The Trade Desk Soars After Earnings Avoid Headwinds That Hit Social Media Digital Advertising Space

Digital advertising placement firm Trade Desk shares soared 21.5% after better than expected third quarter earnings. Relief came as $TTD avoided headwinds that plagued the social media industry in Q3, hitting Snap, Facebook (FB), Twitte r(TWTR) and Roku with underwhelming reports.

Digital advertising placement firm Trade Desk shares soared 21.5% after better than expected third quarter earnings. Relief came as $TTD avoided headwinds that plagued the social media industry in Q3, hitting Snap,  Facebook (FB), Twitter (TWTR) and Roku with underwhelming reports

Trade Desk Laptop

Earnings 

The Trade Desk Net income totaled $59.4 million, or 12 cents a share, up from $41.2 million, or 8 cents a share, a year ago. Adjusted earnings hit 18 cents a share, up from 13 cents a year earlier and above the FactSet analyst consensus of 15 cents a share. Revenue jumped 39% to $301.1 million from $216.1 million, easily topping the analyst consensus of $283.5 million.

“Revenue growth … significantly outpaced worldwide programmatic advertising growth,”We’re seeing growth across all channels, and none more so than Connected TV, as viewers shift to new digital, streaming services and advertisers apply data to TV ad campaigns for the first time.”said Trade Desk CEO Jeff Green.

Market Reaction: The Trade Desk TTD $87.42 +18.86 +21.5%

The Trade Desk had headed into earnings after having been sold off over the previous few weeks, with its shares having fallen about 15% since mid-October. It had been hurt from other companies reporting in the digital advertising space. Snap (SNAP), Facebook (FB), and Twitter (TWTR) issued underwhelming reports while connected TV (CTV) pioneer Roku (ROKU) also disappointed last week.

The social media industry in Q3 had been hit by Apple’s (AAPL) iOS 14 user privacy updates and the addition of its App Transparency Tracking tool have had a significant effect on demand for online targeted advertising. The threat is digital ads will become less effective if online activity cannot be tracked, lowering advertisers’ ROI in the process. This in effect will most likely see firms such as SNAP and TWTR lower ad rates to generate healthy demand.

This in turn could hurt advertising tech companies like TTD. Supply chain and component shortages affect the advertising space. This was highlighted in ROKU’s Q3 results where they issued downside Q4 revenue guidance last week. ROKU stated that global supply chain disruptions are impacting some of its TV OEM manufacturers. These supply chain disruptions and related shortages are seeing a reduction in digital advertising spending since they have limited product inventories to sell.

Given all these negatives coming into the report the market was expecting the worse and there were sizable short positions. However TTD delivered a better-than-feared Q3 report with in-line Q3 revenue guidance of $388 mln. TTD’s top line grew by a respectable 39% this quarter, although revenue growth has slipped from the 40-60% range it is still impressive with these headwinds.

Earnings Guidance

Trade Desk forecast fourth-quarter revenue of at least $388 million, topping the analyst prediction of $387 million. And it sees adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $175 million, easily besting the analyst consensus of $162 million.

A primary catalyst continues to be CTV due to ongoing consumer cord-cutting activity, causing advertisers to allocate an increasing portion of their marking spend on streaming services.

Solimar trading platform

TTD believes that the recent launch of its new Solimar trading platform is providing it with a competitive edge. Key features of the new platform include an advanced measurement marketplace that optimizes advertising campaigns based on real-time performance and the ability to easily onboard first-party advertiser data.

Google Cookies

Earlier in the year Trade Desk had recieved a boost after Google (GOOG) announced it would delay phasing out third-party cookies until late 2023 from prior expectations of early 2022. 

Google’s Chrome internet browser has over 60% of the global browser market share, its delay in removing third-party cookies is significant. It is important to note that TTD has not been relying on third-party cookies for a number years, so on that basis Google’s decision does not have much effect on TTD’s ability to grow. However perception is half the battle in the movement of stock prices.

Third-party cookies were invented in 1994 and are largely why the internet is mostly free to use. Data is king in 2021 and cookies store user’s data, clicks, purchases and so on. This data allows advertisers to show relevant ads to a user across many different websites that they browse making it golden information for sellers. Companies derive revenue from the data by selling ad space.

United ID 2.0

TTD operates an exchange-like platform for advertisers to bid on digital ad space. This makes it crucial for advertisers to have as much data as possible to get the most out of buying ad space as prices can rise rather quickly.

TTD cites that only about 20% of data-driven ads rely on cookies. Faster-growing segments, such as connected TV (CTV) and mobile apps, use newer identity solutions such as TTD’s United ID 2.0.

TTD worked out a few years ago that most individuals are forced to log in using email addresses. So it developed Unified ID 2.0 in 2018, which anonymizes email addresses and at the point of login requests that the user consent to having an anonymous ID created in exchange for relevant advertising. Unified ID 2.0 differs from traditional cookies in that it allows consumers to log in and monitor how their data is used. Furthermore third-party cookies were already removed from Apple’s (AAPL) Safari browser and Microsoft’s (MSFT) Edge browser last year.

It would appear that TTD would not be damaged materially if Google turned off third-party cookies today. With so much less internet usage reliant on cookies today, TTD has already built a solution that allows it to thrive no matter what big tech internet browsing companies decide.

TTD Revenue Sources

  • Connected-TV ad spending
  • Audio ad spending
  • Mobile ad spending

 

trading desk

 

About Trade Desk

Trade Desk operates a self-service internet-based platform that enables advertising buyers to create, manage, and optimize digital ad campaigns across multiple media and devices.

“The Trade Desk powers the most sophisticated buyers in advertising technology. Founded by the pioneers of real-time bidding, The Trade Desk has become the fastest growing demand-side platform in the industry by offering agencies, aggregators, and their advertisers best-in-class technology to manage display, social, mobile, and video advertising campaigns.

The Trade Desk empowers buyers at the campaign level with the most expressive bid capabilities in market, full-funnel attribution, and detailed reporting that illustrates the consumer journey from initial impression to conversion. By maintaining a pure buy-side focus, The Trade Desk delivers on branding and performance for clients worldwide”  From Trade Desk

Trade Desk competes with Google parent Alphabet $GOOGL and smaller companies such as AppNexus.

From The TradersCommunity Research Desk

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