Please ensure Javascript is enabled for purposes of website accessibility

Why Did The Trade Desk Buy This 20-Person Company?

By Billy Duberstein - Dec 22, 2017 at 7:35PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

What is Adbrain?

The Trade Desk (TTD -2.94%) is making waves in the new world of advertising. Despite a recent pullback in the stock, the company is still up 150% since its September 2016 IPO. The company is a leader in programmatic advertising software, which automates and optimizes ad-buying across a number of different channels, including desktop, mobile, connected TV, and others. The company estimates that it receives nine million ad requests per second, serving over 18,000 ad buyers in 100 countries.

On the last earnings call, management also announced another milestone -- its first acquisition -- a 20-person start-up called Adbrain. Financial terms were not disclosed. The addition of AdBrain will not only add to The Trade Desk's capabilities but it also says a lot about the company's people-focused culture and long-term vision for the industry.

A man in a suit from the neck down holds a tablet and a blue cartoon brain sits above it like a hologram.

The Trade Desk bought Adbrain. Why? Image source: Getty Images.

What AdBrain does

Adbrain is a cross-device marketing tech company. The company purchases third-party data and uses its proprietary algorithms to "map" a person's identity across all of their devices. Consumers use 3.64 devices per day on average, but it's difficult for marketers to keep track of the same person on all of these different platforms. Adbrain's algorithms help solve this problem, aiding clients in striking the right balance between having a continuing campaign across a person's devices while not annoying them with irrelevant or too many ads.

For instance, if someone clicked on the website for a consumer packaged goods company, Adbrain's technology can then send that person a mobile ad when they're near a grocery store later on. Adbrain claims it has mapped 90% of the U.S. adult internet population. 

How Adbrain fits with The Trade Desk

Adbrain is a small, 20-person company with reportedly minimal revenues, so this was really more of an acqui-hire for The Trade Desk, bringing in Adbrain's algorithms and machine-learning talent. Adbrain had already been integrated into The Trade Desk platform since 2015 but it appears Trade Desk CEO Jeff Greene was so impressed with Adbrain's employees and technology that he wanted to bring them in-house. 

The Trade Desk likes to think of itself as the advertising version of an electronic stock exchange, matching up buyers and sellers through software and computers. This year, The Trade Desk invested heavily in more ad inventory and customer I.D.'s., giving the company an even more comprehensive data set. 

Adbrain fits into the next step, which is to apply more algorithms and machine learning to these vast data sets, allowing ad agency customers to craft even more granular strategies at the individual level. Management believes integrating Adbrain's tech directly with The Trade Desk's scale should bolster the combined company more than each company could achieve alone. 

In addition, Greene has a vision of creating an even more comprehensive offering -- a marketplace in which all of the ad data on the internet is made available to everyone. That somewhat utopian vision may be a stretch for now, since he will have to convince the "walled gardens,"  Facebook (META 0.94%), Google (GOOG 1.17%) (GOOGL 1.16%) and other competitors to sell their proprietary data for others to use, but Greene firmly believes it can and will happen. His theory is that a more efficient marketplace will allow ad buyers to run fewer ads, while publishers, including the "walled gardens," can garner the highest possible rate for each ad spot: "... [A] walled garden strategy does not work outside of Google and Facebook and, long-term, won't work for anybody," he claims. 

Can they jump the wall?

"We believe no one in advertising, including the walled gardens, have a cross-device identity solution that is sufficiently scaled and sufficiently accurate," Greene said of the Adbrain-Trade Desk integration. That is certainly a bold statement. Greene expects the Adbrain tools to integrate early next year and start showing financial results in the second half of 2018, so counting on increased growth from Adbrain capabilities will require some patience by investors. Still, The Trade Desk is currently profitable (a rarity for new tech IPOs), and the stock has pulled back mightily from its all-time highs. Interested investors should keep an eye on both the integration and the progress on the marketplace initiative into 2018.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

The Trade Desk Stock Quote
The Trade Desk
$42.99 (-2.94%) $-1.30
Meta Platforms, Inc. Stock Quote
Meta Platforms, Inc.
$169.77 (0.94%) $1.58
Alphabet Inc. Stock Quote
Alphabet Inc.
$2,291.44 (1.16%) $26.18
Alphabet Inc. Stock Quote
Alphabet Inc.
$2,304.27 (1.17%) $26.53

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/06/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.