The Trade Desk (TTD 3.35%) works with marketers to buy digital ad inventory. As a result, it has benefited from the long-running trend of consumers spending more time on digital media. Marketers follow consumers, so advertising on digital channels has grown.
One green flag for The Trade Desk in 2022 is a potential surge of digital advertising inventory coming online later in the year. Streaming services giants Netflix (NFLX -3.92%) and Walt Disney (DIS 0.18%) have each announced that they are considering launching ad-supported versions of their streaming services later this year. Marketers will no doubt be interested in buying up that inventory when it does become available.
That could benefit The Trade Desk as the go-between.
More digital advertising inventory is good news for The Trade Desk
Interestingly, The Trade Desk's revenue grew by 43% in 2021 from 2020, and the company noted that connected-TV advertising was its fastest-growing channel. The Trade Desk makes revenue by taking a percentage of the money marketers spend on its platform to buy ad placements. That gross spending by clients on its site increased by 47% year over year to $6.2 billion in fiscal year 2021.
TTD Revenue (Annual) data by YCharts.
If connected-TV advertising grew that fast for The Trade Desk before two of the largest streaming services have launched their ad-supported versions, the prospects are looking brighter for the company after the launches. Indeed, The Trade Desk already reaches 120 million connected TV devices in the U.S.
Disney has said its streaming service, Disney+, will offer an ad-supported version in the U.S. later this year and internationally in 2023. The flagship service boasted 138 million subscribers as of April 2, and Disney management expects to reach between 230 million and 260 million subs by 2024.
Meanwhile, Netflix has not identified a clear timeline for an ad-supported version, but it could come later this year. As of March 31, Netflix claimed 222 million streaming subscribers. It also said it had 100 million households watching the service without paying.
According to Nielsen, Netflix is the top streaming service when measured by viewing time in the U.S. at 6.4%. Disney+ grew from just 1% in May 2021 to 1.7% in February 2022. These factors make advertising on the two services highly desirable for marketers worldwide.
Globally, advertisers spent $763 billion in 2021. That was 22.5% higher than in the year prior. Additionally, businesses have shifted an increasing portion of their spending to digital channels, rising to 64.4% of the overall spending in 2021 from just over 52% in 2019.
What this could mean for The Trade Desk Investors
If Disney and Netflix can roll out their ad-supported offerings with several months remaining in 2022, it could mean a boost in revenue for The Trade Desk later this year. If not, the revenue benefits could start to flow early in 2023.
TTD PS Ratio data by YCharts.
Trading at a price-to-sales (P/S) ratio of more than 17, the stock is still not cheap, though it is down considerably from its peak of a P/S of more than 60. Investors can place The Trade Desk on their watch lists and look for an opportunity to buy if the stock dips further.
