Artificial intelligence (AI) positively affected multiple businesses, including semiconductors, workplace collaboration software, and cloud computing. Consumers, companies, and governments are looking to make the most of this emerging technology to improve productivity.
The digital advertising industry also adopted AI to allow advertisers to target their audiences more efficiently, reducing costs while increasing the return on ad dollars spent. According to Grand View Research, spending on AI tools in digital marketing could jump from $15.8 billion in 2023 to $82 billion in 2030, a compound annual growth rate of 26%.
This is one reason why The Trade Desk (TTD +3.07%), the provider of a programmatic advertising platform, saw robust growth in its revenue and earnings in recent quarters, leading to a healthy jump of 69% in its stock price so far in 2024. The company will release third-quarter earnings on Nov. 7, and there is a solid chance that it could deliver another better-than-expected report. Let's see why that may be the case.
NASDAQ: TTD
Key Data Points
Growth accelerated in 2024
The Trade Desk provides a data-driven programmatic ad platform for brands and advertisers. It allows them to buy ad inventory and serve ads in real time to relevant audiences across multiple platforms such as video, connected television, mobile, and social media.
The company's platform automates ad buying and digital marketing campaigns to help increase advertisers' returns on spending, using AI in this process.
The Trade Desk has used AI in its programmatic ad platform since 2016, and it went further last year with the launch of Kokai, an AI-powered digital advertising platform.
The company says this AI tool has been driving considerable gains for advertisers, with Kokai users having had a 36% drop in cost per click on average, as well as a 34% drop in cost per action (in which advertisers are charged only when a particular action is taken by the intended user).
The Trade Desk says that Kokai has access to more than 15 million ad impressions each second, helping advertisers optimize their campaigns by buying the "right ad impressions, at the right price, to reach the target audience at the best time."
As a result, customers that moved from the company's Solimar programmatic ad platform (introduced in 2021) to Kokai have seen a 70% increase in reach.
Management is ramping up Kokai's integration in its platform to help advertisers improve their returns on ad dollars, and it's probably one of the reasons the company's growth has improved in 2024. Its revenue increased 27% year over year in the first six months of 2024 to $1.08 billion, outpacing the 22% growth seen in the same period last year. Earnings have increased 29% in the first half of 2024 to $0.66 per share.
The Trade Desk says it expects at least $618 million in revenue for the third quarter, which would be a 25% increase over last year. It also expects adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to rise from $200 million in the third quarter of 2023 to $248 million, or almost 25%.
However, revenue and profit figures could exceed those expectations. Management estimates its total addressable market at $1 trillion, which would mean that it is scratching the surface of a huge opportunity. More importantly, its customer retention rate exceeded 95% for the past decade, which underscores the stickiness of its platform.
And with the growing integration of AI into its platform, there is a good chance that The Trade Desk will be able to attract more advertisers.
Faster earnings growth could lead to more upside
Analysts expect the company to end 2024 with earnings of $1.61 per share, a 28% increase over 2023. Earnings growth is expected to slow down to 19% in 2025 before accelerating to 24% in 2026.
TTD EPS estimates for current fiscal year, data by YCharts.
But the company's own earnings estimates have moved up significantly in 2024, which suggests that it could deliver a better-than-expected bottom line over the next couple of years. That's why investors looking for a growth stock can still consider The Trade Desk, which is operating in a massive market that could help sustain healthy growth for a long time to come.
