A $1,000 investment in The Trade Desk (TTD 2.52%) stock in 2017 would be worth just over $10,000 today. The company has experienced explosive growth for its cloud-based ad-buying platform, as more advertisers shift to buying ads electronically to implement across multiple media channels.
The uncertainty over the economy has sent the stock down 41% year to date, but the company's latest earnings report gave investors three important reasons to stay bullish on the future.
NASDAQ: TTD
Key Data Points
Gaining market share
Brands want alternatives to manage advertising campaigns outside the closed ecosystems of big tech platforms. It's estimated that 70% of advertising budgets are spent with Meta Platforms' Facebook, Alphabet's Google, and Amazon, yet only a third of internet users spend time on these platforms. The Trade Desk serves as the gateway for major brands to expand their presence across the open internet, where most users spend their time.
We can see this playing out in the company's recent growth. Revenue grew 31% year over year in the third quarter, which significantly outperformed Meta's revenue decline of 4% and Alphabet's increase of just 6%.
In an environment where companies are watching every dollar spent, these numbers indicate that companies are seeing a good return on investment with their ad buys through The Trade Desk, which is driving more investment in the platform.
Winning in connected TV
One massive opportunity that management continues to talk about is the growth of connected-TV platforms, or streaming services. Ad spending on connected TV is now The Trade Desk's largest growth driver, and management sees more growth in 2023, as Walt Disney and Netflix launch ad-supported subscription tiers.
One factor contributing to the company's success is its Unified ID 2.0 (UID2), which serves as an alternative to the privacy-invasive use of cookies that advertisers have used for years to track users across the internet. UID2 provides advertisers the data they need about who is viewing their ads without compromising user privacy. FuboTV was an early adopter of UID2 and has seen ad revenue from The Trade Desk's platform explode because of it.
More than half the data on The Trade Desk's platform will be tagged with UID next year. This will result in the value of advertisers' first-party data increasing more than 10 times year over year, according to CEO Jeff Green.
"They will finally be able to realize the value of their first-party data to model and understand where their next-generation and most loyal customers are and reach those customers with precision and of course, do that more effectively than ever," Green said on the company's earnings call. "This gives me tremendous confidence for 2023 and beyond."
Adoption of UID is a growth catalyst that could send the stock higher off these lows.
Profitable growth
The company's profitability makes it an even more attractive stock to buy right now. As Green also said on the earnings call, "We are one of the few high-growth technology companies that consistently generate strong adjusted [operating profit] and free cash flow."
Indeed, through the first nine months of 2022, The Trade Desk reported $332 million, or $0.66 per share, in adjusted profit on top of nearly $1.1 billion in revenue. The company has momentum in winning multiyear partnerships with advertisers and agencies, which provides investors long-term visibility to profitable growth.
The stock looks expensive trading at a forward price-to-earnings ratio of 52, but that is a fair premium over the S&P 500 average P/E of 21. Analysts expect The Trade Desk to grow earnings per share at an annualized rate of 25% over the next five years. At this valuation level, investors have a good chance of doubling their money over that period.
