Here is the Amazon-sized growth opportunity from the Trade Desk

The commercial counter (NASDAQ: TTD) investors are understandably optimistic about the future of the company. Under the leadership of founder and CEO Jeff Green, the shares have exploded since going public in 2016 to $ 1.80 (adjusted for the split) and are now trading above $ 75, offering investors a return of 4000%.

In a digital advertising industry controlled by the walled gardens of Alphabet, Facebook, and fast growing Amazon, The Trade Desk has carved out a niche as an independent provider for a transparent and open internet. But that doesn’t mean The Trade Desk isn’t paying attention to its competition – and Amazon’s recent results may have indicated a huge opportunity.

The next trade desk opportunity is a ‘sleeping giant’

In a recent blog post, The Trade Desk discussed the desirability of advertising in digital retail media. Digital advertising has so far mainly focused on points of sale with a large “inventory”, ie web pages; large publishers like the New York Times, Walt disneyESPN, etc., are seen as preferred places for brands to market their products.

However, The Trade Desk draws attention to the opportunity that many advertisers overlook on e-commerce sites, calling it the sleeping giant of the marketing industry.

In the post, The Trade Desk noted:

• The 16th largest website by traffic in the United States is Walmart.
• Amazon’s first-quarter report showed 77% year-over-year growth in its “other” unit, which is made up primarily of advertising services.
• Retail media is expected to grow from $ 20 billion to $ 50 billion over the next five years, according to MediaLink.

The takeaway is quite clear. Brands should spend more advertising money on generic websites to pay for better product placement or sponsored ads on e-commerce sites. The closer the ads are to the buying process, the more value they will bring to all stakeholders in the process, including buyers. And if an ecommerce site is looking to compete with Amazon, it will need to offer brands the ability to market as effectively as Amazon sponsored product placement.

More effective marketing at the “tip of the buying spear” will help brands better manage “cookiegeddon”. Apple has already banned third-party cookies (3PC), while Alphabet is ending this practice in 2023.

Banning 3PCs will lower retargeting – when a product you don’t buy stalks you on the internet – and limit the effectiveness of digital advertising campaigns. Brands can compensate for the decline by advertising more effectively “in-store”, that is, on e-commerce sites.

See it as a lever for further growth

One thing I look for in my investments is optionality, and The Trade Desk has it in spades. The company continues to benefit from mobile and desktop advertising, as marketing investments follow the defecting eyes of radio and print media.

While The Trade Desk will continue to have less market share than Facebook and Alphabet, digital advertising is not a win-win market. For those looking to advertise outside of those walled gardens, the 3PC replacement based on the company’s Unified ID 2.0 option is expected to gain shares from publishers looking to collect more data from their visitors.

In the short term, it will likely be The Trade Desk’s Connected TV (CTV) business that drives revenue. Even TV executives are hedging their bets on subscription cable and seeing significant growth in viewership in ad-supported video-on-demand (AVOD) streaming services.

Last year, Fox corporation acquired AVOD streamer (and UID 2.0 partner) Tubi for $ 440 million and promised it would be a billion dollar business. ViacomCBSPluto TV’s free AVOD is growing at around 80% per year and is expected to generate $ 1 billion in full-year revenue by 2022.

Expensive stock, but worth it

The biggest risk for Trade Desk investors is its expensive valuation. Currently, the shares are trading at 35 times sales, with a forward price / earnings ratio of 144. As a growth stock, the company will need to continue to show strong growth in both revenue and earnings to meet the demands of the market. investors. Otherwise, those high multiples could quickly collapse.

So far, the company seems to be handling the pressure well. The Trade Desk recently released second quarter results, revenue growth of 101% and diluted EPS of 100% compared to the corresponding period last year. As the recent blog post shows, The Trade Desk has several growth levers to tap into to keep its revenue growing rapidly.