The Trade Desk opens well, but what will it have to demonstrate to stay ahead of the pack?
The Trade Desk opened began publicly on the Nasdaq yesterday (21 September), with the adtech company’s stock price valued at close to $1bn on the opening day of trading.
Although, with such publicly traded outfits experiencing a difficult time on the public markets so far in 2016, just what will The Trade Desk have to do to stay ahead of the pack?
The Trade Desk – a demand-side platform (DSP) which issued 4.667 million shares under the TTD ticker on the Nasdaq – watched its stock price soar to north of $30 per share at points on the opening day of trading, a 60 per cent increase from its initial pricing.
Hence, The Trade Desk’s opening day as a publicly listed company has been widely hailed as a success, with the company no doubt buoyed by the earlier revelations of its financial earnings.
Investors impressed thus far
As part of the flotation process, with the company revealing that total revenue of $113.8m last year, representing a 156 per cent annual growth rate, and that adjusted EBITDA was the first six months of this year was $20.1m compared to $11.1m a year earlier.
Meanwhile, its filing documents also revealed that net income was $5.7m for the six months ended June 30, 2015 and $6.6m for the same period this year.
Although the public markets are a tough place for adtech
These numbers have sufficiently impressed investors, but as mentioned above the last 18 months have seen publicly listed adtech companies on the receiving end of some harsh treatment when it comes to scrutiny from investors.
Some of the more high-profile examples in recent times include Rubicon Project suffering $200m being wiped of its stock market price overnight post its most recent earnings call. This was despite Rubicon reporting yet another quarter of double-digit growth, but it was the admission that it was late to the party when it came to header bidding from chief executive Frank Addante that was the killer blow.
Similarly, Rocket Fuel (which went public in 2013) has seen its stock price continually pounded after it has continually missed its revenue targets, and seemingly never recovered from being very publicly associated with the instances of ad fraud in 2014.
Speaking earlier this month at ExchangeWire’s ATS conference in London, investment banker Julie Langley, partner at Results International, explained some of the dynamics placing downward pressure on the increasingly commodotised adtech sector.
She said: “Nearly every adtech company that has gone public is currently trading at beneath its IPO price. And if you look at the venture capital market, too many companies raise Series A, Series B rounds at a $60-$100m valuation, and haven’t been able to get the exits that make their investors happy.”
Public investors can hold the stock of any company they want – regardless of what vertical it operates within – whereas if a major acquirer wants to leverage a certain type of adtech capability then there are relatively few options for them; market economics kick in from there, she explained.
To float, or not to float?
Hence the question in adtech circles over the last 12-18 months has been whether or not to ‘exit’ on the public markets, or sell to one of the internet’s big acquirers? Speaking with The Drum, Sacha Berlik, The Trade Desk’s managing director, EMEA, noted that the DSP’s ‘independent’ status (i.e. not being beholden to some of the internet’s walled gardens, etc...) was at the core of its decision to exit on the public market.
“We’re technology agnostics, and that’s the way we want to continue,” he stated. “This is just the beginning, and the way we see it, we’re disrupting the market, he added, pointing out that the DSP is already profitable (which is not always the case with adtech companies that float).
This, of course, raises questions over what decision fellow adtech giant AppNexus will take, given that it has already been reported as mulling the prospect of going public.
Winning favor with media agencies
Those familiar with the dynamics of the adtech sector, say that The Trade Desk has curried favour with media agencies as the DSP doesn’t attempt to disintermediate them, therefore they are not as conflicted as some of their peers – many of whom attempt to juggle their ‘client-direct’.
Hence, it has been able to sustain healthy revenue streams, and agency staff are often quick to laud The Trade Desk for its nimbleness and ability to adjust to their demands. But sources have expressed concerns over whether or not this will be sustainable now that The Trade Desk’s every cent of investment will be scrutinised by the markets.
Answering these queries, Berlik notes that the company’s profitable IPO has lowered the barrier to capital, and that the increased ability to invest in product development will enable it to justifiably maintain this reputation.
“We have a strong positioning, high client retention, and growing a head of the market,” says Berlik.
“Of course there are risks at the moment, but that’s nothing new,” he adds, pointing to trends he sees as favourable to The Trade Desk: all media is going digital; the rise of automation; audience fragmentation means agencies will need more adtech.
“You often find it hard to make innovative move when you’re public,” commented one source in the research of this piece. “My hope is that you won’t find there’s loads of suits in there now. I hope they can continue to be innovative.
So in The Trade Desk, adtech has found its latest ‘unicorn’, and the initial picture looks rosy, but the industry is paved with high profile casualties, we need only look at the recent high-profile demise of adtech unit Mode Media (itself once valued at over $1bn) as a demonstration of the need to stay ahead of the market.