Unpacking The Trade Desk’s S-1 Filing

by Nima Wedlake on August 24, 2016

The Trade Desk, a demand-side platform serving primarily agency customers, filed its S-1 on Monday, indicating its intention to go public. Their IPO is an important milestone for the advertising technology sector, which has experienced declines in investor sentiment and deal volume over the last several years. The company is growing and profitable — it reported revenue of $113.8 million and an adjusted EBITDA of $39.2 million in 2015. We took a deeper look into the S-1 and summarized many of the company’s financial metrics in the charts below. For more background on the company, see AdExchanger’s excellent profile from earlier this year.

Operating Metrics

Trade Desk_Revenue & EBITDA

The Trade Desk has experienced rapid growth over the last several quarters. It’s trailing twelve month (TTM) revenue in Q2 2016 was $149 million, a 106% increase over Q2 2015. The company hasn’t sacrificed profitability for growth — its TTM adjusted EBITDA in Q2 was $48 million.

Trade Desk_Gross Media SpendBecause the company’s product offering is primarily self-service, revenue is reported net of all media spend flowing through the platform. It does, however, include gross media spend in its filing; TTM media spend totaled $726 million in Q2 2016.

Looking at the two charts above we can calculate the company’s “take rate”, or the percent of gross billings captured as revenue. The take rate has hovered at around 20% — notably lower than Rocket Fuel (~60%) and Criteo (~40%). These companies clearly have different models, but The Trade Desk is also serving a market segment that is more price sensitive, meaning its take rate could trend lower over the next several quarters.

Trade Desk_Expense BreakdownThe company has done an excellent job managing expenses relative to revenue. Much of this can be attributed to the model it’s chosen to pursue — licensing a self-serve platform to agencies, as opposed to relying on managed services to drive growth. As a comparison, spend on sales & marketing for The Trade Desk represented 24% of revenue in the most recent quarter, versus nearly 60% at Rocket Fuel. We fully expect the company to highlight these differences in its roadshow, along with it’s client retention figure of 95% in both 2014 and 2015.

Trade Desk_Ad Formats

Like most demand-side platforms, The Trade Desk’s ad format mix has transitioned from primarily desktop display to multi-channel & multi-format. The company expects this shift to persist, and plans on investing more heavily in new inventory sources like digital radio, social, native and television.

Comps & Valuation

Trade Desk_Comps

It will be interesting to see how the investor community values The Trade Desk. Clearly, they’ve developed both a scalable and profitable model. But will investors who have soured on advertising technology buy into the company’s long-term prospects? Ultimately, the challenge for investors will be predicting the company’s growth potential given their segment focus. The table below includes some valuation scenarios given a range of revenue growth rates.

Trade Desk_ValuationThe Trade Desk will undoubtedly be a welcome addition to the crop of public adtech companies. The company’s S-1 filing has important implications for a sector that has taken a few punches over the last several years. Their success to date is a testament to The Trade Desk’s ability to execute on its vision and the viability of digital marketing on the open web.

As investors in DataXu, another fast growing DSP serving a different market segment (brand marketers), we’re excited by The Trade Desk’s filing & believe it will pave the way for future adtech IPOs.

  • Duncan W Craig

    thanks for the data and piece!