Artificial intelligence is a newly emerging field that the world is trying to make the best of. Many companies are trying to take advantage of AI and improve advertising effectiveness, cybersecurity, cloud services, and a host of other applications.
This has led to Artificial intelligence being the new frontier of marketing. The much more personalized, targeted, and engaging AI-ads are disrupting traditional marketing. Advertising is now undergoing a fundamental change. The liner advertising on cable and satellite television is becoming obsolete by the day as connected television, video, and social media are taking the space. 60% of advertisers are calculated to be shifting their budgets into connected television. In a wider perspective, the global market for contextual advertising (i.e. on social media, phones, etc.) is forecasted to grow at a CAGR of 14.2% between 2020-2026.
In this growing market comes Trade Desk Inc. (TTD) which provides a platform that lets advertisers and agencies choose from billions of digital ad opportunities every day. This multitude of inventory comes from its partnerships with over 225 publishers. The company capitalizes on AI technology for generating optimized ad campaigns for maximum return on investment, along with critical insights.
2022 has been extremely unsettling so far, with geopolitical and economic instability increasing by the day. Tensions due to the Russian invasion of Ukraine aside, the U.S. is on the verge of tipping into a recession. High inflation crossing 40-year limits has the Fed adopt a stricter monetary policy. Higher interest rates to curb the peaking inflation have wreaked havoc on the stock market. High-flying stocks in the technology sectors have suffered more severely this year, causing the Nasdaq 100 index to plunge into a bear market. However, this current wider downfall of equities brings a great opportunity for buying high-value stocks that are now trading at a much lower price. While the short-term volatility is unsettling, investing in the long term brings much potential for gains. Also, history proves that bear markets don’t last forever and eventually, the market rebounds with huge rallies.
In order to have great returns in the long term, TTD is one such beaten-down stock with great prospects and a strong profile. Despite being a leader in the industry, the company has plenty of space and potential for further growth. The stock also boasts a strong buy rating from analysts and experts.
Down over 43% year to date, the stock is currently priced at a value of $52.44 per share as per the after-hours data on May 31.
TTD’s Progress & Developments
Optimizing online plus digital advertising and marketing solutions, programs, and data analysis, TTD drives audience engagement and makes data work for the user. The company is targeting a leading position in the $1 trillion total addressable markets in global advertising.
Recently, the company further expanded its OpenPath product, which gives subscribing advertisers direct access to a premium digital ad inventory. Its publishers now also have big names like BuzzFeed, the LA Times, and Forbes magazine. Walmart also has partnered with the company for its Walmart Connect shopper advertising initiative. Its expanded partnerships also include Adobe Real-Time CDP, which is a leading customer data platform AppLovin. The company has also a certified service partner program for small and medium-sized businesses in the works. TTD seems to be capitalizing well on these businesses that are the traditional growth engine of the U.S. economy. Moreover, small and mid-sized businesses are also a growing client demand.
A huge potential also comes from online streaming services. Recently, the giants Netflix and Disney+, both announced their moves of adding advertising to their services. TTD is ideally positioned to gain from such a move and it just so happens that a former Netflix CEO sits on the company’s board.
TTD’s Financial Profile
For the first quarter of fiscal 2022, TTD posted revenue of $315 million, which rose by 43% from the year-earlier $220 million. The quarterly revenues beat the consensus estimate of $305 million for the March quarter.
The company’s quarterly results were also a beat on the earnings front, with the reported earnings of 21 cents per share against the expected 15 cents. The earnings grew by a nice 50% YOY from 14 cents a share in the comparable period. The non-GAAP net income was $105 million in the quarter.
Maintaining its streak over eight consecutive years, the company’s customer retention remained above 95% in the first quarter of 2022 as well.
Future Guidance & Market Conditions
For the second quarter, the company guided revenue of at least $364 million with an adjusted EBITDA of roughly $121 million. The Q2 guidance came above the consensus estimate of $359.7 million in revenue but fell below the estimate of $127.3 million in EBITDA.
However, following the guidance warning from Snap soon after its own earnings, investors were very worried about TTD not being able to achieve the guidance as well. But the company reaffirmed its guidance in a filling that relieved the investors of their worries.
Given the deteriorating economic conditions, it is expected that with a possible recession, the advertising market will take a harsh hit. As companies try to reduce expenses and save capital, the first to go down in spending would be marketing and advertising. But for the longer run, the industry remains bullish with continued growth and development as it shifts towards the digitalized front.
Out of the 13 filed reviews for TTD, 11 suggest a Buy and only 2 a hold. Thus, the consensus rating for the stock is a Strong Buy with an average price target of $76.64. The most recent upgrade to the company comes from RBC Capital analyst Matthew Swanson who gave it an “Outperform” rating. The analyst’s price target for the stock is $85 per share. Furthermore, Stifel also upgraded the stock from a hold to buy recently.
With its strong fundamental profile, continued growth, and expansion, TTD stock holds a consensus rating of strong buy. Amid the wider downfall, the company’s stock is currently trading at a very low price compared to its value and growth prospects, thus presenting a very good entry point to make gains in the longer run. While headwinds exist in the current deteriorating economic conditions, the company is poised for much growth in the largely bullish market.