Growth Stocks: The Trade Desk

• Trade Desk recently launched its Solimar platform to take measurable advertising to a whole new level.
• The delay in disavowing cookies has allowed marketers to assess how Solimar could help them move away from closed environments.
• The company's launch in India demonstrates the high scalability of the company's business model and platform as the industry-leading DSP (Digital Signal Processor).
• While we largely embrace their premium assessment, we do share our thoughts on why we are moving our rating from Buy to Neutral for now.

The Trade Desk (TTD.US) is a global technology company that markets a software platform used by digital ad buyers to purchase data-driven digital advertising campaigns in various ad formats and devices. The launch of the Solimar platform, which CEO Jeff Green defined as: "the most advanced DSP ever created for the open internet," as well as Alphabet's (GOOGL) announcement that it would delay the disapproval of third-party cookies. The market received both news as this gives marketers more time to work towards alternative solutions like TTD's Unified ID 2.0 proposal, which was timely as it allows The Trade Desk to demonstrate to their marketers how Solimar would be the leading independent solution to help all marketers confidently move forward into the future of the open internet as the Washington Post clearly articulated: "If we do nothing, we give our ad revenue stream to closed environments" .

Delving into TTD opportunities in the Connected Television (CTV) space, and how the launch of Solimar would go a long way toward establishing the company's leadership in the open Internet without competing head-on with Alphabet, Facebook (FB) and Amazon (AMZN) in its closed environments, as the company believes that its independent platform provides "objectivity, something that Google does not have because they are trying to monetize on their sites."

Some market data

CTV advertising market growth from 2019 to 2022

source: eMarketer

Reasons to shift media budgets from linear TV to OTT and CTV in the US in 2021.

source: eMarketer

TTD operates in a fascinating subsegment of CTV's ad space; the scheduled advertising space. This is where Demand Side Programmatic Platforms (DSP) thrive as the industry leader in TTD. Its ability to leverage highly data-driven processes to efficiently target and reach consumers is valuable, as "targeting and efficiency" accounted for 81% of marketers' reasons for changing their advertising budget to OTT and CTV platforms. The company's Solimar platform is said to leverage this advantage even further with even stronger measurement capabilities, which TTD emphasized: "It is a reinvention of goal-based purchasing."

Purchasing based on objectives is when an advertiser optimizes an advertising campaign to achieve a certain result, raised in advance. ”In addition, Solimar has further enhanced the ability of marketers to conduct results-focused campaigns across all channels within of digital advertising, with the ability to "measure ad spend across disparate channels such as screens, CTV, and digital audio," which is highly appreciated by marketers.

Therefore, the company has developed a competent platform that will expand the company's leadership as the market-leading DSP and capture the huge opportunities in CTV's programmatic ad space, where the market is expected to grow from just $ 3.2 thousand. million in 2019 to $ 8.67 billion by 2022, growing at a very notable CAGR of 39.41%. While cutting cables from linear TV to CTV is the cornerstone driving the secular shift in advertising budgets to CTV, the programmatic subsegment within CTV takes this approach one step further, as "the nature of CTV makes it difficult to identification of CTV viewers. Apps are a cookie-free environment (like mobile apps), and CTV devices are often shared by a household, making it difficult to know who is watching at any given moment. Also, a significant part of advertising CTV does not make decisions, based on the level of impacts ".

Therefore, we can extract from the above the vital functions that scheduled CTV ads will play in the CTV ad space with highly efficient targeting and measurable capabilities. This is where we expect Solimar to continue to lead the industry's efforts.

Compete against closed environments

Net Digital Display Ad Market Share of Top Ad Selling Firms in the United States from 2019 to 2021

source: eMarketer

Investors were able to clearly deduce from the graph above where the closed environments of FB, GOOGL and AMZN were expected to account for about 51.3% of the total digital market share in 2020, among the other major platforms, leaving about 35% participation for the rest of the open Internet. The size of these environments certainly controls significant leverage against the ad industry as they accounted for close to $ 78 billion of the total expected ad spend in 2020.

The Trade Desk has cleverly leveraged source data by working with Walmart (WMT), Home Depot (HD), and Blockgraph, "a data ingest service for television commercials backed by Comcast, Charter, and Viacom CBS," now to marketers to "incorporate their valuable CRM data, leveraging identity innovations like Unified ID 2.0." So now brands and marketers have the opportunity to use their first-person data on TTD's Solimar platform to deliver KPI-driven marketing campaigns that the business can use with artificial intelligence to optimize and maximize campaigns. in a 'digestible' and 'easy to use' way that engages marketers mid-campaign and allows them to access performance rather than relying on a software expert to keep them up to date. "

More importantly, the company has a huge repository of historical data that it has been testing "over the last decade" to ensure that the platform can deliver the desired results for marketers.

More and more marketers are likely to start incorporating their source data, even though the disapproval of cookies has been delayed. Everyone in the advertising industry may think that it is better to move to a platform that can help them make the best use of their valuable source data than to rely on closed environments, even if they control most of the digital advertising market. Given that the digital ad market is expected to grow at a compound annual rate (CAGR) of 16.3%, from $ 152.25 billion in 2020 to $ 278.53 billion in 2024 (much slower than the growth CTV ad estimate), there may still be plenty of opportunity for TTD to bet on growing in its own programmatic ad market, as well as driving marketers "stuck" in closed environments away over time.

Profitability and Valuation

One of TTD's main problems is its premium valuations over the years, with a 3-year average of 19.46x and 64.38x for its EV / Fwd Revenue and EV / Fwd EBITDA multiple, respectively. While it doesn't have to be a disadvantage, a very high-quality company might have a higher valuation. However, an expensive valuation would still subject the stock to enormous price volatility and big sales like those that took place in the first quarter of 2021. Therefore, investors should be especially cautious and more selective with their entry points for make sure they do not enter into valuations that may seem excessive.

TTD is currently valued at 30.6x and 87.2x, for its EV / Fwd and EV / Fwd EBITDA multiples, respectively. This places the stock with a premium of 57% and 35.4% above its 3-year average, respectively. Therefore, although TTD is a stronger and better positioned company compared to the last 3 years, given the great improvement in its operating performance, as well as its continued strong positioning in a rapidly expanding market, it hinders a “remarkable increase " on the action.

Technical analysis

The company has recovered in more than 75% of the fall suffered during the first quarter of the year. Following the latest local pullback, the company is attempting to break through the 78.6% fibo resistance at $ 83.5 per share.

its EMA50 has had a dynamic behavior as support in the rises as in recent behavior as resistance. Its latest key support level has also played as a reference.

source: xStation

If it manages to pass it before the launch of its earnings on August 12, it would have a clear path to consolidate the level and start the last stretch of full recovery from its ATH at the end of 2020 at $ 97.62 per share.

Dario Garcia
XTB Spain