In The Trade Desk's (NASDAQ:TTD) earnings call late last month, CEO Jeff Green was incredibly bullish on one area of the data-driven digital ad buyer's business: connected TV (CTV). Though the CEO has been bullish on CTV for years, his exceptionally rosy outlook for the nascent advertising channel during the company's earnings call is worth a close examination. After all, with the fourth-quarter earnings report coming out on Feb. 27, the impressive quarterly update was quickly drowned out by the coronavirus outbreak that has grabbed the attention of investors all over the world.
In the fourth-quarter call, Green predicted an "accelerated shift" from advertiser spend in traditional TV to CTV in 2020. He backed this view up with a forecast for CTV ad spend on its platform to double again this year.
Here's a closer look at why CTV could be a major catalyst for The Trade Desk in 2020.
A big opportunity
While The Trade Desk makes money from digital advertisements of all types, the tech company has been investing aggressively in CTV for years. Shareholders, of course, have been on board with these investments since the market opportunity is enormous. CEO Jeff Green thinks the global advertising industry will grow from about $725 billion today to about $1 trillion in seven years, with video representing half of this spend. CTV specifically, will take a "quantum leap forward" during this time, Green said in the company's fourth-quarter earnings call.
One way to break down this opportunity is to look at CTV ad spend in the U.S. relative to total TV advertising spend. There's about $70 billion spent on TV advertising in the U.S., yet total money spent on CTV ads domestically in 2019 was about $7 billion, according to eMarketer. With an estimated 25% of U.S. households expected to be cord-cutters by 2022, CTV ad spend is bound to rise. Indeed, eMarketer estimates that CTV ad spend will grow from about $7 billion in 2019 to $11 billion in 2021, with the portion of this spend that is transacted programmatically (The Trade Desk's specialty) increasing from $3.5 billion to $6.4 billion over this same time frame. And keep in mind that Green believes nearly 100% of advertising will be transacted programmatically eventually.
During the call, Green was adamant about the runway ahead, saying, "I know we talked quite a bit about CTV on these calls in the past, but we are in the middle of a once-in-a-lifetime consumer shift to connected devices and streaming content."
Of course, investors don't need Green's optimism to be convinced at how exciting the opportunity is in CTV. Investors can just look at the numbers.
- CTV ad spend on The Trade Desk's platform grew 137% year over year in 2019
- In Q4, the company's CTV ad spend increased about 100% year over year.
- Based on a strong start to 2020, management guided for CTV ad spend to grow 100% in 2020.
Even more, thanks to The Trade Desk's highly profitable business model, with adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) coming in at 32% of total 2019 revenue, the company can invest aggressively in CTV and grab as much share early in the game as possible.
CTV is a massive tailwind for programmatic advertising -- and The Trade Desk is a great way to play this opportunity.