Trade Desk Elbowing in on Walled Gardens’ Ad Business

The global technology company theTradeDesk Inc. (NASDAQ: TTD) serves advertising agencies, and other service providers for advertisers, with a software platform. This platform is designed to be used by digital ad buyers to buy data-driven digital advertising campaigns in various ad formats and channels, and on various devices.

In the current era, digital advertising in the U.S. is on the rise, thanks to pandemic-induced restrictions that drove people indoors. Per eMarketer, the digital advertising business is growing by more than $5 billion annually in the U.S.

Commenting on the stats, Needham analyst Laura Martin believes that for all public ad tech companies, the U.S. digital ad growth would turn out to be a major growth driver in the near term. In other words, she said, “a rising tide lifts all boats,” characterizing ad tech in 2021.

Consequently, sharing her thoughts about the stock, Martin recently discussed Trade Desk’s leadership position in the Open Internet industry. She opened by stating, “TTD is the largest buyer of ad units in the Open Internet, by a lot.” The Open Internet refers to online environments outside of search and social walled gardens. A Walled Garden is referred as an enclosed environment, which controls the end user’s access to certain websites and services. According to Martin, the three largest Walled Gardens that sell advertising are Google (GOOGL), Facebook (FB) and Amazon (AMZN).

According to the 5-star analyst, the company’s revenue growth is the key driver behind its valuation upside. Specifically, Trade Desk’s revenue growth is propelled by the revenue shares it receives from third-party data, measurement, analytics, and tools, etc., that exist on its platform. The analyst believes that similarly to iOS and Android, Trade Desk keeps 15% of the money paid by each ad agency for any secondary services found on its platform, and that income multiplies the company’s revenue.

Furthermore, Martin stated that the company is competitive in the market, charging the standard rate of 15% of ad spending for use of its software.

Per the analyst’s estimates, total digital ad revenue (reflects Total Available Markets or TAMs of $378 billion globally and $152 billion in the U.S.) is divided between “Walled Gardens” and the Open Internet. The Open Internet constitutes just 25% of that amount.

In contrast, based on current assumptions, the analyst believes that Open Internet is gaining popularity and the largest share gains of the Walled Gardens will be substituted by the Open Internet based on its “better comparability, measurement, and the shift to CTV ad units.”

Specifically, she considers Trade Desk to be the biggest demand side platform in this market, with about $4 billion of total ad spending on its platform in 2020. Notably, it represented around15% of total Open Internet ad spending of $30 billion in 2020.

Additionally, rebound in ad budgets from low 2020 levels is likely to stimulate Trade Desk’s data-driven business, as ad agencies and brands will try to maximize advertising returns on investments, she added. (See Trade Desk stock chart on TipRanks)

As a result, considering the company’s “hidden value upside,” Martin reiterated a Buy rating and a price target of $100 (35.8% upside potential) on the stock.

On TipRanks, Trade Desk has an analyst rating consensus of Strong Buy, based on 11 Buy and 3 Hold ratings. The average Trade Desk price target is $80.86, indicating a potential 9.8% upside from current levels. Shares have gained 68.7% over the past year.

According to the new TipRanks’ Risk Factors tool for the company, the Trade Desk stock is at risk mainly from three factors: Finance and Corporate risk, Tech and Innovation risk, and Ability to Sell risk, which contributes 30%, 18%, and 18%, respectively, to the total risk for the stock. Within the Finance and Corporate risk category, Trade Desk has 15 risks.

Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your analysis before making any investment.

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