Hey, everyone, welcome back. I’m Alex Kagin, part of the research team at Strategic Tech Investor. Before joining the tech team, I spent almost a decade doing research for hedge funds, and part of the work I did was tracking online media spend and what platforms were gaining market share.
This research led me to a deeper understanding of streaming content and how it gets monetized. Simply put there are two ways. You can go the route of Netflix, where you pay a monthly fee and get an ad-free TV and movie service, or Hulu, where you can subscribe for a cheaper rate and watch content with commercials.
Today, I want to focus on the latter option, monetization via advertising. This right here is an absolutely huge opportunity when you look at how much money is spent on advertising on linear cable. That number in 2020 was roughly $60 billion dollars. For connected TV, that number was less than $10 billion. Now you can imagine why I am so interested in this space. You have years of declining viewership on the cable TV platform, and you actually have significantly more people streaming content. It’s also not just paid services, but free ad-supported services like Pluto TV that is nearing 50 million subscribers, and the Roku Channel, which reaches 70 million households and even has its own original content.
Maybe that spend gap made sense a few years ago when targeting and the ads themselves online were not that good, but times have changed and one of my favorite companies in the space just put up big numbers.
That would be The Trade Desk, an omnichannel advertiser with a growing focus on the connected TV market. They offer what is called a demand-side platform, which helps advertisers buy ad space with companies like Disney, Fox, Discovery, and dozens more services.
This quarter stood out to me as more bullish than ever before, and despite the double- and triple-digit growth they have seen in connected TV, their commentary hit the nail on the head with business across the globe.
Total connected TV clients grew over 50% year over year to over 10,000 and clients spending over $1 million annually doubled.
We are not talking about small companies using their platform either. Ford ran a major campaign on its connected TV platform and found that it led to 48% growth in incremental households reached.
This singular company now reaches 87 million households, larger than the maximum reach of linear TV.
Talking about the global market, revenue in Europe more than 10xed during the quarter as it deepened its partnership with Sky Media, and India also saw similar growth as they opened up the market.
This is not a trend slowing down. They doubled revenue from Q2 last year hitting $280 million, net income nearly doubling as well and the company issued upside guidance for Q3. The best part about all of this is that customer retention remained over 95% during the quarter a metric they have met for 7 straight years.
This is a pretty incredible trend we are seeing.
Not only are we talking nice revenue growth, but they have $704 million in cash on the balance sheet and 0 debt to worry about. This means they can be as aggressive as they want to be in pursuing growth opportunities.
The Trade Desk is the kind of founder-led company I like to invest in, and hearing Jeff Green say “we are just scratching the surface” when referring to CTV just shows how much he has in store for his company.
Still trading roughly 16% off its all-time high, this could be a good time to get in while it is still trading under $100 dollars.
Now, this company was originally recommended in the Nova-X Report in January 2019 when it was trading under $15 dollars. If you want to receive recommendations like this early, you can sign up for this service below that gives you two new tech stock investments every month.