For the past several years, I’ve been pounding on the table about The Trade Desk (NYSE:TTD) stock. The rationale has been simple.
Programmatic advertising is the future of digital advertising. The Trade Desk is the leader in programmatic advertising. Consequently, as more marketers turn to programmatic advertising over the next few years, Trade Desk’s revenues and profits will march higher, powering TTD stock higher along the way.
So far, this thesis has worked out perfectly. Trade Desk went public in September 2016 at a price of $18 per share. Less than three and a half years later, Trade Desk stock trades hands just shy of $300.
In 2020, this thesis will continue to work. For three big reasons.
First, digital ad spending trends will improve in 2020 (The Trade Desk is a pure-play on the digital ad market). Second, open internet ad real estate will significantly increase (and Trade Desk is the biggest demand-side ad platform in the open internet). Third, the performance delta between programmatic and traditional advertising will further widen, compelling broader and accelerated uptake of programmatic advertising (and Trade Desk is the leader in that field).
In other words, The Trade Desk will sustain robust growth momentum in 2020. Meanwhile, the valuation remains tangible and rates remain low. Thus, much as it has over past several years, this stock will only go higher this year.
Three Big Tailwinds
There are three big tailwinds which which should keep The Trade Desk’s growth narrative vigorous in 2020.
First, digital ad spending trends will improve. This is mostly because ad spending levels are tethered to economic strength, and the global economy will power higher in 2020, thanks to supportive central bank policies, broad fiscal stimulus injections, easing U.S.-China trade tensions, and sustained strong labor conditions. At the same time, the shift to digital consumption will accelerate in 2020 thanks to several new digital consumer-facing services (think cloud gaming platforms and streaming TV services). Ad dollars follow consumption, so this accelerated digital consumption shift will lead to accelerated digital ad spend.
As the digital ad market rises in 2020, so will The Trade Desk, since the company is a programmatic demand-side platform (DSP) in the digital ad world.
Second, open internet ad real estate will significantly increase. This is because all those new digital consumer-facing services are considered “open internet” (i.e. they don’t belong behind the walled gardens of Facebook (NASDAQ:FB), Alphabet (NASDAQ:GOOG) and Amazon (NASDAQ:AMZN)) and most of them are at least partially ad-supported. As Needham analyst Laura Martin puts it, The Trade Desk is the “largest aggregator of ad unit purchasing power in the open internet.”
Naturally then, the expansion of open internet ad real estate through these new digital consumer-facing services will provide a boost for The Trade Desk’s growth trends.
Third, the performance delta between programmatic and traditional advertising will only widen in 2020. That’s because data-driven programmatic advertising algorithms will get more data, and therefore, get better. Traditional human-based advertising won’t get better. As this delta widens, more companies will turn towards programmatic advertising.
Shares Can Keep Moving Higher
So long as The Trade Desk sustains robust growth momentum — and it will, given the aforementioned tailwinds — then this stock will keep moving higher.
That’s because the valuation remains tangible, while interest rates remain low. That is, The Trade Desk trades at 76-times forward earnings. Sure, that’s rich. But, shares have been more richly valued before, and a 76 forward multiple isn’t that high when you consider that the likes of similar hyper-growth tech stocks such as Shopify (NYSE:SHOP) and Twilio (NASDAQ:TWLO) trade at triple-digit forward multiples. At the same time, my modeling suggests that The Trade Desk’s long-term profit growth prospects warrant a price tag on the stock of around $300 today.
It’s also worth mentioning that, because of various geopolitical risks like the Iran strike and the coronavirus outbreak, interest rates are really low today. As of this writing, the 10-Year Treasury yield is around 1.7%. Low rates provide support for growth stock valuations, since they lower the discount rate on future profits, and up the present value of those future profits (and growth stocks get all of their value from future profits). Plus, when yields are that low and barely beating inflation, where else are investors going to put their money besides stocks?
In the big picture, then, so long as The Trade Desk sustains robust growth momentum, TTD stock features a tangible valuation, and interest rates remain low, then shares of this long-term winner will keep moving higher.
Bottom Line on TTD Stock
The Trade Desk stock is a long-term winner with a ton of operational momentum. This momentum will persist for the next few quarters. As it does, shares will push to new highs.
As of this writing, Luke Lango was long TTD and FB.
