Reorganization And Kokai Platform Advances Will Improve Operations

Key Takeaways

• Strategic reorganization and operational improvements aim to boost efficiency, revenue growth, and net margins through focused team roles and internal effectiveness.
  
• Innovations like Kokai and brand-direct relationship expansion could drive higher revenue and improve earnings by enhancing platform capabilities and partnerships.
  
• The Trade Desk faces operational challenges, rising costs, potential delays in product rollout, and macroeconomic uncertainties impacting stability and market positioning.

Catalysts

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

• A major reorganization and improved clarity in roles and responsibilities within Trade Desk aims to enhance operational efficiency, potentially boosting revenue growth and improving net margins by streamlining client-facing teams for brand and agency focus.
  
• The increased focus on internal effectiveness and scalability is expected to support long-term growth, positioning the company to maximize market opportunities and potentially improve net margins by optimizing operational processes and hiring senior talent.
  
• The expansion of brand-direct relationships through joint business plans, which historically grow 50% faster than other business areas, is likely to significantly augment revenue and could improve earnings due to strong brand partnerships.
  
• Advancements in product development, such as the transition to smaller agile teams and the ramp-up of the Kokai platform, are projected to accelerate technological enhancements, which could drive higher revenue and potentially improve earnings as clients adopt the enhanced platform capabilities.
  
• Strategic initiatives like OpenPath, expected to enter its acceleration phase, and the use of AI to enhance supply chain efficiency and improve targeting could significantly influence revenue and net margins by reducing inefficiencies and increasing advertiser appeal.

Trade Desk Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Trade Desk compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Trade Desk's revenue will grow by 23.2% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 16.0% today to 22.3% in 3 years time.
• The bullish analysts expect earnings to reach $1.1 billion (and earnings per share of $2.12) by about July 2028, up from $412.1 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 67.7x on those 2028 earnings, down from 97.4x today. This future PE is greater than the current PE for the US Media industry at 20.2x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.46%, as per the Simply Wall St company report.

Trade Desk Future Earnings Per Share Growth

Risks

• The Trade Desk missed its own expectations for the first time as a public company due to execution missteps, which could signal potential risks in their operational management and affect future earnings stability.
  
• The complicated reorganization and recalibration efforts, including the largest structural change in company history, may increase short-term operational costs and risks of disruptions, impacting net margins.
  
• The slower rollout of key products like Kokai indicates potential delays in executing strategic initiatives, which can lead to missed revenue opportunities in a competitive market.
  
• Concerns about external macroeconomic conditions, such as a potential withdrawal of Google from the open Internet and the overall deceleration in advertising spend, could affect The Trade Desk’s market positioning and revenues.
  
• There is a significant dependency on partnerships, particularly within the CTV and audio sectors, where the growth trajectory remains uncertain amidst evolving industry dynamics, potentially impacting revenue diversification and growth.

Valuation

• The assumed bullish price target for Trade Desk is $122.27, which represents two standard deviations above the consensus price target of $87.72. This valuation is based on what can be assumed as the expectations of Trade Desk's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $135.0, and the most bearish reporting a price target of just $47.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $4.8 billion, earnings will come to $1.1 billion, and it would be trading on a PE ratio of 67.7x, assuming you use a discount rate of 6.5%.
• Given the current share price of $81.67, the bullish analyst price target of $122.27 is 33.2% 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.