Wall Street appears to be sweet on The Trade Desk's foray into China.
The company, which was founded by Jeff Green and Dave Pickles in 2009 and went public in 2016, provides technology that helps brands and agencies target and reach audiences across media formats and devices.
It counts brands like Procter & Gamble and agency holding companies like Omnicom Group as clients, and says the "vast majority" of the S&P 500 has run ad campaigns on its platform. It's profitable, earning $88 million on revenues of $477 million last year. And it's growing — first quarter revenue was up 41% from a year ago, with profits up 12%.
It's also won over investors, who have been mostly sour on ad tech companies in recent years. At close Thursday, The Trade Desk's stock was up almost 74% this year at $201.89, giving it a market capitalization of $9 billion. It's up more than 270% in the last two years. It was down 2.4% in Friday's premarket.
In a research note this week, Pivotal Research analyst Michael Levine called The Trade Desk a "truly unique asset, growing at among the fastest rates in the industry as they penetrate the opportunity in programmatic advertising." He also said it delivers a "rare combination of strong growth and profitability (unlike most other SAAS peers)."
Levine also called out the company's management team and two "massive incremental legs of potential growth": China and connected TV.
China
The Trade Desk's move into China comes as that country has restricted citizens from using services of other U.S. based tech giants like Google, Facebook and Twitter.
The company recently launched its programmatic ad buying platform in China, letting marketers use their own first-party data on the company's platform and providing access to partnerships with Chinese media companies including Tencent and Baidu Exchange Services.
For instance, instead of having to work with a Chinese ad agency, a multinational advertiser working with a Western agency could buy ads in China easily.
In the next five years, The Trade Desk plans to turn China into one of its top three markets. The company says international revenue currently accounts for about 15% in revenue but expects it to grow to roughly two-thirds of its total revenue as the programmatic industry matures.
It won't happen overnight. The company said it will likely take years to see material contributions from that market. "China is something that we think we have to play the long game," Green said on the company's first-quarter earnings call.
D.A. Davidson analysts said in a note earlier this month that "in some ways, TTD is effectively restricting its China opportunity in the near-term by focusing purely on bringing incremental advertiser dollars to Chinese publishers, rather than targeting existing China ad spend (which could be perceived as another 'ad tech' tax paid by publishers.)"
Connected TV
The company also is betting big on connected TV, adding inventory and spending. The Trade Desk says its spending is up 300% from Q1 2018 to Q1 2019, and says the number of advertisers running connected TV on its platform has increased 100% over the past year.
In a recent investor presentation, the company said its goals over the next five years include making connected TV and video its largest channel.
Some analysts do see potential turbulence ahead in the realm of connected TV. Rosenblatt Securities analysts wrote in a note in mid-May that they expect Google and Amazon will have competing capabilities in that area as early as the fourth quarter. Analysts said this could create a "meaningful" supply and demand reset in the connected TV ad market and present headwinds for The Trade Desk's earnings next year.
An option outside the duopoly
Levine said The Trade Desk has made itself indispensable to the agencies that use it and say it saves them time and money. In terms of their use, "something seismic would need to happen for that to change."
The company says its customer retention in the quarter remained over 95% (it claims this has been the case for the previous 21 quarters).
Levine said in his note that agencies and advertisers are looking for alternatives to the digital ad duopoly of Google and Facebook, and that The Trade Desk's independence "has been and will continue to be a key to their success."
The Trade Desk also sees the future of advertising as being primarily digital, and primarily transacted programmatically. In April, eMarketer estimated that U.S. advertisers would spend nearly $60 billion this year on programmatic display, forecasting that by 2021 almost 88% or $81 billion of all U.S. digital display ad dollars would transact programmatically.
No worries about Chrome privacy changes
Analysts didn't seem too worried about the impact of Google Chrome privacy changes on The Trade Desk's business.
"We do not expect this to have any material change on our business. And most of these changes, we welcome because they will make our business better and any of those others that were shrugging their shoulders up, don't have a negative impact on our business at all," Green said on the company's recent earnings call.
"So, overall, this is a very positive change for us. It's good for the industry. When I spoke to Google yesterday, my very first question is, is there more coming or is this the bulk of it. And they said, this is it. More details to come on these specific things, but in terms of like major headlines, this is it."
In a note, D.A. Davidson analysts said the company's "ability to seemingly shake off Google's upcoming Chrome browser changes highlights the resiliency of TTD's business."