Perspective Picks: The Trade Desk

Trade Desk Inc (NASDAQ: TTD) is a technology-enabled advertising company that has its own proprietary marketplace which enables companies to buy some form of advertisement to launch through social media, CTV (connected TV) or other digital channels. They offer the latest and greatest tech-enabled tools to target an audience, create and manage campaigns, and monitor KPIs to capture the results companies are seeking. Founded in 2009 by Jeff Green, the Company went public in September of 2016 and has become relatively well-known in the public eye ever since.


Fundamentals:

With a 36% CAGR (Compound Annual Growth Rate) since 2018, The Trade Desk is known as another high-growth tech enabled company, but they are indeed profitable. The Company has been making money for the past several years and are not over leveraged by any means. With a current ratio of 1.7 as of YE 2021 and total debt totaling a mere $284mm, they have a strong balance sheet to power through this unsteady economic environment. With rising rates and an increasing likelihood of a recession, a strong cash balance and positive cash flows go a long way.

Moving on from the core financials, the company has a rapidly growing TAM (Total Addressable Market). The global digital advertising market has been growing 15% per year for the past 10 years and now sits at over $400 billion. The space is expected to continue its rapid pace and reach nearly $1.5 trillion by the year 2030. Streaming services implementing discounted ad-based plans, expanded use of social media, and the fact that consumers are glued to their mobile devices are instrumental factors to the direction our society is headed. As more and more companies become digitalized, they will seek out a variety of ads to help cast a wide yet targeted ad onto consumers.


Valuation:

With high-growth tech stocks such as TTD, Perspective likes to use a revenue multiple to gauge where a company is trading at in the public markets. Although they are profitable, they are not at the stage in their life cycle where they are focused on margins. Still a young company, they are continuing to re-invest in their business and focus on nothing but growth. The Company is trading for less than half of their all-time high in late 2021, and the only rationale for such a selloff has been the macro-environment. The Company has continued to beat earnings on the top and bottom line and the only fear is that businesses will have to cut back on advertising in a recessionary period. This may be true, but with the lofty growth expectations of the market, an economic setback alone doesn't justify a 50% drop in the share price. The Trade Desk is currently trading at just under a 20x revenue multiple. This is slightly on the low end for stocks of this growth caliber. There are high growth tech stocks such as Snowflake, for example, trading at an upwards of 30-40x revenue. We cannot argue that it is tremendously undervalued in the current market, but we are confident that TTD will continue to capture market share in one of the fastest growing markets of the digital age.


Opinion:

In conclusion, Perspective sees the Trade Desk as a great long-term buy and hold opportunity. With the current economic headwinds, it is a challenge to perfect the timing of this stock, but we do believe it has tremendous long-term growth potential. We own a small stake in TTD and will average down if hysterical market selling continues. This digital age is just beginning, and we believe The Trade Desk is going to be a large part of the growth.





Disclaimer: Perspective Personal Finance does not provide financial advice. This is for educational and interactive purposes only. Please invest at your own risk!


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