The Trade Desk (TTD) is a technology company that enables buyers of advertising to take their work to the next level.
Through Trade Desk’s self-service, cloud-based platform, ad buyers can design, manage, and optimize more meaningful data-driven digital advertising campaigns across various ad formats and channels.
Such formats include display video, audio, in-app, native, and social, presented on a multitude of devices, such as computers, mobile devices.
The company’s platform is integrated with a major inventory, publisher, and data partner network, which allows ad buyers to achieve incredible reach and decision-making capabilities. (See Insiders’ Hot Stocks on TipRanks)
Trade Desk’s innovative platform has resulted in the company growing its revenues rapidly over the years. Amid a highly scalable, frictionless business model, Trade Desk’s margins are also very juicy, which allows the company to achieve great margins.
Consequently, the stock has rewarded investors massively since its IPO in 2016. That said, risks remain regarding the company’s overall revenue quality, while the stock itself comes with a premium attached.
The Trade Desk could have more upside ahead, and while I remain cautious of its current investment case, I am bullish on the stock nonetheless.
A Wonderful Company
There are multiple reasons for which The Trade Desk is a fantastic company in an interesting space, with exciting prospects.
The company is a pure-play on the expanding trend of digital advertising and CTV, capitalizing on the slow death of legacy TV and closed platforms.
To illustrate the efficiency and advantage of The Trade Desk’s platform, the company boasts a above-95% customer retention rate, with its customers being some of the most demanding players in the industry, including Walmart (WMT).
The company features very juicy margins. Specifically, Trade Desk’s LTM (last 12-month) gross and net income margins currently stand at 80.9% and 25.4%, respectively.
Combined with the company’s rapid growth, Trade Desk’s profitability is expanding at an exciting pace. The three-year revenue & EPS CAGR (to account for share dilution) rest at 39.7% and 62.4%, respectively.
The Trade Desk checks all the right boxes to qualify as a fruitful investment. That said, investors should remain wary of the underlying risks, and the stock’s valuation.
Risks, Valuation
Trade Desk’s platform’s bid-factor-based architecture lacks the recurring revenue element usually appreciated in hyper-growth companies.
This comprises a modest risk, as revenues are not quite predictable. Advertising agencies that utilize the platform purchase digital media programmatically on various media exchanges, and sell-side platforms at unknown rates. So, TradeDesk’s revenues can vary at times.
Since advertisers’ digital media expenditures are cyclical, and can easily fluctuate based on the underlying condition of the economy, The Trade Desk is exposed to such uncertainties.
Simultaneously, the stock is trading at a forward P/E of 85.5, which is a steep multiple to pay for a company whose revenues can fluctuate during certain economic scenarios.
Wall Street’s Take
Turning to Wall Street, The Trade Desk has a Strong Buy consensus rating, based on 12 Buys, three Holds, and zero Sells assigned in the past three months.
At $93.23, the average Trade Desk price target implies 16.4% upside potential.
Disclosure: At the time of publication, Nikolaos Sismanis did not have a position in any of the securities mentioned in this article.
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