Stunning. That’s really the only adjective appropriate to describe the phenomenon that is Trade Desk (NASDAQ:TTD). On a year-to-date basis, TTD stock is up nearly 124%, a resounding statement under any context. But more impressively, shares skyrocketed 154% in 2018. Typically, you’d expect high-flyers to take a breather following a banner year. Not Trade Desk stock.
That said, strong performance can be its own curse. After what is likely two consecutive years of triple-digit returns, prospective buyers are sure to question how much momentum remains in the tank before a meaningful (or painful) correction. Consider that in 2017, TTD stock gained over 63%. Just from simple probabilities, you’d expect 2020 to offer a reversal.
Furthermore, the enormous bullish sentiment witnessed this year is a case of a split personality. Between the close of Jan. 2 to June 28, Trade Desk stock gained 96%. But from July 1 to the time of writing, TTD only moved up a hair higher than 7%. Naturally, investors are pensive, not wanting to hold the bag.
Admittedly, I’m not big on buying into momentum, especially extremely strong momentum. However, TTD stock is more than just its overall robust technical performance. Frankly, the underlying company represents the future of advertising. Here are three reasons why:
1. Connected TV Opportunities
For any organization levered to media entertainment, the connected TV opportunity is a double-edged weapon. First, the cord-cutting movement has been expanding at a record pace, leaving many traditional TV providers scrambling for an answer.
Second, both equipment providers like Roku (NASDAQ:ROKU) and content creators like Disney (NYSE:DIS) have invigorated connected TV. Even companies that primarily have nothing to do with TV, such as Apple (NASDAQ:AAPL), have jumped on the bandwagon.
In other words, connected TV is here and it’s going to stay. And that’s music to the ears of Trade Desk stock shareholders.
According to Trade Desk’s corporate communications representative Melinda Zurich, management early on recognized connected TV’s potential. As such, the company inked deals with names like Amazon (NASDAQ:AMZN) and Disney.
Moreover, cord-cutting and streaming entertainment are not exclusively American developments. In order to establish a dominant footprint, TTD signed agreements with European broadcasters like Germany’s Prosieben and France’s RTL.
Of course, with China being 1.4 billion strong, it’s a goldmine for any media organization. To cement its position there, Trade Desk has established relationships with Alibaba (NYSE:BABA), Tencent (OTCMKTS:TCEHY) and Baidu (NASDAQ:BIDU).
2. The Programmatic Future
In the old days of linear TV advertising, all components of the process involved humans. The negotiations, the purchasing and the actual inclusion of ads were subject to fallible human operators.
But as we step increasingly into connected TV or streaming, much of the administrative work in advertising is now automated. This is what industry experts refer to as programmatic advertising. It’s this burgeoning development that makes TTD stock indefinitely relevant.
According to data from Magna Global, programmatic advertising is growing at an average annual rate of 20%. Furthermore, the research firm forecasts that the total 2019 ad spend will hit $600 billion. Within that metric, linear ad sales will decline by 3%, while digital ad sales will increase by 14%.
These are impressive statistics considering that 2018 had flagship televised events; for example, the FIFA World Cup and the U.S. midterm elections.
Where Trade Desk stock specifically benefits is that the underlying company can offer advertisers unprecedented information about their ad engagements. With streaming technologies, Trade Desk can offer clients the who, what, where, when and why. That simply wasn’t possible in the linear TV era.
3. Built-in Efficiencies and Trade Desk Stock
Prior to this article, Zurich gave me a wealth of information about not only Trade Desk stock but also about its industry. Within the library of data, one point really stood out to me. The economic efficiency of programmatic ads alone could be a gamechanger for this organization. Zurich wrote:
In a traditional linear TV environment, if a football game goes into overtime, the broadcaster often gives away those ad spots at a discount for repeat ads. This is because the advertiser can’t plan for those events. At the same time, these are potentially the most valuable ads. Everyone is watching. In a CTV [connected TV] environment, with TTD’s data-driven real time platform, advertisers can optimize unpredictability and move on these high value opportunities in real-time. That’s why many of these broadcasters are working with us to help design their ad tech stack to maximize for this opportunity. These companies are not our direct clients, but they know we bring demand from the world’s top advertisers. (emphasis mine)
You know that last bit of toothpaste that requires more effort than is worth picking out? What Zurich is describing is technology that allows companies to get that bit quickly and seamlessly. Except that we’re not talking about toothpaste but billions of dollars’ worth of premium ad space.
For this and a myriad other factors I’ve yet to discuss, TTD stock is a long-term buy.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
