The Trade Desk (TTD) is a software company that provides advertising services to digital ad buyers for running digital advertising campaigns. With Trade Desk, users can derive insights for planning and optimizing campaigns to improve performance. Digital marketing agencies, brands, and individuals use the software to manage and coordinate their advertising workflow.
To keep up with the ever-changing digital advertising landscape, Trade Desk developed a new platform for users to upload their consumer data directly into its ad system. All the uploaded information is converted into user-friendly information with anonymized identities. Anonymization in 2022 and beyond is increasingly important as key players like Google and Apple adopt data and privacy restrictions.
I am bullish on The Trade Desk as it has very strong growth momentum and potential, Wall Street analysts are overwhelmingly bullish on the stock, and the average price target implies that strong upside could be in store for the stock.
Strengths
The global advertising market is heading towards a valuation of $1 trillion, and The Trade Desk is in a strong position to capture a sizable percentage of the market.
The Trade Desk has healthy cash flows and a strong balance sheet with a solid foundation to build on. The company has very few liabilities and is constantly expanding while maintaining low debt and generating an increased cash flow annually.
Besides the advertising space, the company also has another market: Audio. Its Audio segment continues to do exceptionally well because the number of users listening to podcasts is increasing every year.
Recent Results
Revenue for Q3 2021 stood at $301 million, an increase of 39% from the previous year. Video accounted for nearly 40% of TTD’s business, and CTV growth, while not doing well in the U.S., was strong in Europe, the Middle East, and Africa.
Valuation Metrics
TTD stock looks discounted here as it trades below its three-year valuation multiple averages on a forward EV/EBITDA ratio and a forward price-to-normalized-earnings basis. Its forward EV/EBITDA ratio is 61.9 times compared to its historical average of 72.2 times, and its forward price-to-normalized-earnings ratio is 86.8 times compared to its historical average of 110.3 times.
Meanwhile, analysts expect revenue to increase by 30.5% in 2022 and normalized earnings-per-share to increase by 18.9% in 2022.
Wall Street’s Take
According to Wall Street analysts, TTD earns a Strong Buy consensus rating based on 11 Buys, three Holds, and zero Sell ratings in the past three months. Additionally, the average Trade Desk price target of $99.85 puts the upside potential at 31.7%.
Summary and Conclusions
TTD stock is backed by very strong tailwinds in the data analytics and online advertising spaces, fueling its robust growth. With e-commerce and the internet economy becoming an increasingly important customer funnel for businesses in general, online advertising is in greater demand than ever before. TTD – by providing expertise at the interface between consumer data and digital advertising – is well positioned to reap maximum benefits from this trend.
Furthermore, TTD is profitable – unlike many high-growth tech companies today – which helps to de-risk the investment thesis. Additionally, Wall Street analysts are overwhelmingly bullish on the stock here, and the average price target implies strong upside could be in store for the shares.
That said, investors should keep in mind that the stock does still trade at a lofty valuation multiple, so the company needs to continue delivering strong growth in order to justify the current valuation.
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