Investors had high expectations going into The Trade Desk's (TTD 1.38%) third-quarter financial report. The stock has been one of the standout performers of 2019 so far, up 66% going into its earnings release. Investors were hoping the company would continue to take market share from competitors, propelling its shares to even greater heights -- and they weren't disappointed.

The Trade Desk reported record revenue of $164.2 million, up 38% year over year, on top of 50% gains in the prior-year quarter. This exceeded both the high end of management's guidance and analysts' consensus estimates, which topped out at $163 million and $163.85 million, respectively.

Profits were also better than anticipated. The Trade Desk generated adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $47.8 million, easily topping management's expectations of $45 million. This resulted in adjusted earnings per share (EPS) of $0.75, soaring past analysts' consensus estimates of $0.67.

Three women at a table. The Trade Desk logo is in the bottom left corner.

Image source: The Trade Desk.

A shifting paradigm

The Trade Desk is changing the way digital advertising is done, employing a technique called programmatic advertising. Its platform uses sophisticated machine learning algorithms and high-speed computers to review more than 9 million ads per second and put them in front of the right consumers.

This cutting-edge process is banking big rewards for The Trade Desk. The company uses an omnichannel approach, and several high-growth channels are driving its results. Total mobile ads, including in-app, video, and web, represented 48% of its business during the quarter, with mobile video growing 50% year over year, while in-app climbed an even more impressive 58%.

The headliners, however, were two of The Trade Desk's newest and most promising sources of business. Connected TV and audio grew multiples faster than the company's older, more established businesses, helping to boost its already robust growth. Revenue from connected-TV ads expanded by 145% year over year, while revenue from audio channels grew 160%.

Another important metric that helps illustrate The Trade Desk's continuing success is customer retention, which remained above 95% for the 24th consecutive quarter. This shows that the company is able to produce the results advertisers are looking for, prompting them to stay put.

The company also remains one of the most desirable places for employees, and was named Best Medium Workplace by the Great Place to Work Institute and Fortune for the third year running.

Beat and raise

On the back of its continued strong growth this quarter, The Trade Desk raised its full-year guidance. The company is now forecasting revenue of at least $658 million, up 38% compared to 2018 and higher than its previous estimate of $653 million. The company is also guiding for adjusted EBITDA of $209 million, or about 31.8% of revenue, up from $201 million.

For Q4, management is forecasting revenue of $213 million, up 33% year over year, resulting in adjusted EBITDA of $78.5 million, up 17% compared to the prior-year quarter. To put that into context, analysts' consensus estimates are calling for revenue of $211.75 million and earnings per share of $1.11.

Here's why The Trade Desk will continue to grow

The bulk of advertising still takes place on broadcast TV, but the move by consumers to increasingly embrace streaming is forcing advertisers to up their game. CEO Jeff Green put it this way:

TV advertising is the largest campaign segment for many leading brands, and the digitization of TV is driving advertisers to apply data to TV ad campaigns for the first time. As more broadcasters make their content available via streaming services, we are better positioned than anyone to take advantage of this significant shift.

Digital is the fastest-growing area of advertising, expected to grow 18% year over year to $333 billion in 2019, representing more than 50% of total media ad spending, according to eMarketer. Those numbers are expected to scale to $518 billion and 60% of media ad spending by 2023. This puts The Trade Desk at the leading edge of a growing trend. Programmatic advertising -- the fastest-growing segment of digital, and The Trade Desk's bread and butter -- is expected to account for 65% of digital ad spending by the end of this year, growing 19% to $84 billion. 

The Trade Desk's growth of 40% so far this year is more than twice that of the programmatic and digital markets, and 10 times that of overall advertising -- which is expanding at about 4% annually. 

While its high growth rate will inevitably slow, The Trade Desk has positioned itself to continue to outpace the industry and steal market share from the competition. As the transition from broadcast television to streaming continues, The Trade Desk is in the right place at the right time.