The Trade Desk (TTD) – Come to Papa & Leadership – January 20, 2024
Come to Papa
At the beginning of the year, I placed The Trade Desk in my fundamentally elite but very expensive holding category. At that time, it was trading for around 135x next 12 month operating income. It was also trading for an EBIT multiple/3-year EBIT CAGR of 1.99x. This made it the 6th most expensive growth and technology name in my broad coverage network. Since then, the shares have cooled off quite a bit. The EBIT multiple is now closer to 100x, and likely below that considering the company consistently surpasses profit estimates. The 1.99x EBIT growth multiple has also fallen below 1.50x, which is now below average within its bucket of companies.
I’ve trimmed 6 times in the last 12 months. None of these trims had anything to do with the quality of the firm’s performance, but were solely based on an aggressively steep multiple. The company is simply an elite executor, Jeff Green is a fantastic CEO and its niche is highly compelling. The stock just got way ahead of itself, so I lightened up. The price tag has now waned to a point where I’ve added to my stake for the first time in over a year. I hope to continue doing so into more material multiple contraction. I think there’s a chance that Q4 looks less impressive than its quarters normally do before performance improves in 2024. That could give me the chance to keep re-building the position.
The Trade Desk boasts a tangible edge in its ability to double average ad placement efficacy for its buyers. This means it outperforms during poor advertising demand times like in 2022 as buyers scrutinize every dollar spent even more and flock to the highest return relationships. The Trade Desk is the partner to deliver unmatched returns in the open internet. Returns are better, consistent identification of customers, reporting, and transparency are also just better. While all of this meant that it vastly outgrew the market in 2022 and “took more share in one year than ever,” the share gains were harshly masked by generally poor macro and ad purchasing appetite. Growing faster than the competition still meant growth slowing towards 20% Y/Y.
Now, with monetary policy easing, recessionary fears diminishing and commentary on bottoming demand from nearly every digital advertising staple over the last several months, I think the sector is becoming much more inviting. That’s happening while The Trade Desk stock has endured some sorely needed multiple compression. It will continue to take more market share like it has for over a decade. Those market share gains will be much more noticeable as sector growth accelerates; they should foster an acceleration beyond the current 20% growth currently expected for 2024. The cyclical industry is entering a more enjoyable part of this current cycle. That will prop up TTD’s growth as it continues to dominate within the two best secular growth stories in programmatic advertising: Retail Media and Connected TV. Fortune 500 retailers are lining up to partner with it. Every single streamer is embracing advertising.
Leadership
- The Trade Desk created a new role this week and appointed Tim Sims as Chief Commercial Officer.
- Jed Dederick is the company’s new Chief Revenue Officer. Tim Sims had been the firm’s Chief Revenue Officer before this.
- The firm’s Chief Strategy Officer, Sam Jacobson, was added to the firm’s board of directors.
“The Trade Desk has grown more rapidly and gained more market share in the last four years than at any point in our history, and these leadership appointments ensure that we are well positioned to continue on that high-growth trajectory.” – Co-Founder/CEO Jeff Green
Source: YCharts
