Digital ad campaigns expert The Trade Desk (TTD 1.67%) has been going through a roller coaster lately. Counting from the start of the inflation crisis on November 15, 2021, the stock fell 57% by the end of 2022. Now that the economic emergency is fading out, The Trade Desk's stock has gained 84% year-to-date. After these dramatic ups and downs, the stock has lost a total of 22% since the inflation scare began.
In an industry as dynamic as digital advertising, these market jitters raise a crucial question: where will The Trade Desk be in three years? This article explores that forward-looking query by delving into the company's financials, market position, strategic initiatives, and the broader advertising technology landscape -- but not necessarily in that order.
Image source: Getty Images.
Where is the advertising market going next?
First, let me remind you what The Trade Desk does for a living. The company provides a marketing platform for digital ad buyers, connecting advertising budgets with highly targeted ad spaces. If this service does a good job, its clients get more bang for their advertising buck. The lion's share of The Trade Desk's business involves digital video services and internet-connected TV systems.
Now, ad sellers and managers of every stripe saw huge headwinds in the inflation crisis. Both consumers and corporations tightened their budgeting belts during this period of economic uncertainty, leaving little room for generous advertising campaigns. After all, it'll make more sense to whip out a larger marketing budget when people are ready to buy what you're selling.
That downturn will surely reverse when the inflation challenge moves out. When it does, I expect the rebound to be sharper than the original fall, as the secular market trend involves old-school advertising moving into the digital space over time.
According to The Trade Desk's latest earnings report, advertising in digital media channels adds up to roughly $135 billion a year nowadays. The total ad market is far larger at $830 billion. In due time, that balance should shift to a heavy focus on more effective and targeted digital ads.
So you should see online advertising specialists make a stellar comeback as the twin dramas of an improving economy and a rebalanced ad market play out, side by side. That's undoubtedly good news for The Trade Desk and its investors.
Is anybody stealing The Trade Desk's lunch?
A broad market downturn could give hungry upstarts and rivals a foot in the door to grab market share from the incumbent leaders. However, I don't see that happening in this case.
CEO Jeff Green didn't mince words about his company's leadership role in May's first-quarter earnings call:
"As has been the case in the last few quarters, we continue to significantly outperform the digital advertising industry," Green said. "We are gaining market share as advertisers embrace the precision and relevance of data-driven advertising on the open Internet via our platform."
Indeed, Green's financial data support this argument. I can't find another ad-tech company whose year-over-year sales growth could match The Trade Desk's 21% in the most recent quarter.
And he expects the share gains to continue.
"Even as most brands and advertisers continue to deal with some level of uncertainty, they are increasingly shifting more of their campaign dollars to decision, data-driven opportunities, where they can have more confidence that those dollars are working as hard as possible," the CEO continued.
Master plan revealed
As advertising budgets move online in the long run, the digital media market is undergoing a sea change of equally impressive proportions. At the same time, artificial intelligence (AI) is helping The Trade Desk squeeze more value out of its viewership data, and the company also leads its industry through a dramatic change in consumer-tracking technologies.
Connecting the dots, The Trade Desk is building an even stronger business platform amid multiple market challenges. As a result, those top-line revenues should continue to skyrocket over the long haul, lifted by a stronger stature in an explosive growth market, which also is expanding internationally.
The Trade Desk has offices around the world and two-thirds of last year's global ad spending fell outside America's borders last year. Meanwhile, only 10% of The Trade Desk's revenues were collected abroad. In other words, it's a big world out there and this company has much to gain from international expansion.
Finally, a financial forecast
My Magic 8-ball is in for repairs, and anyone who pretends to know the financial future to the precision of three decimal points is trying to sell you something that doesn't work.
So I won't give you precise target figures for The Trade Desk's sales, profits, free cash flows, or share price in 2026. But I can tell you that the ad market is getting ready to heat up after a 17-month winter, and that this company is poised to take advantage of a healthier market.
CEO and co-founder Jeff Green has a clear strategy in mind, and the road ahead is strewn with potential growth catalysts. The hectic rebound should be complete three years from now, allowing The Trade Desk to simply run a great ad-campaign business powered by a sector-leading set of consumer data and game-changing AI systems.
I'm a happy shareholder and the stock looks like a terrific buy right now. Remember, the share price has gone nowhere for a year and a half while trailing sales increased by 47%.
