I last profiled The Trade Desk
(TTD - Free Report
) on May 20 in our weekly Top Picks video after the company had reported a strong "beat and raise" first quarter and the stock fell back from all-time highs above $230 to an attractive consolidation zone between $195 and $205.
I was pounding the table then about the true disruption this $10 billion digital advertising David was creating amidst the Goliaths Facebook and Google.
Why? Not just because they are disrupting a $750 billion global advertising market. And not just because they just entered the largest single-language consumer market in the world, China, with over 500 million people using their mobile phones to search, shop, and engage content.
But precisely because The Trade Desk is a next generation advertising platform that allows marketers precision access to billions of consumers using hundreds of websites, apps, web-connected TV channels and other digital content providers like streaming music sites that slip ads into the experience.
In other words, while Google and Facebook are giant "walled gardens" for advertisers to experiment in, they are not the entire universe of possible locations where companies can find their potential consumers.
Plus, The Trade Desk has capitalized on the same type of data-driven technology that the giants use to target specific audiences and then give ad buyers detailed information on which customers made a purchase based on which of their ads. This attribution data is the lifeblood of the digital advertiser.
What's more, The Trade Desk technology gives advertisers all of this information and access in a real-time "mission control" platform that allows two important functions:
(1) consumer behavior data and research across digital media "channels" and verticals to obtain precision targeting; and
(2) complete automation of ad-buying programs that can participate in virtually unlimited auctions -- lasting just 1/10th of a second -- for omnichannel advertising "real estate" that suits their requirements and audiences.
Advertising Goes Algo
This "programmatic" ad-buying auction is why you now see static ads changing every 30 seconds on your favorite websites. And The Trade Desk says that "Even media that isn't digital will be transacted digitally, using the internet."
CEO Jeff Green even compares their platform to the modern stock exchange where automated algorithms are responsible for over 70% of the trading volume.
As you may know, the real-time, global, electronic auctions that have become our security exchanges are powered by lightning-fast fiber optics and high-powered servers -- and they are largely responsible for increased liquidity via tighter bid/ask spreads and depth, supported by the speed of computers which can control risk on bigger size.
This "price discovery" auction process is as old as the first futures exchanges in Chicago over 150 years ago and has always relied on a multitude of diverse participants coming together in one place and each voting for their own idea of value.
Thus, the modern programmatic ad auction becomes the centralized market place for the discovery of advertising value and thereby delivers the central answer being sought: what is an ad really worth?
The Linchpin: The Marketing Agency
"Ads are the currency of the internet. Ads are the currency of nearly all media." - Jeff Green, CEO of The Trade Desk
While advertisers can access The Trade Desk platform directly, the classic middle-man in the industry remains important. In fact, the modern ad agency is being transformed by this data-driven revolution as they no longer have to guess what will work and everything can be tested in real-time.
The days of "creative" departments pitching ideas that may or may not work with a broad audience, but can't be tracked and measured, are over. Today, there is a deluge of data about customer behavior and purchasing being recorded on the web and elsewhere and all this information is available to savvy marketers.
Through a self-service, cloud-based platform, ad buyers can create, manage and optimize data-driven digital advertising campaigns for their clients, including display, video, audio, native and social, and all on a multitude of devices.
And they can set up ad buying and placement programs to run automatically to "chase" target audiences across the omnichannel jungle of content providers, placing ads in front of the right people, in the right place, at the right time -- and all with attribution data that is tracked to let them know what worked and what didn't.
Going Algo Means Going AI
Here's what my colleague Ben Rains wrote about the company's latest innovation on May 22...
TTD rolled out its own AI technology it calls Koa last summer to help automatically surface data-driven recommendations in real-time to improve ad campaigns. The process allows customers to get a more market-driven price on their ads, reach the right target audience on the right devices, and more. In the end, non-ad supported services such as Netflix (
(NFLX - Free Report
) ), Amazon Prime (
(AMZN - Free Report
) ), Spotify (SPOT), and soon enough Disney (
(DIS - Free Report
) ) and Apple (AAPL), have made consumers harder to reach. Therefore, companies big and small need a more modern, data-driven way to advertise, and The Trade Desk seems poised to benefit from these needs.
Investors should also note that The Trade Desk recently launched a programmatic ad buying platform in China. The firm also said that its newer connected TV and audio channels “grew multiples faster” than its more mature units, which is a good sign as smart TVs from the likes of Roku (
(ROKU - Free Report
) ) and digital audio and podcasts proliferate. On top of that, The Trade Desk boasted that its customer retention rate remained over 95% during Q1, “as it has for the previous 21 quarters.”
(end of Ben Rains notes)
The OTT World of Connected TV
When advertisers circumvent traditional ad-buying and placement channels with networks and cable to get their commercials onto TV shows using the internet, it's call "over the top," or OTT.
Initially named in reference to devices that go “over” a cable box to give the user access to TV content, OTT advertising is also delivered via an internet connection rather than through a traditional cable/broadcast provider.
This is probably one of the biggest new markets for The Trade Desk. Here' how the company describes the opportunity for advertisers...
What if you could get all the benefits of advertising on TV, but with more control over who sees your ads and how often? With Connected TV (CTV), you can serve up your ads at the right time, the right number of times – so your audience doesn’t tune out. Plus, get real-time results that help you optimize campaigns faster.
Technology has changed the way people watch TV. Now we’re changing the way you reach audiences with your ads. CTV brings the advantages of programmatic to TV advertising, helping you connect with a highly engaged audience wherever they’re watching.
And here are the primary benefits The Trade Desk sees its platform being able to deliver to OTT advertisers...
- Data-driven targeting. Use first and third-party data to reach your most valuable audiences on every screen -– just like with your digital campaigns.
- Better measurement. Track the impact of your CTV campaigns with digital and traditional metrics, including video completion rates and gross rating points.
- Smarter retargeting. Re-engage viewers within households across streaming devices, computers, tablets, and mobile phones.
- Premium inventory. Run your ads alongside popular TV shows and movies, in front of an audience that’s fully invested.
What About the Valuation?
With this year's revenue projected to hit $650 million, representing 36% growth, this $10.25 billion company is trading for over 15 times sales. That's not cheap, but it's also not out of line with many young software high-fliers like Veeva Systems (VEEV) or Shopify
(SHOP - Free Report
) that have high margins and are growing revenues between 30% and 50%.
And since The Trade Desk doesn't create content or sell products, it's never in competition with any platform, marketer, or retailer. It is merely the exchange for hundreds of ad brokers and thousands of companies to get the right ads at the best price.
That's why going into China right now, as a partner to Baidu, Alibaba
(BABA - Free Report
) , and Tencent makes so much sense. As CEO Jeff Green put it recently on Mad Money, they approached China as a business developer looking to facilitate ad spend and commerce for their biggest brands, not merely to tap the Chinese consumer and take money out of the country.
Finally, The Trade Desk has some of the highest margins in all of software and the company is projected to grow the bottom line to $3.60 EPS next year for over a 20% advance. I would be a long-term buyer of TTD shares on pullbacks under $220.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.