Trade Desk: Google Monopoly Ruling Could Be a Benefit

Morningstar’s Metrics for Trade Desk

• Fair Value Estimate: $82.00
• Morningstar Rating: ★★★★
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: High

On April 17, US District Judge Leonie Brinkema found that Alphabet GOOG has engaged in anticompetitive acts to acquire and maintain monopoly power in the publisher ad server and ad exchange markets for display advertising, but stopped short of concluding that the company’s ad buying tools hold monopoly power.

Why it matters: The opinion found that Google’s advertising exchange, AdX, was granted a first look at all requests for bids on inventory from Google Ad Manager servers, unfairly limiting exchange competition.

• The Department of Justice could force Google to divest from AdX, which allows for more exchange competition, resulting in a more efficient market. A more level playing field among ad exchanges should enhance Trade Desk’s TTD programmatic advertising efficiency and win rates.

The bottom line: We maintain our narrow moat rating and $82 fair value estimate for Trade Desk, and we believe the shares are materially undervalued. The ruling could be a tailwind for Trade Desk’s programmatic ad buying solution, but we have already assumed the firm will gain ground on Google over time.

• When publisher inventory reaches additional ad exchanges, Trade Desk’s ad buying optimization engine has significantly more space to work with and can increase overall win rates for advertiser clients, which improves Trade Desk’s core value proposition.
• The ruling could also bolster the value proposition of Trade Desk’s OpenPath, which directly connects the demand-side platform and publisher inventory. Publishers can now see that Google is a bad actor in the digital ad exchange space and could instead rely on Trade Desk as a direct demand funnel.

Coming up: Brinkema’s opinion states that the court will set a briefing schedule and hearing date to determine the proper remedy, which leaves ambiguity as to the timing of a resolution. Google is likely to file an appeal, and clarity on a remedy could be as far as 12-18 months away.