Connected TV And Kokai Platform To Propel Company Into Global Digital Marketing Leadership

Key Takeaways

• Trade Desk's market share and revenue growth benefit from strong performance in digital marketing and an aggressive push into Connected TV advertising.
  
• Global expansion and the introduction of Kokai platform aim to enhance data-driven buying, likely increasing advertiser ROI and boosting client acquisition.
  
• Reliance on CTV and digital ad markets, competition with tech giants, regulatory risks, operational scaling challenges, and macroeconomic factors could negatively impact revenue and growth.

Catalysts

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

• The Trade Desk's consistent strong 20%-plus revenue growth year after year for the past several years, significantly outpacing the rest of the digital marketing industry, indicates continuing market share gains and robust revenue growth.
  
• Rapid growth in Connected TV (CTV) advertising, with accelerated growth evident in the first half of the year compared to the previous year, suggesting future revenue increases from this high-demand advertising sector.
  
• Expansion into international markets with CTV leading growth in EMEA and Asia Pacific, pointing toward potential revenue increases from global market penetration.
  
• Introduction of Kokai, their most ambitious platform to date, designed to enhance data-driven buying, which could lead to increased advertiser ROI, boosting client acquisition and spend on the platform, thus impacting revenue positively.
  
• Strong relationships with leading brands and agencies bolstered by trends towards data-driven, programmatic advertising, could lead to increased market share and revenue as more advertisers seek efficient, measurable advertising solutions.

Assumptions

• Analysts are assuming Trade Desk's revenue will grow by 21.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 11.6% today to 24.2% in 3 years time.
• Analysts expect earnings to reach $949.3 million (and earnings per share of $1.83) by about August 2027, up from $253.4 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 65.9x on those 2027 earnings, down from 199.1x today. This future PE is greater than the current PE for the US Media industry at 12.8x.
• Analysts expect the number of shares outstanding to grow by 0.28% per year for the next 3 years.
• To value all of this in today's dollars, we will use a discount rate of 6.05%, as per the Simply Wall St company report.

Risks

• The reliance on specific market sectors like CTV (Connected TV) for growth increases vulnerability to shifts in consumer behavior and technological advancements, potentially impacting revenue.
  
• A steep competition from established tech giants entering or expanding in the digital ad space, especially Amazon and Google, could limit market share growth and impact profit margins.
  
• Regulatory risks and antitrust scrutiny, particularly around digital advertising practices, could lead to operational constraints or changes, impacting net margins.
  
• Operational challenges in scaling up and integrating new technologies or platforms, such as UID2 for identity verification, could delay or hinder execution, affecting earnings growth.
  
• Macroeconomic factors, including inflation and consumer spending behavior, may lead to advertisers reducing their marketing budgets, which could negatively impact revenue growth and profitability.

Valuation

• The analysts have a consensus price target of $105.97 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 $135.0, and the most bearish reporting a price target of just $39.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $3.9 billion, earnings will come to $949.3 million, and it would be trading on a PE ratio of 65.9x, assuming you use a discount rate of 6.0%.
  
• Given the current share price of $102.64, the analyst's price target of $105.97 is 3.1% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• 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.