If you're screening for highly profitable businesses with consistently strong growth, The Trade Desk (TTD 3.02%) would make the list. Not only did The Trade Desk's revenue surge 52% in 2017, crushing management's initial guidance for a 33% rise in revenue, but the company has been profitable since 2013.
But how much more can The Trade Desk grow? After all, growth rates like this simply aren't sustainable -- right? While some deceleration in The Trade Desk's revenue growth is inevitable, there's still plenty of upside left. Indeed, a look at the tailwinds propelling its business suggests this may be just the tip of the iceberg for the company.
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Here are the three major catalysts for The Trade Desk's business.
1. Soaring international ad spend
The Trade Desk investors would be right to be primarily concerned with the company's U.S. business. After all, it accounted for 85% of ad spend in 2017, with a 40% increase year over year. But investors should also give weight to the exciting momentum Trade Desk is building internationally. International ad spend soared 82% year over year in 2017. Furthermore, for markets excluding the U.S. and the rest of North America, ad spend grew at a rate 2.5 times the 45% growth rate seen in North America in 2017, management said in the company's fourth-quarter shareholder letter.
But it's not just the current growth rates The Trade Desk is seeing internationally that highlight the opportunity ahead of the company. The massive addressable market supports a similarly compelling case for the opportunity abroad. Consider that two-thirds of an estimated $700 billion in global ad spending currently occurs outside the United States.
It's no surprise, therefore, that The Trade Desk is enjoying some uncanny growth rates in its international offices, including over 100% year-over-year growth in ad spend in all of the company's European offices during Q4.
"In both Asia and Europe, we see our international business as a key growth driver for 2018," said The Trade Desk CEO Jeff Green in the company's fourth-quarter shareholder letter.
2. Mobile
Mobile ad spend on The Trade Desk's platform, on which ad buyers manage their digital ad campaigns, hit a key milestone in the company's most recent quarter: It surpassed display ad spend for the first time. The Trade Desk's mobile segment saw ad spend soar 67% year over year to account for 40% of total ad spend during Q4.
Two standout catalysts for The Trade Desk's surging mobile ad spend are mobile video and audio. Mobile video ad spend increased 121% in 2017 compared to 2016. And The Trade Desk's fourth-quarter audio ad spend was up 648% compared to the year-ago quarter.
3. Opportunity in connected TV
Though The Trade Desk lumps connected-TV ad spend in with its mobile segment, it's worth singling out this major opportunity. Green frequently reminds investors that connected TV will likely be The Trade Desk's biggest catalyst. On the last earnings call, he revisited the theme: "[W]e believe ultimately every [channel] is a dress rehearsal for the migration from Traditional TV to Connected TV and online video."
Green is extremely enthusiastic about the opportunity in Connected TV. "A change of this magnitude is rare," Green said during the company's most recent earnings call. "I don't think we will see a transition like this again in any of our lifetimes, the convergence of the Internet and television." The CEO believes the $225 billion in annual spending on TV globally is about to undergo a major transformation in which the growing deployment of app-based content will drive massive demand for programmatic advertising in the category.
Though programmatic advertising in connected TV is still in its infancy, it's already growing quickly. Connected-TV ad spend on The Trade Desk platform was up 535% year over year in Q4.
Betting on The Trade Desk
Though all three of these opportunities are arguably macro opportunities impacting many of the businesses involved in programmatic advertising, The Trade Desk is the sole independent auction-based platform that is globally scaled. Further, The Trade Desk's recent share gains suggest its leadership position is only growing. Gross ad spend on The Trade Desk's platform increased 51% year over year in 2017 while total real-time-bidding programmatic ad spend increased 27%, according to estimates by Magna Global.
With these catalysts in mind, The Trade Desk will likely -- once again -- crush its annual revenue guidance, which currently calls for year-over-year growth of 31%. More importantly, strong growth could persist for a decade if these tailwinds are as compelling as they seem.
