The Trade Desk (TTD) Analysis

Company Overview

The Trade Desk (TTD) is a software company that operates in the ad-tech space as a Demand Side Platform (DSP), meaning they provide an interface that enables digital ad buyers to purchase ad space and target specific audiences across various channels such as Connected TV (CTV), mobile, video, audio, native and display. The Trade Desk also offers a Data Management Platform that uses insights about current audiences to discover new potential customers. To further entrench users in their platform, the company also encourages customers to utilize their API to create and customize their own solutions.

While there are a lot of DSP’s out there, The Trade Desk believes their platform is better due to its bid-factor based architecture. Basically, advertisers can define desirable factors and weight the value of each of those factors. The platform then bids based exclusively on the most optimal impression. This provides a lot of value to advertisers and has served to separate The Trade Desk from competition.

The advertising industry as a whole is undergoing a shift toward programmatic advertising - buying and selling of digital ad inventory. As a result, The Trade Desk is riding powerful industry tailwinds. Media is becoming more digital, and changing consumer behavior combined with advances in technology are driving advertisers to spend more money on programmatic advertising. In addition, consumers interact with more devices every day (smart phones, CTV, computers), which increases the reach of advertisers. As more consumer behavior data is collected through these devices, ads become more relevant and create stronger impressions. Finally, DSP platforms like The Trade Desk automate the ad buying process and use impression-driven criteria to save customers money on their advertising campaigns.

Business & Financials

In a time when highly leveraged growth stocks have been under extreme pressure, it will be important to find companies with strong balance sheets. The Trade Desk is profitable, cash flow positive, carries no debt, sports a high gross margin (81%), is rapidly growing revenue and management projects revenue growth over 30% through 2023. Additionally, the company has stockpiled $754 Million in cash.

The Trade Desk operates a simple to understand business model. Customers are charged a platform fee as a percentage of total purchases. The platform provides the means for customers to discover new audiences, which leads to more spending and more revenue for the company.

Why Invest?

I personally have a ton of conviction in this company. The Trade Desk is a founder-led business with an outstanding CEO. The company is on solid financial footing and growing revenue organically. Most importantly, The Trade Desk is an industry leader with an expanding moat. As the leading DPS on the market, they have garnered brand recognition and customer loyalty. The Trade Desk also sports a 95% customer retention rate, which provides the opportunity to capitalize on new product innovations.

One such innovation they have recently announced is Open Path, which gives clients access to publishers. Traditionally, publisher networks are handled by SSP’s (sell-side platforms) like Pubmatic and Magnite. While The Trade Desk insists they are not trying to replace sell-side platforms, this venture could cut out some SSPs entirely. It could also bring in a ton of revenue as a sell-side plug-in could position The Trade Desk as a one-stop-shop for advertising campaigns.

Whether or not this becomes The Trade Desk’s next big product, I like the innovation and the focus on extracting more revenue from its loyal customers. This is a good example of optionality, the key growth driver for all the largest and most successful companies in the world (Apple, Amazon, Google, Microsoft). It is impossible to predict what type of product will drive the creation of the next FAANG stock, but finding an industry-leading company that consistently demonstrates optionality is, in my opinion, the best way to potentially capture a future mega-winner.