According to researcher Magna Global, worldwide advertising spend should ring in at $830 billion in 2023, on its way to $1 trillion sometime this decade. A huge chunk of that pie -- some $165 billion -- is still spent on traditional TV.

The full-on migration to internet-based streaming TV is on, though, and the bills are piling up for traditional media companies trying to figure things out. Meanwhile, The Trade Desk's (TTD 0.44%) digital ad platform is rolling in the chips. Shares rallied more than 40% so far in 2023, though they have a long way to go to recapture all-time highs last reached in late 2021. Here's what investors need to know.  

The streaming wars are getting ugly

The trend is clear: Streaming TV is in; cable TV is going the way of the dinosaur. In response, a slew of traditional media companies have released streaming TV services in the last few years. The only problem is, this new model is by and large (excluding Alphabet's (NASDAQ: GOOGL)(NASDAQ: GOOG) YouTube) not as profitable as traditional TV is -- at least not yet anyways.


Direct-to-Consumer Revenue Q1 2023

Total Subscribers

Operating Income (Loss)

Netflix (NASDAQ: NFLX)

$8.16 billion

232.5 million

$1.71 billion

Disney (NYSE: DIS)

$5.51 billion

231.3 million (Disney+, ESPN+, and Hulu)

($659 million)

Warner Bros. Discovery (NASDAQ: WBD)

$2.46 billion

97.6 million (HBO, HBO Max, and Discovery+)

$50 million adj. EBITDA*

Paramount Global (NASDAQ: PARA)

$1.51 billion

60 million (Paramount+)

($511 million) adj. OIBDA**


$685 million

22 million (Peacock)

($704 million) adj. EBITDA

Data source: Company Q1 2023 financial filings. *Warner Bros. Discovery EBITDA = earnings before interest, taxes, depreciation, and amortization. **Paramount OIBDA = operating income before depreciation and amortization.

What's clear from the above chart is that streaming TV can be profitable once a certain scale is achieved. Netflix has proven that. But everyone else in this space has a ways to go. In the meantime, consumers are spending the dollars, but media businesses aren't able to hold onto any of those dollars in the form of profit. So where's that profit flowing?

One prominent place is the digital advertising industry. The Trade Desk is certainly scooping up its fair share of those media dollars as marketers shift their spending from old TV formats to newer, internet-based ones. 

The Trade Desk wins where traditional media fails

The Trade Desk's software and the ad-buying marketplace remain in growth mode despite many other digital ad companies stalling out the last couple of quarters due to economic worries (remember, in tough times, marketing spend tends to get a haircut). The Trade Desk Q1 revenue was up 21% year over year to $383 million, proving once again that its ad marketplace was built to outperform peers.

But of particular note here is that The Trade Desk is also highly profitable. Net income according to generally accepted accounting principles (GAAP) returned to positive territory in Q1 (due to elevated employee stock-based compensation, a non-cash expense, last year) to $9.3 million. But free cash flow in Q1 2023 was up 29% year over year to $178 million, good for a very healthy free-cash-flow profit margin of nearly 47%.  

Management has been returning some of its excess cash to shareholders too. It repurchased nearly $292 million worth of its shares, dipping into its pockets to do so. Even so, at the end of March 2023, The Trade Desk still had $1.33 billion in cash and short-term investments on hand, and zero debt.  

CEO Jeff Green has consistently called out connected TV (video delivered via the web) as a key growth driver for his company, and the start of 2023 was no different. As the TV streaming wars rage on, The Trade Desk continues to deliver the goods.

Is the stock a buy?

As for whether this is a stock to buy, at the moment, I'm not so sure given the sharp rally in share price so far in 2023. The stock trades for a hefty 65 times trailing-12-month free cash flow as of this writing, a premium price that tends to lead to elevated stock volatility. I expect another pullback could be coming.  

Nevertheless, while I'm preaching near-term caution due to valuation and ongoing market worry over the global economy, don't expect this to become a value stock anytime soon. The Trade Desk has always commanded a premium price, even during the bear market since late 2021, and for good reason. The company is accruing some of the most profitable dollars from the media industry's mass migration to digital ads. If you want to own The Trade Desk for the long haul, you'll eventually need to feel comfortable paying up to do so. 

As in times past, I think the best way to accomplish this is with a dollar-cost-average plan, perhaps buying a few shares on a monthly or quarterly basis. At any rate, whether you buy now or wait, The Trade Desk has proven its business model is built to win. This company deserves to be on your watchlist at the very least.