Trade Desk ceiling keeps getting higher
The Trade Desk, a Ventura-based ad technology company, continues to make impressive gains on the stock market, leaving financial analysts wondering whether the stock will soon surpass $1,000 per share.
The stock closed at $890.13 on Dec. 1, up 228% from its price at the beginning of the year, and up 516% from its low point at the start of the pandemic, on March 18. Laura Martin, a senior media analyst at Needham & Company who covers The Trade Desk, believes it’s likely that the shares hit $1,000, though she said that is an arbitrary number.
It’s possible, Martin said, “because it’s in a winner-take-all market.”
The Trade Desk operates in a $50 billion industry and holds about 10% of the market, leaving room for growth. Martin’s firm and its clients own Trade Desk stock and have been following the boom in streaming video, also known as “connected TV,” since the pandemic hit in March.
In the third quarter of 2020, spending in all ad areas increased for The Trade Desk, with mobile and audio channels increasing by 70% from the same quarter last year. But the darling was unquestionably connected TV, which topped 100% growth.
In his earnings call remarks for the third quarter, Trade Desk CEO Jeff Green described the moment as a “transformation of TV.” For the past decade, The Trade Desk heavily invested in connected TV, forging partnerships with ad companies Magnite and Freewheel and broadcasters, allowing it to offer clients an exhaustive inventory for placing ads.
“Brands are looking for alternatives to walled gardens, and alternatives to (user-generated content), and alternatives to broadcast TV, and alternatives that are data driven, and of course, alternatives that can be measured objectively,” Green said.
Green believes brands and agencies will continue to pursue premium video content on connected television. Youtube and Facebook are increasingly perceived to be “divisive” environments since much of the content is largely created by users, whereas connected TV platforms like the Discovery app on a smart TV are more neutral territory.
In a time of uncertainty and increased pressure to justify returns on investment, the Trade Desk DSP software platform not only facilitates ad purchases, but delivers insights on ad effectiveness that helps clients to justify ad spending through customized reporting and performance metrics.
Tom White, a senior technology analyst at Equity Capital Markets, said that pre-pandemic, The Trade Desk had “already established itself as the leading and very well-entrenched” demand-side platform for programmatic advertising.
The Trade Desk is capitalizing on pandemic-era trends like plummeting cable subscriptions and no live sports. While many paid streaming platforms are largely ad-free, White predicted that giants like Disney and Netflix will begin to embrace advertisements. White believes that investors are looking for companies that have benefitted from the pandemic. Global digital advertising has proven to be one of those categories. Given these
factors, White believes the current price for The Trade Desk “conceivably makes sense,” although any stock surpassing the $1,000 mark is a rare occurrence.
Despite a few setbacks in spring at the onset of COVID-19, when companies tightened their belts and froze ad spending, The Trade Desk has more than rebounded. Revenue for the third quarter was $216 million, an increase of 32% year-over-year and 45% more than the previous quarter. The company is also profitable, with earnings of $1.27 per share for the third quarter, up 69% from one year prior.
Ian Colley, The Trade Desk’s vice president of communications, said the company will continue to hire and build out its workforce, with particular focus on engineering and sales.
The company will release a new product called Solimar in 2021, and is focused on developing more markets. Still, some investors and analysts find the market’s bullishness on The Trade Desk to be puzzling. George Tharakan, a chartered financial analyst at Alamar Capital Management in Santa Barbara, said the company is trading at a price that far outstrips its financial performance. Google and Facebook, he said, trade at around 27 or 28 times their earnings per share, while The Trade Desk is priced at a multiple more than 10 times that high.
“The Trade Desk on the other hand trades at 40x …. not EPS but sales!” he wrote in an email, speculating on whether the company would be soon acquired. When asked if the stock would indeed reach $1,000 a share, Tharakan said “nothing surprises me anymore,” and speculated that The Trade Desk might be an acquisition target, though, “not at these crazy prices.”
Tharakan said he could foresee The Trade Desk being added to the S&P 500 index.
“Then every indexer and passive vehicle will be forced to buy, price be damned,” he said. “We live in interesting times.”
The Trade Desk’s stock performance has made millionaires out of many of its top employees and directors, and at least one billionaire. According to Forbes, Green is worth $4.8 billion, based on the Dec. 1 share price of his 15% stake in the company. Back in July, when he was worth $2.6 billion, he was No. 327 on the Forbes 400 list of the richest Americans.
• Jake Piazza also contributed reporting to this article.