The Trade Desk Led Mid-Cap Gains among Tech Stocks Yesterday

On Monday, high growth mid-cap tech stocks including The Trade Desk (TTD), Roku (ROKU), and Twilio (TWLO) moved higher. These three stocks have been impacted over the last few months. Investors were concerned about their premium valuations and growth metrics.

While The Trade Desk stock gained 11% yesterday, Roku and Twilio rose 6% and 3.2%, respectively. In comparison, the S&P 500 ETF fell 0.2%, while the Technology Select Sector SPDR Fund (XLK) rose by a marginal 0.05% on Monday.

Last week, The Trade Desk announced its third-quarter results. The company reported revenues of $164.2 million—growth of 38% year-over-year. The adjusted net income rose 19.5% to $36.1 million with an EPS of $0.75.

Analysts expected the company to post revenues of $163.79 million and earnings of $0.67 in the September quarter. The company also raised its 2019 revenue guidance to at least $658 million—up from $653 million and above the consensus forecast of $656.15 million.

The Trade Desk’s CEO and co-founder, Jeff Green, said, “We again delivered outstanding performance in the third quarter. Revenue growth of 38% significantly outpaced worldwide programmatic advertising growth. The world’s leading brands and agencies are increasingly using our platform to apply data-driven strategies to drive precision and value across their campaigns.”

We know that The Trade Desk is one of the major players in programmatic advertising. The company helps automate the digital advertising process. Companies can purchase and place online ads using The Trade Desk’s platform.

The total addressable market is huge for The Trade Desk. In the company’s earnings call, management stated that Magna Global estimates the programmatic advertising market to grow 20% in 2019—significantly higher than the overall ad-market growth of 4%.

The Trade Desk is part of a fast-growing business segment. The company expects the total addressable market to reach $1 trillion in the next decade. The Trade Desk expects to grow at a higher pace than the overall industry.

The company’s revenue growth has been driven by strong sales in the CTV (connected TV) vertical. In the September quarter, the company’s enterprise spend on CTV rose 145% YoY for The Trade Desk. The company continues to experience strong growth in CTV inventory. The live events category, like sporting events and the US elections in CTV, will continue to drive growth in 2020.

The Trade Desk has invested heavily to develop its CTV infrastructure and supplier ecosystem. The investments are starting to pay off. The revenue growth in CTV is starting to accelerate. Notably, The Trade Desk is also optimistic about growth in the audio space. PwC has estimated the digital radio market at $3 billion. The digital radio market has also been The Trade Desk’s fastest-growing vertical.

Green said, “Audio is highly attractive to our customers because it regularly delivers high-performance metrics, such as completion rates. We continue to integrate new sources of audio inventory worldwide, and expect to see broader adoption of this channel by advertisers in the years to come.”

While the music industry is the main growth driver in Audio, The Trade Desk expects verticals like podcasting to have immense potential. The CTV and audio segments are effective due to high user engagement.

In the first three quarters of 2019, The Trade Desk managed to grow its sales 40% YoY. The company’s sales have reached $445.1 million in the first nine months of 2019—up from $316.8 million in the same period the previous year.

The company attributed the growth to existing customers’ increased spending. Also, the company claimed that a few large advertisers have increased ad spend by as much as 800%. The Trade Desk continues to onboard new customers and expects to see the trend continue in 2020.

Roku and Twilio stocks also made a comeback yesterday. Roku stock fell more than 15% after its third-quarter results. Investors weren’t impressed with the company’s fourth-quarter guidance. Twilio stock gained after investment bank RBC Capital reiterated its bullish outlook. According to a report from The Street, RBC analyst Alex Zukin reiterated an “outperform” rating on Twilio with a target price of $125.

The Trade Desk stock has outperformed its peers and indexes in 2019. The stock has gained 87% year-to-date. Meanwhile, the stock has risen 684% since its IPO in September 2016. Roku stock has gained 300% this year. The stock has risen 387% since its IPO in September 2017.

Twilio stock has gained just 11% in 2019. The stock has risen 270% since its IPO in June 2016. Despite these strong returns, The Trade Desk stock is trading 25% below its record high. Roku and Twilio are also trading 27% and 36% below their all-time highs, respectively.