seeing The Trade Desk as in a bubble, I view the stock as the beneficiary of multi-year tailwinds that are pushing more dollars into programmatic advertising spend. The company's high-profile deals with media companies in Q1 is evidence of its growing momentum, and its sharp adjusted EBITDA margin gains further cement the case that this company still hasn't hit the phase of maturity and slowdown yet.

Is The Trade Desk an Unstoppable Growth Stock to Buy at Over $100 Per Share? | The Motley Fool

Many investors clearly believe this growth company can sustain its upward trajectory. Earlier this month, shares of advertising technology (adtech) company The Trade Desk (TTD 0.30%) hit $100 per share. It wasn't an all-time high -- the company hit that in late 2021. But it was the highest the stock has been in two years, which is exciting. The Trade Desk stock is a little off its high as of this writing. But shares have climbed steadily in recent years, thanks to outstanding business growth. The company's revenue is roughly 10 times greater than it was when it first went public in 2016. And it consistently generates positive free cash flow. Both factors have helped it be a stock market winner. The Trade Desk seems to be unstoppable. Will that stay the case? To answer that, it's best to take a look at the industry it's in, the company's business model, and some other relevant numbers. The Trade Desk is a programmatic adtech software company. According to eMarketer, programmatic advertising is "Any ad that is transacted or fulfilled via automation." In other words, many of the digital ads people are exposed to are placed there automatically, rather than being a fixed ad placed there by a human decision-maker. The benefit with a system like this is that publishers can display ads that are targeted to a desired audience. Because it's targeted, the chance of getting good results for advertisers is high. And because advertisers are competing behind the scenes to get that ad spot in real time, the rates these publishers can charge are higher, in theory. When it comes to digital advertising, eMarketer is the outfit to talk to. It regularly tracks industry sales data and gives forecasts, which are helpful. In 2024, it expects nearly 16% growth for programmatic ad spend, lifting the size of the market to $157 billion. Much of this growth is coming from connected TV (CTV) -- TV programming delivered over an internet connection. The Trade Desk specializes in this space and has consequently benefited from the industry growth -- it was in the right place at the right time. Advertisers use the company's software to place automatic bids on ad spaces. The company also provides the ability to target and monitor ad effectiveness, which is something in high demand. According to management, growth in CTV revenue was the main growth driver for The Trade Desk in the first quarter of 2024, as has been the trend. This makes sense given the general tailwind for CTV advertising. But the company benefits from programmatic ad growth in other areas as well. The Trade Desk claims to be the largest adtech company that does what it does -- it's a demand-side platform. But even though it's the biggest, the company only has $2 billion in trailing 12-month revenue. That's a small sliver of the market and gives it plenty of room for ongoing growth. To be clear, it's reasonable to expect growth from here. Not only is the industry growing, as eMarketer points out, but The Trade Desk has some good things going. Large digital advertising companies are phasing out third-party tracking data, potentially making The Trade Desk and its first-party data more relevant than ever to advertisers. This is the data used to improve targeting and boost effectiveness. Moreover, management claims that its artificial intelligence (AI) software is improving its targeting capabilities. I believe The Trade Desk could be an unstoppable business for years to come. The industry's growth seems to be sustainable in the long term, and the company is riding the trend higher thanks to its own merits. I don't believe this trajectory will be stopped. That said, The Trade Desk stock is richly valued at about 23 times its trailing sales. This is called valuation risk. The Trade Desk is richly valued because of the quality of its business and its growth prospects. But if anything were to ever happen with investors' perceptions of the company's quality or if growth unexpectedly slowed, the valuation would likely come down and cause the stock to underperform. However, investors might not necessarily want to wait for cheap valuation for The Trade Desk stock. As the chart below shows, the market has sustained this lofty valuation for some time. For investors who believe this is a strong growth industry and that The Trade Desk is a top company, the better option may be to dollar-cost average when buying shares. This method invests money gradually over a period of time. That way, the money is spread out in case a stock suddenly drops lower. By dollar-cost averaging, investors can get The Trade Desk stock for an average price, rather than risk investing everything at an expensive peak. This could be a good way to get exposure to this unstoppable growth stock.

Is The Trade Desk an Unstoppable Growth Stock to Buy at Over $100 Per Share?

Earlier this month, shares of advertising technology (adtech) company The Trade Desk (NASDAQ: TTD) hit $100 per share. It wasn't an all-time high -- the company hit that in late 2021. But it was the highest the stock has been in two years, which is exciting. The Trade Desk stock is a little off its high as of this writing. But shares have climbed steadily in recent years, thanks to outstanding business growth. The company's revenue is roughly 10 times greater than it was when it first went public in 2016. And it consistently generates positive free cash flow. Both factors have helped it be a stock market winner. TTD Revenue (TTM) data by YCharts. The Trade Desk seems to be unstoppable. Will that stay the case? To answer that, it's best to take a look at the industry it's in, the company's business model, and some other relevant numbers. Here's why The Trade Desk is so successful The Trade Desk is a programmatic adtech software company. According to eMarketer, programmatic advertising is "Any ad that is transacted or fulfilled via automation." In other words, many of the digital ads people are exposed to are placed there automatically, rather than being a fixed ad placed there by a human decision-maker. The benefit with a system like this is that publishers can display ads that are targeted to a desired audience. Because it's targeted, the chance of getting good results for advertisers is high. And because advertisers are competing behind the scenes to get that ad spot in real time, the rates these publishers can charge are higher, in theory. When it comes to digital advertising, eMarketer is the outfit to talk to. It regularly tracks industry sales data and gives forecasts, which are helpful. In 2024, it expects nearly 16% growth for programmatic ad spend, lifting the size of the market to $157 billion. Much of this growth is coming from connected TV (CTV) -- TV programming delivered over an internet connection. The Trade Desk specializes in this space and has consequently benefited from the industry growth -- it was in the right place at the right time. Advertisers use the company's software to place automatic bids on ad spaces. The company also provides the ability to target and monitor ad effectiveness, which is something in high demand. According to management, growth in CTV revenue was the main growth driver for The Trade Desk in the first quarter of 2024, as has been the trend. This makes sense given the general tailwind for CTV advertising. But the company benefits from programmatic ad growth in other areas as well. The Trade Desk claims to be the largest adtech company that does what it does -- it's a demand-side platform. But even though it's the biggest, the company only has $2 billion in trailing 12-month revenue. That's a small sliver of the market and gives it plenty of room for ongoing growth. To be clear, it's reasonable to expect growth from here. Not only is the industry growing, as eMarketer points out, but The Trade Desk has some good things going. Large digital advertising companies are phasing out third-party tracking data, potentially making The Trade Desk and its first-party data more relevant than ever to advertisers. This is the data used to improve targeting and boost effectiveness. Moreover, management claims that its artificial intelligence (AI) software is improving its targeting capabilities. What should investors do? I believe The Trade Desk could be an unstoppable business for years to come. The industry's growth seems to be sustainable in the long term, and the company is riding the trend higher thanks to its own merits. I don't believe this trajectory will be stopped. That said, The Trade Desk stock is richly valued at about 23 times its trailing sales. This is called valuation risk. The Trade Desk is richly valued because of the quality of its business and its growth prospects. But if anything were to ever happen with investors' perceptions of the company's quality or if growth unexpectedly slowed, the valuation would likely come down and cause the stock to underperform. However, investors might not necessarily want to wait for cheap valuation for The Trade Desk stock. As the chart below shows, the market has sustained this lofty valuation for some time. TTD PS Ratio data by YCharts. For investors who believe this is a strong growth industry and that The Trade Desk is a top company, the better option may be to dollar-cost average when buying shares. This method invests money gradually over a period of time. That way, the money is spread out in case a stock suddenly drops lower. By dollar-cost averaging, investors can get The Trade Desk stock for an average price, rather than risk investing everything at an expensive peak. This could be a good way to get exposure to this unstoppable growth stock. Should you invest $1,000 in The Trade Desk right now? Before you buy stock in The Trade Desk, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now... and The Trade Desk wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $722,626!* Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*. Jon Quast has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends The Trade Desk. The Motley Fool has a disclosure policy. The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.