Case Study on Trade Desk (TTD) with Nobias technology
The Trade Desk (TTD) shares were up more than 33% this week. TTD shares rallied after the company reported Q2 results which beat Wall Street sales growth expectations and included strong forward guidance. However, even after this 30%+ post-earnings rally, TTD shares are still down by more than 17% on a year-to-date basis.
At its current share price of $74.49, The Trade Desk is down by approximately 34.7% from its 52-week high of $114.09. However, the credible authors and analysts that Nobias tracks who have recently provided opinions about TTD shares continue to believe that the company has more upside ahead.
Andres Cardenal, CFA, a Nobias 5-star rated author, recently published a bullish report on the company at Seeking Alpha, highlighting its business operations and the “massive growth” opportunities that lie ahead of the company.
Cardenal wrote, “The Trade Desk is a demand-side platform that works with advertisers and advertising agencies to produce more efficient and better-targeted advertising, ultimately providing data-driven decisions with more control, increasing return on investment - ROI, and delivering a better experience to consumers.” He continued, “The Trade Desk has launched a better solution to replace third-party cookies with Universal ID 2.0. This new identifier is gaining popularity as privacy-conscious technology that also allows for better measuring and more transparent results. Among many other notable companies, Amazon Web Services has recently joined UID2.”
TTD Aug 2022
Looking at the advertising market from a high level, Cardenal wrote, “Advertising is basically demand creation, which is at the backbone of the global economic system. The overall size of the market is estimated at around $750 billion, and technological improvements are making advertising more effective, which will only increase spending in the years ahead, regardless of the natural fluctuations that always come with the business cycle.” He notes that TTD is “ at the forefront of innovation in advertising” and serves as a major “disruptor” in the space.
Taking a look at the company’s execution, Cardenal wrote, “Revenue has increased from $308 million in 2018 to $1.59 billion in 2022, and it is expected to reach $3.9 billion in 2026.” He highlighted bottom-line results as well, stating, “Free cash flow has increased from $61 million in 2018 to $471 million expected this year and $1.1 billion projected by 2026.”
Regarding TTD’s competitive position, he said, “From a competitive point of view, the business is stronger than ever. The Trade Desk is expected to grow at above 33% this year, while the rest of the industry is growing 8%-14% depending on the estimates.”
Cardenal touched upon macro risks that the company faces, writing, “High inflation, a potential recession, and supply chain disruptions are obviously problematic for the advertising industry.” He also put a spotlight on stock-based compensation and ongoing shareholder dilution as a potential headwind for the company, writing, “The main negative factor is that there is a huge stock-based compensation expense of $124.9 million last quarter, including $66 million for CEO Jeff Green due to long-term performance incentives.” However, he believes that the company is a great long-term play in the advertising space, not only because of recent execution, but also, because of the opportunity that international expansion provides.
Cardenal wrote, “International markets offer enormous room for expansion in the years ahead. The Trade Desk is currently making only 12% of revenue from international markets. On the other hand, international represents 2/3 of the global advertising industry.” Overall, Cardenal concluded, “Leaving aside the short-term economic risks, The Trade Desk is the top player in an industry with enormous potential, both revenue and cash flows are growing spectacularly well, and valuation is not excessive considering the quality of the business. The Trade Desk is an excellent candidate for growth investors to consider owning over multiple years.” And, this 5-star author is not alone with this bullish sentiment.
On August 1st, 2022, prior to The Trade Desk’s recent quarterly results, Shrilekha Pethe, a Nobias 5-star rated author, published an article at Nasdaq.com which highlighted the broad bullish sentiment surrounding TTD shares coming into the Q2 earnings season.
Regarding TTD’s recent share price weakness, Pethe wrote, “The Trade Desk’s stock has plummeted as investors have been concerned about whether the rising interest rates, soaring inflation, and other macro headwinds could see a pullback in advertising.”
However, coming into the company’s second quarter results, Pethe pointed out that the Wall Street community remained largely bullish on the stock, stating, “Wall Street analysts remained bullish about Trade Desk with a Strong Buy consensus rating based on 10 Buys and one Hold. The average Trade Desk price target of $71.20 implies an upside potential of 62.5% at current levels.” She wrote, “Even as the macro environment remains volatile, it appears that Trade Desk could very well ride out this challenging environment.” And, now that the Q2 numbers have been posted, it’s clear that Pethe’s bullish sentiment was correct.
The Trade Desk reported earnings on August 9th, 2022, beating Wall Street consensus estimates on the top line. The company posted Q2 revenue of $377 million, which was up by 34.6% on a year-over-year basis. TTD’s non-GAAP earnings-per-share came in at $0.20, which was in-line with Wall Street’s consensus expectation.
The company’s Co-Founder and CEO, Jeff Green, said: “We delivered outstanding performance in the second quarter, growing 35% versus a year ago, significantly outpacing worldwide programmatic advertising growth. More of the world’s leading brands are signing major new or expanded long-term agreements with The Trade Desk, which speaks to the innovation and value that our platform provides compared to the limitations of walled gardens. This trend also gives us confidence that we will continue to gain market share in any market environment. At the same time, we continue to invest to drive future growth in key areas such as identity, Connected TV, retail media and supply chain optimization. In each of these areas, we signed major new partnerships with some of the world’s leading publishers, broadcasters, retailers and technology partners in the second quarter.”
Nicholas Ward is a Senior Investment Analyst at Wide Moat Research. He has spent the last 8 years writing about the stock market at various publications, including Seeking Alpha, The Street, Forbes Real Estate Investor, Sure Dividend, The Dividend Kings, iREIT, Safe High Yield, and The Intelligent Dividend Investor.
Chris Ciaccia, a news editor at Seeking Alpha, highlighted TTD’s Q2 results, stating, “The Trade Desk said second-quarter revenues grew 35% year-over-year to $377M, while operating expenses rose 72% to $375.2M, including a 177% increase in stock-based compensation.” He continued, “For the third-quarter, The Trade Desk anticipates $385M in revenue, ahead of the $382.3M analysts were expecting. It also expects EBITDA to be about $140M.”
TTD’s CFO, Blake Grayson provided more details on the company’s forward growth expectations during the Q2 conference call, stating: “Turning to our outlook for the second quarter. We estimate Q3 revenue to be at least $385 million, which would represent growth of 28% on a year-over-year basis. In Q3, we anticipate U.S. political midterm election spend to represent a low single-digit share as a percent of our business. We estimate adjusted EBITDA to be approximately $140 million in Q3. While there’s continued uncertainty about the macroeconomic environment, we continue to feel confident in our ability to execute and take share. Given the large available market in front of us, we see significant opportunities to invest in our business. In more uncertain times, this enables us to widen the distance between ourselves and our competition in areas such as technology, identity, supply chain optimization and customer service.”
It appears that this strong growth was expected by both the Nobias credible authors and analysts who cover TTD. 91% of recent articles published by credible authors (individuals with 4 and 5-star Nobias ratings) on TTD have expressed a “Bullish” bias. And, right now, 100% (6/6) of the credible Wall Street analysts that Nobias tracks who have expressed an opinion on TTD shares are bullish. All 6 credible Wall Street authors who follow the stock expect to see TTD shares increase in value over time.
Disclosure: Nicholas Ward has no TTD position. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.
Additional disclosure: All content is published and provided as an information source for investors capable of making their own investment decisions. None of the information offered should be construed to be advice or a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. The information offered is impersonal and not tailored to the investment needs of any specific person.
Disclaimer: The Nobias star rating is based on past performance results and is not an indicator of future results. These past performance returns do not represent returns that any investor actually earned. Assumptions made include the ability to purchase the stocks recommended by the author under liquid markets where the transaction would be at the market price for the day. In reality, loss in liquidity may have a material impact on the returns that actually may have been earned. Further, returns are calculated without any including transaction costs, management fees, performance fees or expenses, or reinvestment of dividends and other income. This information is provided for illustrative purposes only.