The Trade Desk has faced intense selling pressure over the past few weeks (down 47% YTD) as investors continue to avoid tech stocks that would typically underperform in a rising interest rate environment. Despite macro risk overhangs (inflation, war, COVID), Trade Desk remains a top performer in the digital advertising space as the de factor independent demand-side platform (DSP) that serves over 1,000 brands and agencies in managing their digital campaigns. In this article, I will review the fundamentals of the company and discuss why I think the stock can still serve investors well in the long run.A well-positioned competitor in a growing industry
The Trade Desk is the world's largest independent DSP that serves major advertising agencies in the world including WPP (WPP), Omnicom (OMC), and Publicis (OTCQX:PUBGY). Digital advertising professionals use Trade Desk's platform to manage their ad campaigns across a number of channels outside the Walled Gardens (e.g. Google and Facebook) such as the Wall Street Journal, Fox News, Spotify, Hulu and Peacock.
From 2016 to 2021, Trade Desk's revenue grew at a 43% CAGR from $203 million to $1.2 billion, while ad spend on the platform increased from $1 billion to over $6 billion. During this period, the global digital advertising market on average grew 21% annually from $192 billion to $492 billion. Having outgrown the industry by a wide margin, Trade Desk's share of worldwide digital ad spend grew from just 0.5% in 2016 to 1.3% in 2021.
Per eMarketer, worldwide advertising revenue (incl. digital and non-digital) is expected to reach over $1 trillion in 2025, with 72% of spend being digital leading to a total addressable market of $785 billion. Big picture, the increasing...