Correction: An earlier version of this article suggested that UID2 relied on user cohorts rather than encrypted ID tokens. The Fool regrets the error.
In the not-so-quiet corridors of The Trade Desk 's (TTD 1.67%) research and development (R&D) department, the future of advertising is being written with code, algorithms, and, let's face it, probably a lot of caffeine.
In a recent video call with Fool.com, Laura Schenkein, TTD's CFO, underscored the digital advertising specialist's commitment to diverse R&D efforts.
The je ne sais quoi of The Trade Desk's R&D strategy
"Every two or three years since I've been at the company, we do a massive revamp of our platform," Schenkein said. "Embedded within each of those two-to-three-year platform total revamps are a ton of products and a ton of things that we're working on."
It's as if TTD is on a quest for perpetual motion, where the only constant is change. The next big breakthrough may be just around the corner -- and the company would never know what it might be missing if it didn't push that R&D pedal through the metal.
Ambitious R&D spending is a key growth driver for any high-tech business with long-term growth plans. But most tech experts can't keep up with The Trade Desk's high-octane research investments. The company keeps spending a larger and larger percentage of its revenues on a wide variety of R&D projects:
TTD Revenue (TTM) data by YCharts
The AI buzz can wait
This isn't just a simple budgeting tactic. The Trade Desk is playing a multidimensional chess game of high-level planning. The company must weigh the costs and opportunities of many industry trends at all times.
For example, artificial intelligence (AI) is the buzzword of the season, but The Trade Desk has managed advertising campaigns with machine learning since the very beginning and isn't interested in running marketing content purely created by generative AI systems at this point. Instead, the R&D effort is more directly focused on the incoming shift away from third-party tracking cookies and its potential replacements.
Being tech-savvy is a good start in the digital advertising sector, but long-term winners need something more than a grasp of current ad-publishing technologies. It's all about understanding the ad world's ebb and flow, staying several steps ahead of the curve. That's what The Trade Desk is doing, with the help of a generous revenue slice going straight into the software engineering cubicles, where people are finding tomorrow's solutions to current and future issues.
Why should investors care?
In the world of automated and data-driven marketing, R&D is the secret sauce, the magic behind the curtain, the... well, you get the idea. The Trade Desk has that special something that separates innovative leaders from reactive trend followers. Years ago, the digital advertising sector started grumbling about rough waters ahead as leading web browser publishers from Alphabet to Apple started planning the demise of tracking cookies.
But The Trade Desk took positive action instead. The company led the development of Unified ID 2.0 (UID2), which uses encrypted tokens based on user consent for web tracking. This approach offers transparency by letting users manage or revoke consent, balancing targeted advertising with privacy.
At the same time, the company supports competing post-cookie ideas such as ZeroFox's Core ID, LiveRamp's RampID, or even Google's controversial Privacy Sandbox. Whether the next generation of targeted digital ads runs on The Trade Desk's UID2 or one of its main competitors, the company is prepared to build marketing campaigns with the best tools available.
So if you've ever wanted to be part of a story where technology meets magic (with a solid business model to boot), The Trade Desk might just be your happily ever after. The magic is real, it's driving robust growth and solid profits while the digital ad industry as a whole struggled through an inflation-inspired ad industry downturn -- and it's powered by R&D.
