The Trade Desk Remains a Pretty Unique Story
Whereas many U.S. ad tech companies have struggled as Alphabet/Google (GOOGL) , Facebook (FB) and Amazon.com (AMZN) have steadily grown their combined U.S. online advertising share, The Trade Desk (TTD) has become quite the outlier, recording 50%-plus sales growth each of the last two years.
This week, The Trade Desk added another unique wrinkle to its story: At a time when many U.S. Internet services firms have little or no presence in China -- either because their services are blocked, because of the entrenched competition that local players provide -- the company is formally launching its ad platform in China, in partnership with some of the country's biggest tech names.
The Trade Desk runs a demand-side platform (DSP); it's used by advertisers and agencies to run software-automated ad campaigns across numerous websites and apps. The platform integrates with third-party ad exchanges and data providers, and also connects directly with publishers that have ad inventory to sell.
In China, The Trade Desk has formed partnerships with local online video giants iQiyi (IQ) (majority-owned by Baidu (BIDU) ) and Youku (owned by Alibaba (BABA) ), as well as Baidu and Tencent ad units that each provide access to ad inventory from their parent company. The company is emphasizing its ability to help non-Chinese firms effectively run ad campaigns in the Middle Kingdom, and to do so while securely using their own data.
The Trade Desk already has a burgeoning U.S. video ad business, one that has benefited from its efforts to create effective targeted video ad solutions as well as the reluctance of some video distributors to directly partner with tech giants that are seen as rivals. The company's "connected TV" ad sales rose by a factor of 9 in 2018, and its mobile video ad sales rose 130%.
The company also has fast-growing audio and in-app advertising businesses, and -- when battling for ad purchases on properties not owned by Google or Facebook -- has benefited from Google and Facebook policy changes meant to address user privacy concerns. Last year, CEO Jeff Green noted Google's decision to stop sharing a user-tracking ID that let advertisers compare the performance of their ads on Google and non-Google properties has given his company a lift.
Meanwhile, though The Trade Desk considers Amazon a partner (its platform is often used by customers to buy ads on Amazon when the customers want to use their own data rather than Amazon's), the company also argues that the reluctance of many brands and retailers who are competing with Amazon to closely partner with the company can give it an edge at times.
Though having pulled back recently, The Trade Desk's shares still aren't cheap. With the qualifier that these estimates could prove conservative in light of past earnings beats, shares currently go for 56 times a 2020 EPS consensus of $3.36 and 42 times a 2021 EPS consensus of $4.42.
For that reason, it's probably better for would-be buyers to wait for a better entry point. However, The Trade Desk is a pretty unique play on an online ad industry that still has a lot of growth left, and one that (through its China launch) just pressed another growth lever. Growth-oriented tech investors should keep it on their radars.
Markets Just Gave a Telling Response to Samsung's Earnings Warning
Mar 26, 2019 | 1:34 PM EDTOn Monday night, Samsung (SSNLF) , which had already been expected to see its revenue drop over 10% annually in Q1 and its operating profit drop over 50%, warned that its Q1 profits will fall short of expectations due to weak display panel sales and falling memory chip prices. Nonetheless, the tech and electronics giant's shares closed down just 0.6% overnight in Seoul.
And today, peers and suppliers are largely brushing off the news, even though it happens to come with the world's biggest DRAM, flash memory and smartphone display panel supplier. Memory rival Micron (MU) , which issued soft guidance last week, is down fractionally. The same goes for Corning (GLOW) , a top supplier of LCD panel and smartphone cover glass, and OLED materials and patent-licensing firm Universal Display (OLED) .
In addition, The Philadelphia Semiconductor Index is up 0.6%, following the Nasdaq higher. Year-to-date, the index is up 20%, after having tumbled during the last three months of 2018.
The reaction to Samsung's warning is just one more sign that markets were pricing in a tremendous amount of bad news for chip and component suppliers in December. And that as a result, recent warnings and light outlooks haven't fazed Wall Street much -- particularly since many chip and component firms are forecasting demand will improve in the second half of the year, as inventories are cleared out and demand from smartphone makers and cloud data center owners improves.
In such an environment, there is a risk that markets could get too complacent about ongoing headwinds. If signs emerge that demand won't be picking up in the second half of the year as expected -- whether due to smartphone and/or cloud demand being weaker than expected, or due to global macro issues -- chip stocks could give back some of their recent gains.
That said, with a few exceptions, valuation for the group remain fairly low in spite of recent gains. Samsung, for example, only trades for about 9 times its expected 2020 earnings. And though Micron is expected earn less than half as much in fiscal 2020 (it ends in Aug. 2020) as it did in fiscal 2018 as it goes through an industry downturn, shares only trade for 9 times the company's fiscal 2020 EPS consensus.
Though the margin of error has narrowed for many chip and component names over the last three months, it hasn't exactly evaporated. The market's response to Samsung's earnings drives this home.
To see Tech Check coverage from the previous trading day, click here.
