Snapshot

Digital advertising has been revolutionized in recent years, with companies leveraging advanced data analytics to target consumers more effectively and maximize their return on investment.

The Trade Desk is the incumbent giant leading this dynamic market offering a comprehensive programmatic advertising platform. The company’s self-service cloud-based business model allows buyers to plan, manage, optimize, and measure data-driven digital advertising campaigns across various ad formats and channels covering several devices and mediums. In addition, it also provides data and other value-added services, helping advertising agencies, brands, and other advertising partners.

Trade Desk empowers advertisers to purchase and manage digital ad campaigns while enabling clients to achieve the best use of ad placements in real time, ensuring higher engagement and more precise audience targeting.

Its customer base includes major brands and agencies across the spectrum of industries. These clients utilize Trade Desk’s platform for a range of purposes from launching brand awareness campaigns to driving direct sales and customer acquisition.

Despite being the standout leader amongst pure-play advertising peers, Trade Desk continues to grow its global footprint, forming strategic alliances with major media companies, digital platforms, and data providers to expand its reach and offer a more diverse advertising inventory.

Background

Trade Desk was co-founded in 2009 by Jeff Green and David Pickles after the duo met at Microsoft following its acquisition of Green’s real-time digital advertising auction firm, AdECN. By 2012, the company was included as an alpha partner in Facebook’s launch of Facebook Exchange. This early partnership helped establish the company’s reputation in the digital advertising industry.

The company went public in 2016 as the demand-side platform was strongly endorsed and delivered healthy financials including triple-digit revenue growth and profitability.

Post-IPO, Trade Desk also made several strategic moves to enhance its product offerings and expand its market presence. In 2017, the company integrated connected TV buying and measurement into its platform, acquired marketing insights firm AdBrain, and partnered with fraud prevention firm White Ops to block fraudulent ad traffic. It also improved transparency in programmatic buying, allowing buyers to see all selling or reselling parties involved in a bid request.

2018 saw heavy investment in the Asia Pacific region with the launch of its programmatic ad-buying platform in China and partnering with major Chinese media companies such as Alibaba, Tencent, and Baidu Exchange Services. The company also launched several new AI tools, including an AI forecasting engine named Koa, a new user interface, and The Trade Desk Planner for mapping strategies. Other innovations saw the integration of connected TV apps through Amazon Publisher Services, enabling the purchase of ad inventory for third-party TV content providers on Amazon Fire TV devices. The company also launched an advertising campaign, “Media for Humankind,” to position itself as a transparent alternative to major players like Google and Facebook.

In 2020, Trade Desk introduced Unified ID 2.0 (UID 2.0), a solution designed for a post-cookie internet that uses encrypted email and phone number data to create a secure identity standard. This tool was adopted by major players such as Disney and Paramount, as well as advertisers like Procter & Gamble and Unilever. In early 2022, Trade Desk launched OpenPath, granting advertisers direct access to its premium digital advertising inventory, with publishers such as Conde Nast, Reuters, and The Washington Post joining the platform.

Leadership

Co-founder, Jeff Green, continues to steer Trade Desk as CEO. Green has been instrumental in guiding the company’s strategic direction, expanding its global footprint, and continuously enhancing its technological capabilities to stay ahead of industry trends. His vision and leadership have been recognized with numerous accolades, including being named among Ernst & Young’s Entrepreneurs of The Year in 2015. Under his leadership, the company has grown into a juggernaut, reaching a market cap of $40 billion in 2021.

As chief technology officer, fellow co-founder, David Pickles, was integral in developing the company’s cutting-edge programmatic advertising platform. His work ensured that the platform remained at the forefront of innovation, integrating advanced features such as connected TV buying, AI tools, and fraud prevention measures. Although Pickles stepped down as CTO and from the company’s board last year 2023, he continues to serve as a long-term advisor.

Customer

Trade Desk offers a comprehensive suite of products that advertisers can use to effectively manage and improve their digital advertising campaigns. The platform allows ad buyers to formulate, execute, and track promotions across various channels and formats including video, display, audio, digital-out-of-home, native, and social media, featuring on billions of devices such as computers, mobiles, televisions, and streaming services.

Focusing exclusively on the buy side of the digital advertising ecosystem, Trade Desk positions itself as an enabler rather than a disruptor. By aligning its core offerings with advertisers and agencies, the company avoids conflicts of interest and builds trust with clients who leverage their proprietary data on the platform. This approach has resulted in long-term and stable relationships, with a client retention rate exceeding 95% over the past decade.

Trade Desk’s platform is built on a foundation of data-driven decision-making. The company emphasizes the importance of ingesting proprietary data from advertisers and agencies to enable clients to run precisely targeted advertising campaigns, so as to maximize returns on investment.

With a major focus on transparency, the platform provides clients with detailed, real-time reporting on all aspects of their advertising campaigns, including costs, performance metrics, and inventory purchasing decisions. Data management and measurement tools coupled with ever-improving artificial intelligence capabilities enable clients to optimize campaigns with relevant data sets from third-party vendors and proprietary benchmarking tools.

The platform’s flexibility and customization options are also significant advantages. Clients can use Trade Desk’s APIs to design their own user interfaces, manage campaigns in bulk, and integrate other systems such as ad servers and reporting tools. This open platform approach enables clients to build proprietary tools for reporting, strategy, and automation, in turn, fostering long-term relationships and increased platform usage.

Trade Desk serves a diverse range of clients, including major brands and advertising agencies across various sectors such as retail, automotive, entertainment, and financial services. These clients use the platform for a variety of purposes, from launching brand awareness campaigns to driving direct sales and customer acquisition. For instance, retail companies might promote new product lines, while entertainment firms leverage the platform to increase viewership for new content releases.

Trade Desk also supports private marketplace transactions, allowing clients to discover and transact via private contracts with individual publishers. This capability provides advertisers with direct access to premium digital advertising inventory that might not be available through other programmatic channels.

Thematic

Trade Desk is primed for further expansion as it actively pursues several strategic priorities aimed at combining growth initiatives, operational efficiencies, and a commitment to enhancing advertiser experiences and outcomes.

Connected TV (CTV) continues to be the fastest-growing channel for Trade Desk. The company has deepened partnerships with industry giants such as Netflix, Disney, NBCU, Walmart, Amazon, Roku, and LG Electronics. These collaborations have opened up more opportunities for advertisers to enhance targeting accuracy and campaign performance. This strategic focus on CTV is driving significant growth and positioning Trade Desk as a leader in this rapidly expanding segment. To this end, Netflix’s ad-supported subscription has amassed 40 million global active users for which Trade Desk is now a main programmatic partner for advertisers on the platform. These collaborations also enhance the platform’s inventory quality and accessibility, benefiting both advertisers and publishers.

To further strengthen its market position, Trade Desk is spearheading the development of a new identity and authentication framework for the open Internet through its UID2 initiative. This framework leverages first-party and retail data to provide superior targeting and measurement capabilities. By offering an alternative to the walled gardens of Google and Facebook, Trade Desk is enhancing the value proposition for advertisers looking to make more informed and precise marketing decisions.

Artificial intelligence has been a foundation of Trade Desk’s technology since the launch of Koa in 2018. Now with Kokai, the company is expanding its AI capabilities to include relevance scoring, forecasting, budget optimization, and measurement enhancements. These AI tools help advertisers make data-driven decisions, optimizing campaign performance and driving better outcomes.

In addition to platform enhancements, Trade Desk has introduced the Sellers and Publishers 500 Plus, a curated marketplace representing premium content where consumers spend a significant amount of their online time. This marketplace includes live sports events, movies, TV shows, music, podcasts, and trusted journalism. By ensuring that ads are shown against high-quality content, Trade Desk aligns with brand suitability and transparency, offering a superior advertising environment compared to user-generated content.

Significant shifts within the digital advertising industry are being driven by regulatory pressures on big tech companies. These pressures are prompting advertisers to seek more value from the open internet, a trend that Trade Desk is well-positioned to capitalize on. The movement of digital ad spending away from Meta and Google has accelerated creating a favorable environment for the company to capture a larger share of the nearly $1 trillion total addressable market in digital advertising.

Financials

Trade Desk has been on a robust trajectory of revenue expansion, achieving consistent double-digit year-over-year growth in recent years, culminating in record annual revenue of $1.95 billion in 2023. This momentum carried into the first quarter of 2024, where the company delivered revenue of $491 million, accelerating growth to 28% year-over-year. The continued surge has been driven by higher gross spending on the platform, fueled by an increasing number of advertisers and more campaigns executed by existing clients.

The company has seen increases in various expense categories as part of its growth strategy. In 2023, platform operations expenses rose by 30%, driven by higher hosting and personnel costs due to increased platform usage and investments in new data centers. Sales and marketing expenses increased by 33%, reflecting higher personnel and marketing costs associated with headcount growth and enhanced client engagement. While technology and development expenses also grew by 29%, primarily due to headcount growth and increased stock-based compensation. Despite these increases, operating income is on an upward trajectory.

Looking ahead, consensus estimates have Trade Desk further growing revenue by almost 25% year-over-year for FY24 to $2.42 billion. Analysts also expect the company’s earnings per share to increase by 23% for FY24 to $1.55, up from $1.26 in FY23.

Risks/Competition

The digital advertising market is highly competitive and fragmented, with Trade Desk facing significant competition from both smaller companies and well-established giants. Major competitors include Mediaocean, Adform, Meta, Google, Quantcast, Adobe, and Amazon Ads. Each of these companies varies based on factors such as geographic market, customer segment, and specific product offerings.

Despite this intense competition, Trade Desk has several competitive advantages that set it apart. As an independent technology company focused solely on serving advertising agencies and other buy-side entities, Trade Desk is unique in its market positioning. Unlike many competitors that rely on campaign-specific insertion orders, Trade Desk builds long-term client relationships through master service agreements, providing stability and fostering deeper collaborations.

Trade Desk’s platform also offers comprehensive access to a wide range of inventory types and third-party data vendors, allowing clients to leverage diverse data sources for more effective targeting. This is a critical advantage over competitors like Google and Amazon Ads, which operate within more closed ecosystems. The platform’s flexibility is another key differentiator, enabling clients to integrate custom features and interfaces through APIs, thereby creating proprietary advantages and tailored solutions.

Conclusion

With numerous strategic partnerships and continuous innovation leveraging AI, The Trade Desk is well-positioned to capitalize on the shifting trends in digital advertising. The company’s focus on the open internet and its ability to deliver premium value and precise targeting, coupled with regulatory pressures on big tech competitors provide a robust outlook for continued growth.

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