Trade Desk is a technology company which provides a platform for ad buyers. It is mostly used by advertising agencies who purchase invetory (ad space) from various channels. TTD was founded in 2009 by Jeff Green, a veteran entepreneur in the ad tech space.
Every time you open a website, watch a video, use a mobile app or turn on an internet-connected TV, there is an auction for ads which takes around 1/10th of a second before the content loads. In this short period, advertisers bid various amounts of money to display ads to their targeted audience. Trade Desk is the brain powering this technology and allows advertising companies to allocate their resources more efficiently with clear and measurable results. In other words, it helps them determine how much to bid for individual ad spaces and what audiences to target. Trade Desk provides access to over 4.7 million ad spots every second on average on multiple channels.
The global advertising industry spent around $650 billion in 2016, with $225.4 billion still spent on TV ads and $205 billion on digital ads. Programmatic advertising amounted to $19 billion out of that and is increasing rapidly. It provides benefits not only to ad agencies, but also to ad publishers (websites, newspapers, TV channels, etc.). In previous years, they had to maintain large sales and administrative teams to market and keep track of their inventory. Trade Desk solves this problem as it efficiently connects buyers and sellers of ads, while saving both time and money. Everybody wins. The company powers advertising campaigns for some of world's most recognized brands across various industries.
The client and employee turnover at TTD have historically been very low, which is a testament to the quality of their product, customers service and corporate governance. Trade Desk has a 4.8/5 rating on Glassdoor, and CEO Jeff Green has a 100% approval rating from employees, a very rare occurence even among popular tech companies. You can find out more about the company's culture and humble beginnings in this article. The company encourages long-term thinking, promotions from within and employees still own a large chunk of the stock.
Revenues have grown to $202 million in 2016, from $44.5 million in 2014. Gross advertising spend on their platform was $1 billion, representing around 5% of the programmatic ad market. Overall ad spending is expected to reach $767 billion in 2020, or a 4.2% CAGR. Digital spending should reach $340 billion in 4 years, or a 13.4% CAGR. Programmatic is expected to be the dominant method for digital advertisers in a few years.
Unlike many tech companies today, Trade Desk has been profitable on an operating basis for years, and earns excellent returns on capital despite high R&D and marketing spending to capture market share. Revenue increased 78% in the first quarter of 2017, while operating income declined 43% due to high investments in infrastructure and platform development. Their G&A expenses for the quarter included a charge of $3.3 million for "bad debt expense" related to two customers. This expense should be non-recurring and I expect higher operating income in future quarters. The company has to pay inventory providers before it receives money from advertising agencies, resulting in a DSO of 82 days (2016). They have been working hard to reduce this payment gap and receivables have decreased by c. 17% since December 2016.
The company filed for a secondary offering in May 2017, which was non-dilutive and during which several controlling shareholders reduced their stakes . CEO Jeff Green did not sell out and he still holds 44% of voting power, and other executive officers also maintain sizable stakes. I love investing in a business where management has significant "skin in the game". It makes them focus on the long-term, instead of pleasing Wall Street and trying to beat every quarter. Jeff Green is an excellent leader, and he sees further potential for their platform especially in Asia and emerging markets.