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  • Writer's pictureOwen

The Trade Desk: A Momentum Selloff To Buy

Summary

  • TTD is a fast growing stock with history of revenue growth of 50%+ p.a.

  • The recent sell-off of momentum growth stocks has caused TTD to fall to a 30% pull-back which historically has been a buying opportunity.

  • China expansion should help maintain growth in the short and medium term.

  • Migration of advertising to programmatic purchasing should also continue to drive growth.


Introduction

Recently we launched a Global Technology Growth Star investment strategy for our clients. This will focus on strongly growing technology companies with a market cap in the range of 1-100 billion USD around the world, not just in the United States. The Trade Desk (NASDAQ:TTD) is one such high growth company that has made it through to one of our final checks (valuation) that we think is worth profiling in more detail. Particularly now that the long awaited correction in growth stocks seems to have arrived to finally present a potential entry point.


What do they do?

The Trade Desk (TTD) provides a platform to agencies and large brands to buy/book advertising space for both digital and increasingly all other channels. This is called Omni-channel in the advertising world. In their own words they “Provide a self-service platform to agencies who pick from over 500 billion digital ad opportunities a day”. In our mind The Trade Desk is a mix, one part the-Amazon-of-advertising booking/sales, yet with data control, and then slightly crossed with a stock market trading platform economics as the technology is vital and there are also network dynamics in effect here too.


Test 1. Strong growth of 50% p.a. for several years.

One of the first filters we use is multi-year revenue growth rate; it is a good way of comparing companies that is less open to manipulation like metrics like EBITDA or net profit. If a company is growing its sales strongly each year, repeatedly, something good must be happening. Of course buying growth can happen, like Uber for example, but we can filter those companies out later.


Conservative Forecasts


Historically, TTD has a history of conservative guidance where estimates are almost always beaten. So the forecast for 35% growth in 2019 should be taken more as an estimate of the lower edge of the range that is possible. This is particularly true given the fourth quarter and associated advertising for Thanksgiving and Christmas is so important to annual figures.


Source: The Trade Desk Q2 2019 Investor Presentation


Test 2: Profitable or quickly heading that way.


Growth without profits seems to be worryingly common amongst recent IPO's but TTD has long since passed the un-profitable phase. The company has been profitable since 2013.


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