"In this world, nothing is certain except death and taxes." -- Benjamin Franklin
Given the state of the economy and rampant uncertainty that plagues investors, Benjamin Franklin's famous quote rings as true today as it did when it was first penned in 1789. That said, there's an argument to be made that another certainty could be added to that list. When faced with floundering macroeconomic conditions, it seems nearly inevitable that marketers will rein in advertising spending -- and recent performance by companies that are supported by digital advertising seems to back that assertion.
That said, not all adtech companies are alike. Even as Alphabet (GOOGL -1.63%) (GOOG -1.63%) and Meta Platforms (META -0.62%) suffered from declining ad revenue, The Trade Desk (TTD 0.97%) turned the paradigm on its head, generating robust growth, even in the face of economic uncertainty. Let's take a look at the underlying numbers and reason for the company's unbridled success.
Image source: Getty Images.
It's the economy
A look at the recent results for adtech companies paints two very different pictures in the digital advertising space.
For the fourth quarter, Alphabet reported revenue of $76 billion, up 1% year over year, bolstered by its fast-growing cloud computing segment. At the same time, however, Google's advertising revenue of $59 billion fell roughly 4% as marketers pared ad spending in the face of economic headwinds. On the conference call to discuss the results, CEO Sundar Pichai said: "Our revenues this quarter were impacted by pullbacks in advertiser spend."
Meta Platforms suffered a similar fate as fourth-quarter revenue slumped 4% to $33.7 billion. Unlike Alphabet, essentially all of Meta's revenue comes from the advertising that appears on Facebook and Instagram, which form the backbone for its family of social media platforms. CFO Susan Li cited "weak advertising demand" caused by the "uncertain and volatile macroeconomic landscape" as the reason for its faltering sales.
Continued robust growth
In the face of these seemingly insurmountable economic headwinds, The Trade Desk's results are in stark contrast to those of its adtech rivals. For the fourth quarter, the company generated revenue of $491 million, up 24% year over year, in line with its 24% increase in the prior-year quarter. This rounded out a stellar year for The Trade Desk as the company grew revenue by 32% in 2022.
The tone on The Trade Desk's earnings call was much more upbeat than that of its rivals. CEO Jeff Green cited record ad spending of $7.8 billion on its platform in 2022. Furthermore, he pointed out that while the broader ad industry grew just 8% last year, "spend on our platform grew more than three times that...it means we can be very confident that we're gaining [market] share and that our platform continues to gain traction with advertisers."
So what fueled The Trade Desk's robust results, even as its competitors faltered? Green attributes the company's success to providing advertisers with more bang for their buck: "In times of uncertainty as marketers look to do more with less, they are continuing to prioritize decisioned media on the open internet." Green went on to say that "marketers can measure [return on investment] and value with more objectivity, and that means they'll prioritize us over the limitations of walled gardens."
Another growth driver is the emergence of connected TV (CTV). "CTV continued to be our strongest growth driver as more content owners from around the world are moving beyond ad-free subscription models and offering ad-supported options for viewers," Green said. Helping illustrate his point are recent moves by Netflix and Walt Disney to offer viewers lower-priced, ad-supported tiers of their popular streaming services. Green noted that CTV was the driving force in the ongoing shift in ad spending away from broadcast TV to ad-supported streaming.
Finally, The Trade Desk has long prepared for a world without ad-tracking cookies, opting instead to promote its Unified ID 2.0, technology that helps target advertising without the need for the personally identifiable information that infringes on consumer privacy.
Competitive edge
In an era marked by cord-cutting, a shift away from broadcast television, and a greater adoption of connected TV, The Trade Desk has long positioned itself for what management viewed as the inevitable shift. Furthermore, while the walled gardens exemplified by Google search and Meta Platform's social media sites bestow certain benefits, it's a double-edged sword. Regulators here and abroad have targeted both companies for anti-competitive practices and playing fast and loose with consumer privacy issues.
That's not to say that Alphabet or Meta Platforms are bad investments. On the contrary, they are both foundational holdings in my own portfolio. That said, The Trade Desk's business model and unique strategy give it a leg up in the field of programmatic advertising, which is helping drive the company's gains -- even as its rivals struggle.
That's why The Trade Desk is one of my highest-conviction stocks to buy right now.
