Trade Desk Earnings: Digital and Programmatic Advertising Are Fine and Trade Desk Is a Beneficiary

Like its peers on the supply side, first-quarter numbers for demand side platform provider Trade Desk TTD pointed toward increasing adoption of programmatic advertising and a recovery in digital advertising, which likely will strengthen in the second half of this year. We still view Trade Desk as the leading ad-tech provider on the demand side as it leads the increasing adoption of programmatic advertising within the connected TV channel and seeks more ad inventory in non-walled-garden properties for its clients, advertisers, and their agencies.

However, we are also sensing competition from the supply side as firms on both ad-tech fronts are attempting to find less costly and more efficient paths to buy and sell ads programmatically—referred to as supply path optimization. We expect more aggressive moves on that front by Trade Desk and its OpenPath product, and by the supply-side players PubMatic and Magnite, with their Activate and ClearLine products, respectively. Offerings like OpenPath could entice some publishers to remove other participants (including supply-side platforms) from their digital advertising workflow and further increase efficiency. This could lead to less fragmentation within the ad-tech market during the next few years, whether via firms exiting the market (such as what Yahoo and EMX did on the supply side) or more activity on the M&A front to gather assets and provide a more complete ad-tech stack to compete more effectively against Google.

While the firm continues to execute well on all fronts, and we project 20% average revenue growth and slight margin expansion throughout our forecast, we view the no-moat name as overvalued. Trade Desk is trading at around 43 and 33 times 2023 and 2024 adjusted EBITDA consensus estimates, which is not warranted, in our view, given the current macro environment and increasing competition. Our fair value estimate of Trade Desk remains at $46 which implies 2023 and 2024 adjusted EBITDA multiples of 30 and 23.5.