Alongside the rest of the stock market, programmatic advertising leader The Trade Desk (NASDAQ:TTD) has seen its stock decimated by the coronavirus pandemic over the past six weeks. From its mid-February highs, TTD stock has dropped about 50%.
On one hand, this sell-off in TTD stock makes complete sense. The global economy has come to a screeching halt. So long as the economy isn’t moving, consumers won’t be spending as much money. In the absence of robust consumer spending, marketers will peel back on advertising. The Trade Desk makes all of its money through ad spend — so when the digital ad market collapses in the second quarter of 2020, Trade Desk’s growth trajectory will get whacked.
On the other hand, the plunge in TTD stock offers a compelling entry point for long-term investors. The contrarian bull thesis breaks down into five parts:
- The coronavirus pandemic is temporary, as is the slowdown in consumer and ad spending. Current modeling projects the coronavirus to be largely under control by May/June. The economy will normalize thereafter, and consumer and ad spending will rebound.
- The Trade Desk continues to innovate rapidly and expand its leadership presence in buy-side programmatic ad tech. Even amid the coronavirus outbreak, The Trade Desk has continued to scale and improve the capability of its ad tech through various partnerships.
- Growth trends in the second half of 2020 could rebound significantly thanks to an acceleration in streaming TV adoption. The coronavirus pandemic has likely accelerated consumer adoption of streaming TV services, which should spark an acceleration in streaming TV ad spend in the second half of 2020.
- Long term growth prospects remain robust. Digital advertising is still the future of advertising. Programmatic advertising is still the future of digital advertising. And The Trade Desk is still the strongest buy-side platform in programmatic advertising.
- The Trade Desk stock is significantly undervalued. Even after lowering my revenue and profit estimates for The Trade Desk, I still see TTD stock soaring above $200 by the end of the 2020.
Temporary Pain for TTD Stock
The coronavirus pandemic will cause a sharp but short downturn in the global economy.
Current modeling, based on how the coronavirus has progressed in various countries, projects the pandemic to peak in mid-April, before fading thereafter and being fully under control by May/June. By June/July, ample fiscal and monetary stimulus will spark a gradual recovery in the global economy.
Consumers will go out and spend again. Marketers will re-up their ad budgets. And The Trade Desk’s industry will get back to growing.
Even amid the coronavirus pandemic, The Trade Desk has continued to scale and improve the capabilities of its programmatic ad platform.
For example, The Trade Desk announced a partnership with Tik Tok last month, wherein advertisers can now directly access premium TikTok ad inventory across Asia-Pacific through The Trade Desk platform. A few days earlier, The Trade Desk announced international expansion of its partnership with cross-screen television insights provider, Samba TV.
Such moves underscore the innovation prowess of The Trade Desk. They also position the company to get back to firing on all cylinders once the pandemic passes and ad spending trends normalize.
Big Rebound Coming
On the positive side, the coronavirus pandemic has undoubtedly increased the amount of time consumers across the globe spend on streaming TV services like Netflix (NASDAQ:NFLX), Amazon (NASDAQ:AMZN) Video, and Hulu, thereby accelerating what was already a pretty powerful shift from linear to streaming TV consumption.
That’s great news for The Trade Desk. One of the company’s biggest growth verticals is servicing streaming TV advertising. Ad dollars follow engagement. Therefore, an acceleration in the shift of consumer engagement from linear to streaming TV will spark an acceleration in the shift of ad dollars from linear to streaming TV once ad trends normalize.
Thus, in the back-half of 2020, The Trade Desk could report really strong numbers on the back of stronger-than-ever streaming TV ad tailwinds.
Long-Term Growth Prospects Still Huge for TTD Stock
Zooming out, The Trade Desk’s long-term growth prospects remain robust.
Consumer engagement and consumption is only becoming more digitized. Thus, the shift from traditional to digital advertising will continue to happen at a robust pace over the next few years. Concurrently, programmatic advertising is only getting better because of the increase in data and analytics out there. The shift towards programmatic advertising in the digital ad world will also continue at a robust pace for the next several years.
Importantly, through continued product innovation and service expansion, The Trade Desk remains the “top dog” in the programmatic advertising space.
So long as this remains true, the company will continue to leverage secular programmatic and digital ad tailwinds to drive 20%-plus revenue and profit growth.
Valuation Is Attractive
Above all else, the bull thesis on TTD stock hinges on the fact that shares look materially undervalued at $150.
I’ve revised my estimates lower for The Trade Desk to account for the coronavirus disruption in the ad market. Still, I see this company largely sustaining double-digit revenue and profit growth over the next decade — excluding 2020 — and scaling earnings per share towards $25 by 2030.
Based on a 20-times exit multiple and a 10% annual discount, that implies a 2020 price target for TTD stock of over $200.
Bottom Line on TTD Stock
The Trade Desk stock is a long-term winner going through a near-term rough patch. This rough patch won’t last forever. Once it passes, TTD stock will rebound and continue to head significantly higher over the next several years.
Luke Lango is a Markets Analyst for InvestorPlace. He has been professionally analyzing stocks for several years, previously working at various hedge funds and currently running his own investment fund in San Diego. A Caltech graduate, Luke has consistently been rated one of the world’s top stock pickers by various other analysts and platforms, and has developed a reputation for leveraging his technology background to identify growth stocks that deliver outstanding returns. Luke is also the founder of Fantastic, a social discovery company backed by an LA-based internet venture firm. As of this writing, he was long TTD.