How does the trading desk achieve its staggering business growth?

The Trade Bureau (TTD -0.18%) is unfazed by worries about a global economic slowdown and turbulence in the digital advertising space. The company reported 35% year-over-year revenue growth in the second quarter of 2022, a rapid pace that far outpaced its ad tech rivals.

How does the company manage to achieve rapid and steady growth quarter after quarter? In a word, television.

Migration to connected TV continues

What’s so impressive about The Trade Desk’s growth rate of 35% ($377 million in revenue) in the quarter is that the company posted a growth rate of 101% during the same period last year. CEO Jeff Green and company have not only sustained their boom in new business since the start of the pandemic, but they continue to gobble up market share as many other ad tech companies’ growth falls into the low-teens or lower — Alphabetthe mighty Google is on.

As was the theme last year, Green said the rapid shift to Internet-connected television (CTV) is what’s fueling The Trade Desk’s growth. Media companies have developed countless streaming services over the past few years, and now they’re figuring out how to maximize the value of their subscriber bases. Programmatic advertising (where digital advertising processes are automated) is where they are headed.

And given the first-party relationship these streaming services have with their customers, media companies and their marketing agencies are turning to The Trade Desk. The Trade Desk owns no media assets – it’s simply a technology platform to drive advertising performance. And it’s quickly becoming the preferred partner over walled gardens like Google, which own competing media properties like YouTube. Given the global economic slowdown, CTV is becoming the best way for brands to get the most out of their marketing campaigns. Green said the following during the earnings call:

And that’s because in times of uncertainty and volatility, when marketers need to make the most of every advertising dollar, we have an opportunity to demonstrate our value. Our clients realize that effective and considered advertising can play a crucial role in differentiating their brands to a specific audience and a specific time. And there is no better platform for this than The Trade Desk. In the first half of 2022, and especially in the second quarter, I believe we’ve gained more market share or grabbed more ground than at any time in our history.

The Trade Desk said CTV made up a low 40% share of total revenue in the second quarter and CTV remained the fastest growing segment.

Google is fighting back, but The Trade Desk has momentum

Of course, Google isn’t resting on its laurels. It recently announced that it is working on a YouTube hub where viewers can also subscribe to streaming services right from their existing YouTube experience. Despite the conflict of interest, YouTube’s sheer scale can be tempting for broadcast media.

However, The Trade Desk is still number one on CTV. Green highlighted some of his recent trades as evidence. Walt Disney has signed an expanded partnership as it ramps up ad spending on Disney+, Hulu and ESPN+. Amazon Web Services uses The Trade Desk to open its buyer data to traders. And Green said his company is also in talks with Netflix and Microsoft following their announced partnership to bring an ad-supported tier to Netflix’s streaming service.

In general, don’t write Google out of this battle, but as video quickly becomes a pillar of Internet-based advertising, The Trade Desk stands to be the ultimate beneficiary. Of course, this is not a closely guarded secret. Shares trade at a premium of 65 times enterprise value to free cash flow. Clearly, the market expects The Trade Desk to continue to grow revenue and profitability at a rapid pace for years to come. But if you think CTV will be a leading advertising trend for the foreseeable future, it would be a mistake to ignore The Trade Desk.

John Mackie, CEO of Whole Foods Market, a subsidiary of Amazon, is a member of The Motley Fool’s board of directors. Suzanne Frey, CEO of Alphabet, is a member of The Motley Fool’s board of directors. Nicholas Rossolillo and his clients have positions in Alphabet (C stock), Amazon and The Trade Desk. The Motley Fool has positions in and recommends Alphabet (A Share), Alphabet (C Share), Amazon, Microsoft, Netflix, The Trade Desk and Walt Disney. The Motley Fool recommends the following options: Walt Disney January 2024 $145 long calls and Walt Disney January 2024 $155 short calls. The Motley Fool has a disclosure policy.

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