Few people have heard of The Trade Desk (NASDAQ:TTD), but it has quietly become one of the best investments on the internet.
TTD runs a platform for all kinds of digital advertising. It doesn’t just sell ads on websites, but on any inventory with a data-based offering. It sells self-serve campaigns to brands and agencies.
Since going public in 2016, the shares have gained 780%. They had their own mini crash over the summer, dropping almost 30%, and got hit again recently when Morgan Stanley got shy on peer Roku (NASDAQ:ROKU), cutting its rating. Despite the volatility, The Trade Desk is up 110% for 2019.
The Secret Sauce
The secret sauce for The Trade Desk is the power of its software and the neutrality of its program. It lets its customers do programmatic campaigns, creating an online auction that can trade 9 million pieces of inventory every second. While Facebook (NASDAQ:FB) and Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) dominate the online ad space, The Trade Desk lets ad managers create campaigns that combine their inventory with other sources.
The resulting agency model competes with Google’s DV360 (formerly the DoubleClick Bid Manager) and Amazon’s (NASDAQ:AMZN) advertising platform. Among the secondary players being left behind are Verizon’s (NYSE:VZ) Verizon Media (formerly Oath), and Adobe (NASDAQ:ADBE).
The Trade Desk’s autonomy from the source of its ad inventory makes it a neutral platform for companies that want to buy digital space in any media. The quality of its software then distinguishes it from smaller rivals making the same pitch.
CEO Jeff Green says TTD wins by acting as a software company, not a media company. This also benefits investors, because it means TTD is a profitable company. It regularly brings about $1 in every $7 of revenue to its net income line.
Look at the Books
Despite the stock’s recent volatility, as analysts rush between growth and value, TTD’s financials show steady progress.
Since it went public revenues have tripled, to $606 million over the last 12 months. Profitability has also steadied, and peaks in the fourth quarter as Christmas approaches. The balance sheet shows $207 million in cash and no long-term debt. Cash flow over the last 12 months was about $100 million.
The third-quarter results, announced Nov. 7, were seen as a breakout. The company earned 75 cents per share against estimates of 67 cents, and revenue of $164.2 million was up 38% from a year earlier.
Green has a global vision and spent most of 2018 in China with his family, signing new inventory and learning how the Chinese digital industry works. This has added some risk, because China’s ad business has suffered under the trade war. Analysts were downgrading TTD on its China business earlier this year, but more now see it as a “buy” than a “hold.”
The Bottom Line on The Trade Desk
Because TTD stock is volatile, rising and falling based on views of its competitors rather than itself, investors should be watching the chart closely.
At its opening price of $240.10 per share on Dec. 4, for instance, the shares are trading at a whopping 17 times revenue and over 100 times trailing earnings. But shares are down $25 from last week. Today’s per-share price is also $40 above where it was just a month ago.
There’s no dividend, so you’re looking for capital gains. You need to wait for a downdraft, something like an analyst downgrade, then pounce for maximum benefit. The Trade Desk can be a very profitable trade.
Dana Blankenhorn is a financial and technology journalist. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AMZN.