Boosting Our Price Target for This One-Rated Digital Advertising Play

* We are boosting our price target on One-rated The Trade Desk.

* The company reported a beat-and-raise June quarter.

* Trade Desk remains well positioned as streaming video platforms embrace advertising business models.

We are lifting our price target on the shares of One-rated The Trade Desk TTD to $120 from $110 following last night’s beat-and-raise June quarter. For the quarter, Trade Desk reported EPS of $0.39 on revenue that rose 26% year over year to $585 million, topping the $578 million consensus. For the current quarter, management expects revenue to be at least $618 million, which implies at least 25% year-over-year growth, with further margin improvement.

As we’ve discussed before, Trade Desk continues to benefit from the overall mix shift toward digital advertising as advertisers look to reach consumer eyeballs. It is also benefiting from the growing use of advertising business models across streaming video platforms and digital audio like those found at Netflix NFLX, Disney DIS, Warner Bros. Discovery WBD, Amazon AMZN, Spotify SPOT and others.

Some companies, such as Netflix, are leaning even further into advertising as it drops its most basic plan, pushing users to either more expensive ones or opting for ad-supported plans. There is also the new crop of advertising-supported video-on-demand streaming services like Tubi and Amazon’s FreeVee. We’re also reading that Apple AAPL is gearing up to follow Netflix and offer a lower-cost ad-supported TV service. That’s a good setup to remind members that during the June quarter Trade Desk became a main programmatic partner for Netflix. FOX also expanded its relationship with Trade Desk.

Those efforts along with the continued adoption of mobile advertising as well as that for digital audio, including podcasts, have Trade Desk thinking its addressable global digital advertising market has the potential to reach $1 trillion. It’s not alone in that view. Statista Market Insights sees the global digital advertising market reaching $965 billion by 2028 fueled in part by steady growth in video advertising.

During the company’s earnings call, management said that connected TV (CTV) accounted for a “high 40s percentage” of the business mix. This positions Trade Desk extremely well as does mobile accounting for a mid-30s percentage of revenue. Rounding out the mix, the display market was a low double-digit percentage with audio accounting for around 5%.

As we reflect on the above, we have to remember the extra push digital advertising will see this year from the 2024 presidential election. We’re already seeing numerous ads for that across various platforms and odds are it will heat up as we near Election Day. That spending should bode very well for year-over-year H2 comps for Trade Desk and also the advertising businesses at Alphabet GOOGL and Meta Platforms META.

We will see a return to more normalized digital advertising industry growth rates as we enter 2025. That's not something we are overly concerned about now, but if these stocks get out over their skis in the next few months, we’ll want to remember that the growth rate will normalize next year before the market does.

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At the time of publication, TheStreet Pro portfolio was long TTD, GOOGL and META.