The Trade Desk Is Accelerating Out of the Pandemic

Even though The Trade Desk (TTD -0.80%) stock is down off its high of more than 25%, investors who've held for the last year are sitting on a delicous three-bagger. What does this programmatic advertising specialist have in store for shareholders going forward? On a Fool Live episode recorded on March 31, Fool contributors Brian Feroldi and Toby Bordleon discuss the company's latest results and one risk for investors to keep an eye on.

Brian Feroldi: Let's talk about The Trade Desk. Ticker symbol there is TTD. This is a software platform that enables ad buyers to programmatically buy ads all over the internet. The Trade Desk is not a disruptor, it's an enabler. They work with some of the biggest advertising agencies in the globe. Ad spending grown to a halt in the first part of 2020, and The Trade Desk definitely felt that pain on the top line, but holy cow, have things come back to life on the other side.

I think the numbers clearly show that not only is programmatic advertising picking up share, but The Trade Desk itself, which is already the top dog, is picking up share in its market. When you combine those things together, this company reported revenue growth of 48% in the most recent quarter. That's a very fast number and was a sequential acceleration.

This company is pumping out adjusted EBITDA margins. Not a metric I like, but roughly equivalent to cash flow, of 48%, that's like MasterCard level awesome awesomeness. That figure was up 900 basis points over the prior year. Huge top-line growth, widening margins, earnings more than doubled in this company to $184 million. That's one thing that I've always admired about The Trade Desk. Not only is it in hyper-growth mode, but it's doing so profitably, how weird.

The big news out of the company to me in 2020 was it they're having success with their unified ID, which is a industrywide approach to advertising tracking. We've seen Google and Apple announce that they're going to be pulling back on IDFA. Unified ID is the industry solution to that that still allows for privacy and industry tracking, and they've signed up Magnite, Criteo, Washington Post, Nielsen, etc.

The thing to watch in 2021 and beyond is, will programmatic advertising continue to grow? Will customer retention get strong, and will unified ID become the industry standard? If the answer there is yes, Trade Desk looks primed for success.

Toby Bordelon: Yeah, on that ID stuff, Brian. There's been a lot in the news recently about tech companies. Apple, Google cracking down on how other companies, advertisers can track people. I just saw a blog post from Google recently where they suddenly maybe not suddenly warn people about using alternatives like email addresses to track, and said basically maybe that's not the way you want to go. We don't think that's good. Do you think that's concern for The Trade Desk? How do they navigate this issue?

Feroldi: Jeff Green has talked about this a lot because he has gotten a ton of investor questions about this very thing. One of the categories that they think is a huge growth driver for them in the long term is connected TV and connected audio. Those are ecosystems that Apple and Google do not dominate. Yes, they have huge control over the browser market, but I think that was like 20% of The Trade Desk's top-line spending. Jeff Green is hugely bullish on connected TV. That is a category where IDFA does not matter at all. I don't think it's something to be worried about. Advertisers are going to want to find ways to spend their money efficiently and connect. The unified ID will help them do that.

But is that a risk to watch? Absolutely.