TTD - The Trade Desk

[gjangal]

https://www.sec.gov/Archives/edgar/data/1671933/000115752319001166/a51982107ex99_1.htm

 

 

Still growing nicely. Looks like they have entered China with the right partners. Google , Facebook and Criteo  (I am a  bagholder in this one) have been unsuccessful at this. It remains to be seen how much they can grow in China

 

Down big today, but business metrics look good. Valuations obviously on the expensive side

[Liberty]

Write-up at ScuttleBlurb (subscription required):

 

https://www.scuttleblurb.com/ttd/

[cameronfen]

I don’t really follow this thread much but perhaps this is relevant:  https://digiday.com/sponsored/programmatic-doesnt-survive-current-form-ad-techs-quest-open-alternative-id/

[alwaysdrawing]

I don’t really follow this thread much but perhaps this is relevant:  https://digiday.com/sponsored/programmatic-doesnt-survive-current-form-ad-techs-quest-open-alternative-id/

 

In a dynamic advertising world, there will always be a change in where dollars are being spent, and there will always be changes to privacy and technology.  If you think programmatic, data driven advertising is going to go away because of browser privacy settings or the backend cookies that are currently used, I'd bet against it.

 

No position in TTD any longer, however I still think the company is going to continue to ride the wave of growth in connected TV and programmatic advertising in general.

[deepdiving]

Does anyone do any Scuttlebutt on the self-service competition from Adobe? From what I see, I believe TTD has strengthened its lead businesswise in the last two years and its most interesting DSP competitor is Adobe.

 

 

[Guest Schwab711]

Does anyone do any Scuttlebutt on the self-service competition from Adobe? From what I see, I believe TTD has strengthened its lead businesswise in the last two years and its most interesting DSP competitor is Adobe.

 

My understanding is ADBE (TUBE) controls their full stack and TTD has only built certain modules in-house. TTD's value proposition is the front-end of their software and execution. I talked to a few in the industry that thought TUBE would ultimately be the dominant DSP since their offering was better designed to provide costumer-specific solutions. This seems to be the classic question in many enterprise software races.

 

I'm not sure this is investible info but it might help.

[deepdiving]

thanks. I think it is early innings yet for this race, and it seems to me TTD is giving them some good 'ol startup fast and dynamic action with access to China, CTVs. I don't think there needs to be anyone winner a-la closed garden, and a likely outcome is a rising tide lifts all boats.

 

Thanks

[Guest Schwab711]

Worth pointing out that nearly every small competitor in the DSP and SSP market trades at <10x EBITDA (and some far less). There's multiple ways to get programatic ad or connected TV exposure without paying TTD multiples.

[Liberty]

Worth pointing out that nearly every small competitor in the DSP and SSP market trades at <10x EBITDA (and some far less). There's multiple ways to get programatic ad or connected TV exposure without paying TTD multiples.

 

Does it get you a good company, though?

[Guest Schwab711]

Worth pointing out that nearly every small competitor in the DSP and SSP market trades at <10x EBITDA (and some far less). There's multiple ways to get programatic ad or connected TV exposure without paying TTD multiples.

 

Does it get you a good company, though?

 

TTD's operating margins have declined every year for the past 3+ years (1,550 bps decline in total). ROIC, ex-excess cash, is ~15%. From that perspective, at least the smaller competitors are trending in the right direction at similar ROIIC.

[Liberty]

Q4: http://investors.thetradedesk.com/news-releases/news-release-details/trade-desk-reports-fourth-quarter-and-fiscal-year-2019-financial

 

revenues: +35%, EBITDA margins 39%, Connected TV +100%, audio +185%, retention: 95%+

[decko]

Does anyone have an opinion on what price range does this company become interesting ? More specifically paying a decent multiple for high growth.. We all know its subjective.. but curious if anyone has a strong conviction at this pricey stock price or does it need to come down more?

[alwaysdrawing]

Does anyone have an opinion on what price range does this company become interesting ? More specifically paying a decent multiple for high growth.. We all know its subjective.. but curious if anyone has a strong conviction at this pricey stock price or does it need to come down more?

 

Difficult for me to say, but I expect it's worth a lot less than its current price, along with the other major advertising firms.

 

I've seen evidence of ad rates going down 50+% on platforms like Facebook, and I wouldn't be surprised if rates are collapsing all over.  This would affect firms dependent on advertising (Facebook, Google, Disney, Comcast, Verizon, AT&T, The Trade Desk, etc.).

 

Long term, TTD probably still does well, as they will still be generating cash and growing, and programmatic still has a long runway. 

 

That said, valuation is relative to how the ad market changes and the opportunity cost of other companies in the market.  I'm overall very bearish on the whole economy, and very bearish on advertising companies (which I think people have not yet realized will be affected).

 

No position long or short on TTD anymore, but I wouldn't be buying anywhere close to the current valuation.

[changegonnacome]

Cardlytics (CDLX) broadly in this space too down 50%+..........acquisition marketing traditionally holds up better in a recession.....especially marketing spend with good attribution metrics attached like FB/Google etc.....this cycle will see increasing & accelerated reduced TV/Direct mail marketing spend.....that wont come back again with the economy

[Guest Schwab711]

As Liberty alluded to before, the reason you pay up for TTD is the Unified ID. This is a short summary of some things people are excited about with TTD.

 

 

[Jurgis]

Congrats alwaysdrawing for suggesting this and investing into it.

 

Current valuation though.  :o As with most high-growth software names.

[mjs111]

As I understand it you can use The Trade Desk to buy ad inventory on Amazon and on Facebook's newsfeed, two of the historical "walled gardens" Jeff Green talks about.  Are you also able to use it to buy ad inventory on Google's Display Network or do you have to do that separately through Google Display Network?

 

When I web search for the answer to this I get articles that are framed as "The Trade Desk vs. Google Display Network," making it appear you can use one or the other, or both separately, but not such that you can use The Trade Desk to buy inventory on Google Display Network.

 

A follow up question would be is if there are any major ad networks the The Trade Desk currently doesn't have access to.  The Trade Desk says it hooks into 95 different ad networks worldwide so it would seem to be that there might not be that many that are left out.

 

Mike

 

 

[Liberty]

Worth pointing out that nearly every small competitor in the DSP and SSP market trades at <10x EBITDA (and some far less). There's multiple ways to get programatic ad or connected TV exposure without paying TTD multiples.

 

Does it get you a good company, though?

 

TTD's operating margins have declined every year for the past 3+ years (1,550 bps decline in total). ROIC, ex-excess cash, is ~15%. From that perspective, at least the smaller competitors are trending in the right direction at similar ROIIC.

 

But is that the right way to look at it? Is TTD investing more in growth than these competitors, and will it get good returns on those investments? Is it capturing territory and building scale that the smaller competitors simply won't be able to compete with later, whatever their current margins are? With growing companies like this, one of the most important thing to do is to try to understand what's growth and what's maintenance expenses.

[jasonchin]

Additional reference point: I have been looking at a similar company called AcuityAds (AT.TO). Management claims its competitive advantage is the algorithms which allows publishers to generate higher ROI on the ad exchange bidding process. They also refer to the self-serve space as the way forward in addition to the Connected TV opportunity. It has a well-known client base.

 

There is another company called Adcore Inc (ADCO.V) which is also in the ad tech space where their focus is on creating direct feeds into different platforms. Another really interesting company if you are interested in this space. They have secured integration/feed with known platforms (e.g. Shoptify).

 

Both are fairly small firms, however, can have potential for a long runway.

[jschembs]

Worth pointing out that nearly every small competitor in the DSP and SSP market trades at <10x EBITDA (and some far less). There's multiple ways to get programatic ad or connected TV exposure without paying TTD multiples.

 

Does it get you a good company, though?

 

TTD's operating margins have declined every year for the past 3+ years (1,550 bps decline in total). ROIC, ex-excess cash, is ~15%. From that perspective, at least the smaller competitors are trending in the right direction at similar ROIIC.

 

But is that the right way to look at it? It TTD investing more in growth than these competitors, and will it get good returns on those investments? Is it capturing territory and building scale that the smaller competitors simply won't be able to compete with later, whatever their current margins are? With growing companies like this, one of the most important thing to do is to try to understand what's growth and what's maintenance expenses.

 

Two questions:

 

1. At what point do you say, okay, "investing for growth" isn't generating FCF. There's the SAAS 40 rule, which I've never actually seem substantiated other than an a novel approach to balance growth and profitability.

2. You'll never be able to determine ROI on specific projects, and so much of tech investment is amorphous, so do you just measure incremental ROIC to see if it's getter better or worse?

 

My admittedly bearish view on many SAAS companies is they use the "we're investing in growth" as a crutch for poor business models. Since it's easy to push sales and marketing expenses from COGS to SG&A, they can show impressive gross margins that imply wonderful unit economics, but very few have been able to translate high gross margins into the substantial operating leverage that you would expect with growth.

[Guest Schwab711]

Worth pointing out that nearly every small competitor in the DSP and SSP market trades at <10x EBITDA (and some far less). There's multiple ways to get programatic ad or connected TV exposure without paying TTD multiples.

 

Does it get you a good company, though?

 

TTD's operating margins have declined every year for the past 3+ years (1,550 bps decline in total). ROIC, ex-excess cash, is ~15%. From that perspective, at least the smaller competitors are trending in the right direction at similar ROIIC.

 

But is that the right way to look at it? It TTD investing more in growth than these competitors, and will it get good returns on those investments? Is it capturing territory and building scale that the smaller competitors simply won't be able to compete with later, whatever their current margins are? With growing companies like this, one of the most important thing to do is to try to understand what's growth and what's maintenance expenses.

 

It's odd that compounders were growing businesses that could reinvest at high incremental returns. But TTD is actually experiencing flat or declining ROIC. Sure, part of the issue is increasing R&D expense as a % of sales, but working capital requirements are increasing, despite declining corp tax rates. Leases weren't on the balance sheet until recently, which inflated ROIC in prior years. To ignore the company's returns is to ignore the industry dynamics. There is a lot of competition in the open-section of the digital advertising industry. When the company is growing at roughly the rate of the industry, I'm guessing there's more maintenance expense than you think (to maintain market share). I think the growth vs maintenance idea misses the point of what makes TTD great imo.

 

Giving away their Unified ID both increased the awareness and demand for their platform and decreased the barriers to competing with the walled gardens. It increased the ROI of advertising outside of the walled gardens. I don't think there can be much debate that Jeff Green is a great manager. I'd argue the digital advertising industry will become more competitive going forward (as we are already seeing in TTD's declining returns) but TTD should be a good business.*

 

I think TTD's valuation is too great for a company with MDD growth and MDD ROIC prospects, but I am a huge fan of Jeff Green.

[Liberty]

People ignore investments through the income statement too often, focusing on capex, when most of the value comes from the IP and employees. They're hiring quickly, building out new things like CTV and audio that could someday be huge, they're expanding internationally, building new offices there, investing in partnerships with lots of huge companies (more software and infrastructure to build for them), etc. A lot of these costs are upfront and the returns will be later.

[deadspace]

Liberty what do you think the most sources are for TTD beyond software switching costs.

It wouldn’t be impossible for customers to try different companies and they have significant customer concentration risk

[Guest Schwab711]

People ignore investments through the income statement too often, focusing on capex, when most of the value comes from the IP and employees. They're hiring quickly, building out new things like CTV and audio that could someday be huge, they're expanding internationally, building new offices there, investing in partnerships with lots of huge companies (more software and infrastructure to build for them), etc. A lot of these costs are upfront and the returns will be later.

 

I didn't even mention capex. I'm only saying that TTD is growing roughly as fast as their markets. Their competition is likely increasing their market share advantage. I really like how well-run TTD is, but I think being the largest pure play leads to TTD being overvalued. TubeMogul is bigger and arguably has better tech to scale.

 

I would definitely pay a premium to the market to own TTD. I'm a huge fan of Jeff Green. I would caution though that I don't think there's any evidence to support that these "income statement investments" are actually happening or high return if they are.

[alwaysdrawing]

I think Jeff Green is a great businessman, and clearly has created a wonderful company making good returns.  At the current price of 30x revenues, the risk profile is totally different than when I was an investor.  I started this thread and made good money on TTD from around $29/share > $200/share.  Since then I've been on the sidelines. 

 

My guess is the company will do well, but I have a hard time seeing how investors outperform here in TTD (or SAAS generally).  As a general rule, I like to think about what the cash flows would look like as a private business, and it's really hard for me to imagine getting an adequate return paying 30x revenues. 

 

What's the bull case?  They double revenues and double the multiple to 60x revenues and you make 4x in a couple years?  I suppose it's possible.  It's at least possible that Facebook, Google, and Amazon will face anti-trust scrutiny and (lots) more business goes through TTD.

Seems like one of those trading sardines vs. eating sardines situations, where the bull case is primarily that people will pay higher prices for the stock, vs. a likelihood the company generates more cash.  In any case, I don't think I personally have any edge in betting on winners of an unannounced antitrust suit.

 

My best guess is buying SAAS today is like buying Microsoft or Cisco in 2000.  Clearly those were strong, profitable, growing companies.  Investors still lost a bundle that took a very long time to recover, even though fundamentally the company was still strong, profitable and growing for a long time.