Transition To Kokai Platform And AI Integration Will Streamline Future Operations

Key Takeaways

• Reorganizing company structure and enhancing AI capabilities aim to boost revenue growth and improve operational efficiency.
  
• Scaling joint business plans with brands and platform transitions are set to deepen client partnerships and increase ad spend efficiency.
  
• Execution missteps, structural changes, missed targets, and competitive challenges threaten Trade Desk's growth, profitability, and market position, raising concerns over future stability.

Catalysts

Operates as a technology company in the United States and internationally.

• The Trade Desk is focusing on reorganizing the company structure to clarify roles, streamline client-facing teams, and expand brand direct relationships, which are growing 50% faster than other areas. This is expected to enhance revenue growth by solidifying client relationships and improving operational efficiency.
  
• An increased emphasis on internal effectiveness and scalability, along with the hiring of senior talent, is anticipated to support long-term growth, improve net margins, and enhance overall earnings through more efficient operations and scalable infrastructure.
  
• The commitment to integrating AI across the platform, particularly in forecasting, targeting, and identity measurement, is likely to significantly enhance performance capabilities, drive increased revenue through improved ad spend efficiency, and ultimately boost earnings.
  
• The development and scaling of joint business plans (JBPs) with leading brands, which grow 50% faster than the rest of the business, are expected to drive revenue increases by deepening client partnerships and maximizing the value delivered through The Trade Desk's platform.
  
• The transition from Solimar to the new Kokai platform and ongoing enhancements aim to improve client outcomes through advances in AI and programmatic capabilities, promising a positive impact on revenue by increasing client adoption and engagement.

Trade Desk Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Trade Desk's revenue will grow by 19.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 16.1% today to 20.5% in 3 years time.
• Analysts expect earnings to reach $844.0 million (and earnings per share of $1.61) by about April 2028, up from $393.1 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $1.1 billion in earnings, and the most bearish expecting $435.9 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 79.5x on those 2028 earnings, up from 72.1x today. This future PE is greater than the current PE for the US Media industry at 14.3x.
• Analysts expect the number of shares outstanding to grow by 1.42% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.37%, as per the Simply Wall St company report.

Trade Desk Future Earnings Per Share Growth

Risks

• The Trade Desk admitted to a series of small execution missteps, impacting their ability to hit growth targets, which could affect future revenue projections if not addressed properly.
  
• Structural changes in the company, such as the largest reorganization in their history, indicate internal issues that require recalibration efforts, potentially affecting operational stability and earnings in the short term.
  
• The company missed its own financial expectations for the first time in 33 quarters, signaling potential challenges in maintaining historical growth and impacting investor confidence which could lead to increased scrutiny of revenue forecasts.
  
• The planned increase in operating expenses and anticipated deleverage in the next year could put pressure on net margins, affecting the overall profitability in the near term.
  
• Competitive dynamics with major players like Google and Amazon, especially with shifts in advertiser sentiment and Google's potential exit from the open Internet, present uncertainties that could impact The Trade Desk's ability to capture and sustain market share, potentially affecting revenue streams.

Valuation

• The analysts have a consensus price target of $107.839 for Trade Desk based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $150.0, and the most bearish reporting a price target of just $49.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $4.1 billion, earnings will come to $844.0 million, and it would be trading on a PE ratio of 79.5x, assuming you use a discount rate of 6.4%.
• Given the current share price of $57.1, the analyst price target of $107.84 is 47.1% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.