The Trade Desk Q4 FY12/23 Earnings Review

TTD, a member of the Inner Circle High Beta Portfolio, reported earnings after the close yesterday.

DISCLAIMER: This note is intended for US recipients only and, in particular, is not directed at, nor intended to be relied upon by any UK recipients. Any information or analysis in this note is not an offer to sell or the solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice and nor should it be relied upon to make investment decisions. Cestrian Capital Research, Inc., its employees, agents or affiliates, including the author of this note, or related persons, may have a position in any stocks, security, or financial instrument referenced in this note. Any opinions, analyses, or probabilities expressed in this note are those of the author as of the note's date of publication and are subject to change without notice. Companies referenced in this note or their employees or affiliates may be customers of Cestrian Capital Research, Inc. Cestrian Capital Research, Inc. values both its independence and transparency and does not believe that this presents a material potential conflict of interest or impacts the content of its research or publications.


First, a little background if you are unfamiliar with The Trade Desk ($TTD). The company was set up in 2009 by the founder-CEO Jeff Green, originally a Microsoft staffer who left in 2003 to set up an online ad-sales business, AdECN. At that time there were a plethora of very small adtech companies who all did a version of the same thing, which was matching the newly-expanding online screen space to brands wishing to advertise there. Banner ads were the stock in trade at the time. Green sold his business back to his almer mater Microsoft in 2007, worked there for another two years, then left to set up The Trade Desk. The company is based in Ventura, CA. It has become the leader in open-internet ad targeting, which is to say if you as a brand wish to reach users on a targetted basis outside of the walled garden environments (Snapchat, Facebook, Twitter etc) then there is a very good chance that you will be paying TTD to place your content for you - across mobile, computer and TV end users.

Financial fundamentals at TTD are excellent; it is a high growth, high margin business with a very robust balance sheet. Ultimately the drivers of revenue are twofold (1) advertiser confidence, which is usually a function of GDP growth, and (2) degree of online ad spend vs. offline. Finally the degree to which entropy applies online - which is to say the degree to which user screen time grows and flourishes outside the walled garden sites - is relevant. The more concentrated the users within walled gardens, the less valuable is TTD. The more users are distributed across multiple sites and environments, the more valuable is TTD.

Over and above the fundamentals there is a single reason why I personally hold a long-term position in this name, and that is the huge stock compensation plan that was awarded to Green by the board of directors in 2020/21. In short, Green's personal wealth - already considerable - is highly leveraged to the TTD stock price in a similar way to Musk/Tesla in 2018/19 and onwards.

I believe Green to be an excellent CEO, and I also believe him to be highly motivated by the actual and/or optical benefits of wealth. So I believe this comp plan will continue to motivate his efforts to grow the company to the benefit of the stock price. This is a genuine kind of alignment between executive and shareholder of the type not found in just any company.

Finally, the company's moat is such that whilst adtech vendors come and go at the low end, there are few with the scale to challenge TTD; I believe this scale advantage will persist.

Let's take a look at the numbers, valuation and stock chart.