Will you be willing to watch some ads in exchange for a lower price for your Netflix subscription?
According to Netflix Inc (NASDAQ: NFLX), over 40% of all new sign-ups in countries offering ad-supported plans have opted for it.
This favourable ratio bodes well for The Trade Desk (NASDAQ: TTD), a leading programmatic advertising company.
Additionally, it is one of the key companies Netflix has included to expand its advertisement buying capabilities.
How the company wins in a competitive digital ad market
The Trade Desk provides a self-service, cloud-based ad-buying platform to advertising agencies, advertisers, and their service providers.
The company differentiates itself by being laser-focused on serving the needs of ad buyers.
Along these lines, The Trade Desk prides itself by offering transparency, a rarity in a competitive environment which is prone to a “black box” approach to ad measurements.
There are three ways The Trade Desk builds trust and long-term relationships with its clients.
- Data ownership: The platform empowers clients to use their own data without concerns about data sharing.
- Targeted Audience: The company’s robust data-management platform has enabled its clients to effectively target their audience across different channels.
- No Inventory Conflict: The Trade Desk does not compete with its clients by not profiting from selling advertising inventory.
These are not just empty words.
The company’s track record since its listing in 2016 speaks for itself.
Impressive Growth Record
Image credit: The Trade Desk 2Q 2024 Investor Presentation
From the above, its revenue grew by more than 17 times over the past eight years. That’s a breathtaking compounding annual growth rate (CAGR) of 42.6%!
At the same time, its net income also grew by an eye-popping 20 times to reach US$178 million in FY2023.
Here’s the difference: growth has not slowed down by much even as it grows larger.
From 2020 to 2023, the CAGR of its revenue, over a larger base, is still an astounding 32.5%!
Can The Trade Desk continue to grow?
The Trade Desk has projected that the global advertising industry is heading towards a US$1 trillion total addressable market (TAM).
This statistic implies that there is a substantial growth runway for the company.
This is not mere speculation. The Trade Desk is well-positioned to benefit from the following trends:
- Ongoing shift of consumers to Connected TV (CTV): With widespread internet access and a growing digital-native population, more consumers are opting for CTV over traditional broadcast television.
- Increasing online time on the open internet: Within the CTV market, US consumers are spending more time on platforms like Disney+, Spotify (NYSE: SPOT) and many others, compared to walled gardens (closed ecosystems) such as Facebook and Google.
- Global expansion opportunities: The global market outside the US spends twice as much on advertising as the US, offering significant growth potential for The Trade Desk.
Financial results from the company’s 2Q 2024 earnings report support this optimistic outlook.
Revenue climbed 26% year on year to US$585 million, while net income surged by 158% year on year to US$85 million.
Get Smart: It’s never too late to invest in a company with good growth
A cynic might say, “It’s already a multibagger. I have missed the boat!”.
While it’s true that The Trade Desk achieved 10-bagger status less than four years after its 2016 listing, its growth story did not end there.
Even if you had purchased the company in January 2020, when it was already a multibagger, you would have gotten a substantial return of more than 200% by this July.
In other words, The Trade Desk has handily outperformed SPDR S&P 500 ETF (NYSE: SPY) over the same period.
It is important to note though that during this spectacular run-up, its stock price has experienced short-term volatility. However, the long-term trend reflects the company’s consistent growth.
As a market leader in programmatic advertising for CTV, The Trade Desk looks set for continued success.
Dive into the future of technology with our newest FREE report, “The Rise of Titans.” Discover how the big 7 US tech stocks can be your ticket to huge long-term gains. Download your copy today and see how easy it is to supercharge your portfolio.
Follow us on Facebook and Telegram for the latest investing news and analyses!
Disclosure: Chan Kin Chuah owns shares of Alphabet and The Trade Desk.
