The Trade Desk (NASDAQ: TTD) has been a remarkable stock for investors in the two-plus years the company has been public, gaining over 500%, even after considering its recent decline. The company has a market cap of just $8.5 billion and a long runway, so it could just be getting started.
Let's look at the market in which the programmatic advertising company operates and see why The Trade Desk is a company investors should buy and stick in a drawer for the long term.
The Trade Desk is at the intersection of several powerful media shifts. Image source: Getty Images.
1. Tapping into the continuing shift to digital
Advertising continues to move from traditional media like print and broadcast television to the digital realm. In 2019, worldwide digital ad spending is expected to grow nearly 18% year over year to $333 billion and to account for more than 50% of total advertising, according to eMarketer. While those numbers are impressive, consider this: by 2023, global digital ad spending is expected to top $517 billion and make up more than 60% of the total.
The Trade Desk is perfectly positioned to continue to take advantage of this once-in-a-lifetime shift.
2. Programmatic is the wave of the future
Programmatic advertising is among the fastest-growing segments of the digital ad market. The process uses sophisticated algorithms and high-speed computers to automate the process of ad buying and accomplish it in real time while also more accurately presenting ads to the consumers that will most likely act on them.
In 2019, programmatic advertising is expected to grow 19% year over year to more than $84 billion and to account for 65% of all digital advertising. That growth is expected to continue, topping $98 billion by 2020 and making up 68% of all digital ads, according to Zenith Media.
Programmatic is The Trade Desk's bread and butter, and its new Koa AI-based system can run 9 million queries per second to better match target audiences and improve results.
3. The Trade Desk is growing even faster
The trend to digital and programmatic solutions presents a massive opportunity, and no company is capitalizing on that better than The Trade Desk. In 2018, the company grew revenue by 55% year over year -- which shows it's stealing market share from incumbents. What makes that growth all the more impressive is that it accelerated from the 52% growth it achieved in 2017.
That growth is being driven by several categories that are soaring. Ads on connected TVs grew 800% year over year in 2018, while audio grew 230%. Mobile ads are also ripe for growth, with mobile video up 130% and mobile in-app increasing 90%, both year over year.
With just $477 million in revenue last year, The Trade Desk has plenty of room to grow.
Image source: Getty Images.
4. Avoiding the focus of regulators
One of the biggest challenges for other digital advertisers like Facebook (NASDAQ: FB) and Google, a division of Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG), is the increasing scrutiny of regulators regarding data privacy issues.
There's still a cloud hanging over Facebook related to Cambridge Analytica and subsequent misuses of personal data. Google's also in the hot seat -- earlier this year, the company was fined about $57 million by European Union regulators for running afoul of General Data Protection Regulation or GDPR, data privacy regulations that were enacted just last year. Earlier this week, The Irish Data Protection Commission (DPC) launched an additional inquiry into whether Google's Ad Exchange system continues to violate Europe's privacy rules.
On a conference call late last year, The Trade Desk's CEO explained the company's significant advantage. "Because The Trade Desk does not transact indirectly identifiable consumer data and because we don't own a search engine, we can provide a Unified Open ID that enables advertisers to compare every destination on their media plan to every other destination objectively," Green said. "Our data and the data of our third-party partners cannot be directly associated with an individual. Data in The Trade Desk platform does not include names, phone numbers, or Social Security numbers, for example."
5. Strong profits
The Trade Desk only went public in September 2016, and unlike many recent IPOs, the company is profitable. In 2018, the company generated adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $159 million, up 67% year over year. Net income grew an even more impressive 73% to $88 million.
For 2019, The Trade Desk expects that trend to continue, recently raising its forecast for adjusted EBITDA to $188.5 million, up from its previous guidance of $182 million.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Danny Vena owns shares of Alphabet (A shares), Facebook, and The Trade Desk. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Facebook, and The Trade Desk. The Motley Fool has a disclosure policy.