The Trade Desk (TTD 0.20%) is a platform that enables buying of digital advertising, a service that is becoming increasingly more sought after. Investors have undoubtedly been following the stock as it has soared over 1,700% in the last five years. Consumers spend more time on connected devices, so marketers must shift their focus if they want to stay in touch with their customers.
At the very least, smart investors know the following three things about The Trade Desk: It has an excellent opportunity for growth internationally. It will ride the tailwind from the rise of streaming content. And finally, it is still a tiny part of a massive total addressable market.
1. International growth
Interestingly, 67% of all ad dollars were spent outside North America in 2021, according to IDC Global. Meanwhile. The Trade Desk earned 86% of its revenue from North America in 2021. The gap presents an opportunity for The Trade Desk, which it intends to capitalize on:
CEO Jeff Green said in prepared remarks following the company's fourth-quarter earnings release:
And we continue to open promising new markets, such as Taiwan, India, Italy, and the Nordics, with impressive leaders who are making very rapid inroads. We are a global company, and we expect our international revenue to outpace North America over the long-term because of the investments we're making in these markets.
Already, the investments are bearing fruit. The Trade Desk's percentage of revenue from outside North America has increased from 6.5% to 14% from 2015 to 2021.
2. A tailwind from the shift to connected TV
Consumers are changing the way they watch content. Folks used to watch through a cable connection. That model is outdated, and people now prefer to stream their content. Streaming is more convenient, often less expensive, and can be watched on mobile devices and TVs. For those reasons, many people are signing up for streaming services and ditching the cable connection, which is good news for The Trade Desk.
The Trade Desk reaches 90 million households in the U.S. with connected TVs, a massive opportunity for marketers who want to gain their attention. And recently, several studios launched ad-supported streaming services that will create more high-quality digital ad inventory in the future. From a marketers' perspective, connected TV advertising is more efficient because it can be targeted and measured, features not available through linear TV advertising.
3. A massive total addressable market
The Trade Desk has grown revenue rapidly over the years. Indeed, from 2014 to 2021, it increased from $45 million to $1.2 billion. Still, The Trade Desk captures a relatively small share of the global advertising market. One effective way The Trade Desk is expanding its revenue is by getting existing customers to spend more. In the most recent year, its top 25 advertisers increased their spending on the platform by 50% from the prior year. That's evidence of The Trade Desk delivering excellent customer value. Otherwise, these marketers would allocate their spending to places that offer a better return on their investment.
In 2021, global ad spending totaled $763 billion, an increase of 22.5% from the previous year. Another trend working in The Trade Desk's favor is that the share of digital spending is rising. That percentage rose from 2019 to 2021, from 52.1% to 64.4%.
Investors are certainly encouraged by The Trade Desk's potential to take a growing share of a massive and expanding market. For those interested in starting a position in The Trade Desk, the stock is down 35% off its highs reached in late 2021, making this an opportune time to buy a business with excellent long-term prospects at a discounted price.