Why Wedbush is bullish on The Trade Desk's growth potential

Wedbush Securities initiated coverage on The Trade Desk (TTD), giving the company an Outperform rating and a price target of $110. The firm cites the company's ability to grow in the digital advertising space.

Wedbush Securities equity research managing director Scott Devitt joins Market Domination to explain why he is bullish on The Trade Desk.

"Trade Desk is the leading independent demand-side platform. The largest competitors actually are probably Google (GOOG), Yahoo still in that business, Microsoft (MSFT) and Amazon (AMZN) has a growing DSP business as well. But what's happened over the past 10 to 15 years has been this transition from guessing with advertising to increasingly having real-time programmatic advertising, where advertisers are bidding and content owners are pricing inventory properly and meeting in an online exchange. And that to us is going to increase as a proportion of the overall industry going forward," Devitt tells Yahoo Finance.

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This post was written by Nicholas Jacobino

Video transcript

Wedbush Securities initiating coverage of the trade desk with an outperform rating from highlighting top line growth potential in digital advertising spend is expected to rise in 2024.

And here discuss that call with Scott Devitt Wedbush Securities managing director, Scott.

It is always good to see you on the program.

So let's get to this call, Scott.

So you're a fan of the trade desk, you initiate coverage for the now performing target uh 110.

How come Scott walk, walk us through the argument?

Well, the the drivers for trade desk really are this transition that's happening in the advertising industry where um connected TV is is shifting from linear um to uh streaming TV.

And the advertising is following and the trade desk is a big beneficiary almost half of the business.

This video today, our expectation is over the next 3 to 5 years.

You're going to see an acceleration in the decline of linear TV, which will be a significant tailwind for the business.

In addition to that retail media is becoming an increasing portion of the online advertising industry.

And trade desk has a quite innovative model where they're pulling in first party data from retailers to further inform their demand side platform for advertisers, both of those drivers, the two most significant drivers for the ad industry, which is what is so interesting about trade desk Scott.

It's zoom out a little bit because as we talk about the continuing transition from cable TV transition, uh traditional TV, the way that advertising works there and then connected TV, and how ads are sold on to those platforms.

Um What's the biggest way that that has shifted?

And are any of those sort of older players playing a role in this new ecosystem or is it sort of trade desks, you know, market to take?

Well, trade desk is the leading independent demand side platform.

The largest competitors actually are probably Google Yahoo is still in a business, Microsoft and Amazon has a growing DS P business as well.

But what's happened over the past, you know, 10 to 15 years has been this transition from guessing with advertising to increasingly having a real time programmatic advertising where advertisers are bidding and content owners are pricing inventory properly and meeting in an online exchange.

And that to us is going to increase as a proportion of the overall industry going forward.

And trade desk is the leading provider of that.

In addition, these companies that, that trade desk is competing with are companies that are under regulatory scrutiny.

So you always have the possibility as well that there could be Augustas that are for say, with an alphabet where the government forces the company to unbundle its ADTECH platform, which would be a significant positive for trade desk if that ever happened.

And Scott, you know, you look at trade desk, stocks, enjoy a nice run.

I mean, it's up about 35% already this year.

But you, you must think valuation still attractive here, Scott, it's high, it's, it's, um, it's, you know, similar to history, but I wouldn't call it a bargain at current prices.

The company that I think is probably the most comparable to trade desk.

Interestingly, many don't think of it this way.

Shopify, which provides a similar service on the ecommerce side.

And when you look at trade desk relative to a Shopify, it's faster growth, it's a significantly higher margin business and it trades um Shopify trades about a 30% premium.

So on a relative basis, relative to the company that we think is probably the closest comparable.

It trades at a meaningful discount on an absolute basis.

You can see our target price is only about 12% above the stock.

I wouldn't call it a bargain, but this is an emerging blue chip company that you want to own.

And Scott, we're just coming off of Can.

Um And you know, a lot of advertising and marketing people gathering, there, was there anything you heard coming out of that conference that also, you know, informs how you're viewing trade desk and some of its competitors in terms of how ad dollars are going to be flowing.

A lot of conversations and relationships announced using retail media data and that there was, there was an announcement with Amazon, there was something with Instacart.

And uh and so what you're finding is these data repositories of media content are now being brought to life and that's going to continue to enhance the advertising models as these retail companies, some of which do it directly.

Like Amazon providing their own a demand side platform for their retail media inventory to third party advertisers and many retailers that don't have the capacity to do that like Walmart that are actually partnering with companies like trade desk to provide that service for them, Scott.

You know, I I know you cover and you like Amazon alphabet and meta, you got outperforms.

I think on, on all three if I, if I asked you Scott though to pick one?

WW would you give one name there that you think, you know, you, you'd be most bullish on right here at these levels.

Amazon, Amazon stands out retail, you know, business is going through this renaissance period post COVID where revenue growth is accelerated again and beginning to stabilize at traditional levels margins.

Expanding the online advertising business is approaching 60 billion and growing twice the rate of overall a industry online and the web services business is making a recovery where you're comping some of the reduction in activity from last year and say aws throughout the remainder of this year will accelerate as well.

So among those four, we like them all, but I would rank Amazon number one, Scott Devitt.

Always good to see you.

Thanks a lot for taking the time to chat with us.

Thank you.