The document provides an analysis of The Trade Desk (TTD) and recommends a neutral stance. It summarizes TTD's business model as a self-service platform for digital advertising and cites growth catalysts like digital transformation and a partnership with Walmart. However, it concludes that while TTD is fundamentally solid, its current valuation is unattractive compared to peers, making the risk/reward profile unfavorable. It recommends waiting for a 30%+ price pullback before increasing positions in TTD.

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The Trade Desk Inc
(NASDAQ: TTD)
26 FEB 2021
Recommendation: Neutral

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Company Overview
Company Background:
- The Trade Desk, Inc. (TTD) operates as a self-service cloud-based platform that allows ads buyers to create and
optimize data-driven digital advertising campaigns in various advertising formats
- This includes display, video, audio, native and social via various devices like computers, mobile devices, and
connected TV (CTV)
- TTD’s clients: Advertising agencies and other service providers for advertisers
- TTD’s revenue driver: Charging clients a platform fee based on percentage of client’s total spend on advertising
Year Founded 2009
Global Headquarter Ventura, California
Sector Technology
Industry Software - Application
Market Cap USD 34.82b
Beta 2.55
Current Price (25 Feb 2021) USD 754.59
52-week range USD 136.00 – USD 972.80
FY20 Revenue USD 836m (+26% YoY)
FY20 Net Income USD 242m (29% Margin)
Forward P/E 115.8x
BF EV/ EBITDA 91.0x

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TTD Business Model
● TTD serves companies that are looking for places to advertise their goods and services
● TTD provides a technology platform (Demand-Side Platform) to help advertisers (Ad buyer) to
purchase digital advertising spaces from media publishers
● Utilizes heavily-automated “Programmatic ad buying” to purchase ad spaces

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TTD buys the whole internet for Ads Space

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1. When visitor visits a website, a request is sent to ad-exchange with information on the website along with visitor data
2. Information is matched against available advertisers
3. During the time it takes to load the website (100ms), an auction takes place between everyone else who’s also interested in
showing the ads to the visitor
4. The winning bidder gets to display its ad to you on the publisher’s website
Real-Time Bidding (RTB) System – Everything Done in 100ms

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Why DSP is necessary?
1. Efficiency: DSP helps to manage campaigns across multiple networks (Mobile apps, Social media, Webpage, Google
keyword search etc.). Everything is adjustable from one dashboard
2. Targeting: With more data comes pinpoint targeting capabilities. Better targeting means more personalized ads and
post-click landing pages, which means a higher likelihood of conversion
3. High-quality inventory: DSPs will have access to the major networks. A DSP might provide a more premium
inventory to advertisers
4. Data: Many DSPs partner with third-party data providers to offer advertisers as much information as possible
TTD bought data from third-party data vendor for better decision making

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Ads Industry Outlook
A highly cyclical industry
- Ads spending fall into the negative territory during
economic downturn (2001, 2009 and 2020)
- Advertisers will be likely to halt their ad campaigns /
expenditure during recession periods
- Expected spending growth rate of 5% in 2021 and 2022
A growing industry with robust tailwind
- The future of all media will be digital and
programmatic
- Programmatic Digital Display Ad Spending rose by
3x from 2015 to 2019
- In 2019, programmatic digital display represents
c.84% of total digital display ad spending

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TTD Growth Catalyst 1: Digital Transformation Gaining Momentum
- Accelerated by the pandemic, the traditional forms of manual advertising will eventually be replaced by automated
programmatic advertising
- Advantages of programmatic advertising:
a. More efficient in targeting suitable and relevant consumers
b. More cost-efficient ($0.50-$2 programmatic CPM vs $10+ human-driven CPM)
- c.25% of total media spend
derived from digital spend
in 2017
- Expenditures on
programmatic ads by large
advertisers has increased by
4x from 2015 to 2017

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TTD Growth Catalyst 2: Strategic Partnership with Walmart (WMT)
- Walmart, the world’s largest retailer has decided to join forces with TTD to compete with Amazon
- Walmart is attempting to grow its advertising business by 10x in the next 5 years via its ads business “Walmart Connect”
- Walmart statistics: >160m customers on website visits per week; Shopper marketing TAM of >$100bn
- Through the collaboration, TTD will use Walmart shopper data to place targeted ads across the web and shopper data
will be available to advertisers (Walmart suppliers)
- Advertisers can:
a. Run digital ads
b. Understand how shoppers are reacting to those apps
c. Refine ad campaigns based on criteria like customer segmentation, time, geographical regions and proximity
Walmart’s collaboration with TTD is indicative of an entire industry that is shifting to a data-first marketing model

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Financial Analysis (Income Statement)

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Financial Analysis (Balance Sheet)
Commentary
- Since FY18, TTD has been a debt-free (Net Cash)
company (0 long-term debt) 🡪 Low solvency risk
- Average current ratio of 1.52 over the past 5 years 🡪
Low / Moderate level of liquidity risk
- Asset-to-Equity ratio: 2.98x on average

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Industry Comparison (Advertising Agencies)

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Profitability:
- TTD outperforms it peers in both operating (19.7%) and profit margin (33.1%)
Growth:
- Historical sales growth: 5Y-CAGR 49% vs Industry average (13.9%)
- EPS next 5-year growth rate: 27% vs Industry average (8.1%)
Capital Structure:
- Both current ratio (1.6x) and total debt-to-equity ratio (0.0x) are in a healthy region
- TTD has a robust capital structure to withstand from both liquidity (short-term) or solvency (long-term) issues
Industry Comparison (Advertising Agencies) Source: Finviz, Bloomberg

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Industry Comparison (Advertising Agencies)
Commentary:
- TTD’s forward P/E: 115.8x (vs Industry Median’s 32.7x)
- Despite a higher growth rate than industry average, TTD’s PEG ratio of 9.9x remains significantly higher than industry
median of 3.9x
- TTD and MGNI are the two companies with significant higher EV/EBITDA (TTM) than industry median of 32.1x

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Industry Comparison (Advertising Agencies)
Commentary:
- TTD’s stock price has underperformed vs its peers over the past quarter (-5.6% vs Industry Median +30.6%)
- US Advertising Industry average performance: +28.0% YTD and +3.2% past week

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Technical Graph

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Ownership (13F)

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Conclusion: Neutral
Amazing Company but at Wrong Price
● TTD is a fundamentally solid company with several attractive criteria:
a. Healthy margins
b. Robust historical and future growth rate
c. Favorable long-term structural tailwind for programmatic advertising industry
● However, current valuation suggest an unattractive risk/reward profile (Multiples at 2-3 times of industry average)
Short-term Capital Outflow from Tech / Growth Stocks to Defensive / Value Stocks
● Tech stocks likely fall in the coming days / weeks
● Unfavorable condition to increase positions for TTD at the moment
Recommendation: Watchlist for TTD and wait for substantial pullback in price of 30% or more