Is TTD Stock Overvalued?

The Trade Desk Inc (NASDAQ:TTD) is a global advertising technology company that has you on its radar regardless of whether you have heard of it.

It’s the technology partner behind Facebook’s advertising platform, and in September 2019, it positioned itself as a more transparent alternative to Google (GOOG) and Facebook, Inc (NASDAQ:FB).

It has the power to convince you to buy anything, which has investors excited about its future prospects. But what if you didn’t already purchase shares, is The Trade Desk stock a Buy now?

The company is the largest independent programmatic ad service provider in the world. It lets media buyers target specific audiences no matter what device or format they’re watching. This means you’ll get the same ad if you listen to the radio, watch TV, or stream online.

Of course, this type of cross-platform capability comes with a price for brands. The company’s revenues continue growing on the back of these prices, a rarity in a world run by Google and Facebook ads. Now large companies like Walmart Inc (NYSE:WMT) are partnering up to optimize advertising spend.

It’s time to peer behind the curtains of The Trade Desk to see if it can continue making money for investors in the streaming age.

The Trade Desk: 10,000 Foot View

The Trade Desk is a Ventura, California-based technology company focused on programmatic advertising and media buying. You see commercials and ads every day, but you may not be aware of how they make it to your attention.

Whether you do it through Google, Facebook, or anywhere else, the process is basically the same. Brands are looking for specific audiences to target their messages to, and people listen to the radio, watch TV, and browse online at specific times.

Targeting ads used to be as “simple” as targeting the right show, magazine, or newspaper. But today’s ad landscape is more complicated and technical. People consume content through more than just a TV using more than just a cable subscription.

Big media companies like Disney (DIS) or Comcast have content syndicated on other channels while hosting their own streaming services. You can watch the same show on Hulu, YouTube, or traditional cable. This is why omnichannel services like The Trade Desk are so important.

It combines self-service programmatic ad buys with enterprise APIs to ensure publishers and brands have access to constant inventory and data. The purchases it facilitates move far beyond Google and Facebook into radio, physical print media, and more.

Growing in a lane dominated by two major forces gives Trade Desk bulls reason to hold their positions.

Is TTD Stock A Buy?

The Trade Desk started 2021 with a market capitalization of around $40 billion and a P/E ratio just under 300x. That represented a 630 percent increase in share prices from its 52-week low of $136.00 in March 2020.

Its September 2016 IPO was priced at $18.00 per share, so early investors are ecstatic that trading prices have risen almost 50x after reaching a peak of $972.80. The stock tripled in price through 2020, as social distancing measures left people at home watching more TV than ever.

And global ad spend is only expected to continue growing 58 percent to reach $526 billion by 2024.

The Trade Desk grew revenue from $113.83 million in 2015 to $661 million in 2019, with $3.12 billion in gross spend on its platform that year. From 2018 through 2020, the company grew revenue and free cash flow faster in percentage terms than both Alphabet Inc (NASDAQ:GOOGL) and Facebook (FB).

It continues reinvesting its revenue into upgrading technology and maintaining its platform. This keeps churn down and helps maintain client relationships long term. In fact, it’s rated the third most popular demand-side platform (DSP) behind Amazon (AMZN) and Google.

The company earned $41 million in net income from $216 million in revenue in 2020. That’s a 32 percent increase from the prior year, and it’s been profitable since 2013. From a profitability perspective, that puts it well above media darling companies like Tesla and Uber.

Still, there are risks involved in buying any stock that should be advertised.

TTD Valuation Is Sky High

The biggest risk to Trade Desk is its valuation. It’s trading for much higher multiples than any other advertising company; perhaps because it has the underlying technology and partnerships. However, this also means that any hint of bad news could be disastrous for the company.

Of course, its growth and profitability thus far have long-term investors convinced that it’s a good play. Despite trading at such a high valuation, it could prove worth it if it provides competition for the big players.

And we can’t discuss The Trade Desk without mentioning the competition.

The Trade Desk Vs The Competition

The Trade Desk is doing well, but it does have competition. Companies like Verizon (VZ) are working on internal media buying capabilities. And Facebook and Google are advertising giants for a reason.

Both companies became dominant forces in the industry, and they’re pushing to keep people consuming content on their channels. The Trade Desk may work well across most platforms, but Facebook Live, YouTube, and Instagram run their own shows.

These companies have deep pockets and a long history of strangling (or flat out buying) competition. It must surely have occurred to both to try buying or replacing The Trade Desk. But despite this competition, the company continues to grow.

If it continues this trajectory, investors have a lot of profits to look forward to in the future.

Is TTD Stock A Buy? The Bottom Line

The Trade Desk is an American technology company focused on media advertising. This used to mean mostly television, but the company expanded onto mobile devices, streaming platforms, radio, podcasts, and more.

This omnichannel advertising approach gives brands and businesses Facebook or Google-like functionality beyond those platforms.

Of course, this puts Trade Desk at odds with those display advertising giants. They’re working hard to control their own platforms and spread into others. The government is breathing down their necks with antitrust talk though, and that could open a massively wide lane for Trade Desk moving forward.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.