Digital ad-buying expert The Trade Desk (TTD 0.85%) is a fantastic deal right now. The stock's high-octane growth in 2020 turned into a rout in the last couple of months, for all the wrong reasons. The Trade Desk is trading 33% below December's all-time highs, and the reason for the pullback actually strikes me as a driver of future business growth.
What's wrong with The Trade Desk?
The main knock against The Trade Desk is that online content and advertising giant Google, a subsidiary of Alphabet (GOOG 0.37%) (GOOGL 0.35%), is changing the game for the ad tech industry.
Like most companies in this sector, The Trade Desk uses so-called third-party cookies to track the behavior of specific internet users across many different websites, apps, and other digital platforms. That data is then used to shape targeted ad campaigns for the company's clients. Users and regulators around the world are demanding tighter privacy controls over how user data is collected, shared, and used. Therefore, Google is turning off the ability to track user data in this way through the market-leading Chrome browser.
This isn't exactly new. Google started talking about third-party cookie restrictions nearly two years ago and even then, ad-targeting companies had seen them coming. Apple (AAPL -0.57%) turned off third-party tracking cookies in its Safari browser last year. That's a less popular browser package, but changes to Safari also affect iPhone and iPad apps that connect to the internet. Hence, Apple's policy change affected millions of iOS users all around the world. Google made news this week when it promised to not only phase out those irksome cookies, but also refrain from replacing them with new user-tracking technologies. The Trade Desk's shares fell more than 12% that day.
Image source: Getty Images.
How the company can turn this threat into an asset
In the words of The Trade Desk CEO Jeff Green, "Not much has changed. But what has changed, will ultimately prove positive."
It's important to understand that The Trade Desk is in the business of making online ad campaigns more effective. Third-party cookies are useful for that purpose but the technology is used by every player in the industry -- including each ad-buying client's in-house ad tracking efforts. When you take that tool away, many buyers of online ad space will find it harder to make the most of their digital ad spending. Then they turn to specialists who have the experience, expertise, and alternative tools to get the job done. Many will turn to The Trade Desk first.
"If we operate in a world with less data, we're darn good at that. Our whole system is built around making objective choices with limited data. We do that with many of the impressions we see today," Green said in last month's fourth quarter earnings call. "To The Trade Desk, it doesn't really matter what the identity model or approach is. We'll be successful regardless. In fact, I can make the case that we become indispensable in [a world without user-tracking technologies]."
Image source: Getty Images.
Why I think he's right
It's Mr. Green's job to put a positive spin on difficult challenges, of course. His words make a lot of sense, though. Several macro trends are working together here to create a perfect storm of demand drivers for The Trade Desk's services. Online business is surging, right alongside online entertainment. Marketing budgets formerly earmarked for cable TV, newspapers, or direct marketing mail are moving onto digital ad spaces. Growing privacy demands won't stop companies from promoting their products, services, and brand names as efficiently as possible. More often than not, that requires support from tools like The Trade Desk's expert campaign building platform.
And the stock took a 33% haircut in 10 weeks because many investors think that Google's user-tracking changes will hurt The Trade Desk's business. That's just wrong, which makes The Trade Desk a no-brainer buy today.
