The Trade Desk S-1

As many of you know, The Trade Desk (TTD) filed its S1 with the SEC this week. This was alluded to in an earlier Lift Letter (AppNexus and The Trade Desk S-1s) that delves a little deeper into what an S1 is, going public, and the like. You can read the TTD S1 here: https://www.sec.gov/Archives/edgar/data/1671933/000104746916015074/a2229525zs-1.htm. When you read the S1, you'll note that there are a number of blanks around the price per share and amount raised. This is because the offering is not yet priced - the banks are going around drumming up interest. The round will eventually be price when it goes public and the number of shares * the offering price is the amount they raise. Below we discuss some note worthy points from the S1. Another interesting note is that they're offering 2 classes of shares - class A is the issuance, and class B is held by employees, current investors and executives (until they're sold, then they become class A). Class B shares get 10 votes per share while class A has 1, meaning the class A shares - because of the current makeup in ownership - cannot make any decisions.

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TTD only makes its money as a percent of media spend through its platform - there is no media arbitrage, only long term master service agreements with fixed media fees. In 2015, there was $550M spent on their platform, from which its revenue was $113.8 - meaning their fee is about 20% (higher than I thought it was). In 2014, its revenue was $44.5M. The company was profitable by $0.005M in 2014, and by $15.9M in 2015. On June 30, 2016 they had 387 employees, which is half the size of MediaMath, and a quarter (or less) the size of AppNexus. But TTD is likely worth a similar amount, if not more, meaning it is very effective at generating revenue on a per-employee basis (something they make quite clear in the S1), and that it is easier for them to be profitable. Also, both TripleLift and TTD are quickly growing companies whose revenue is impacted by media spend. We projected our Q4 to be 40% of annual media spend, and they saw 42% in 2014 and 37% in 2015.

The key trends they highlighted as the basis for their business are the shift to digital, consumption fragmentation across many websites / apps, shift to programmatic, automated ad buying, and more data in ad buying. This largely agrees with our views, though it is - in my view - is more retrospective than prospective. Perhaps more prospective on their part, native advertising was mentioned 6 times in the S1. They also view programmatic TV as key to their future. TTD expects their margin to decrease as they move into TV.

TTD highlights a few key risks. They don't have exclusive relationships with agencies and it is very easy for agencies to move budgets from one DSP to another. Omnicom and WPP are each more than 10% of their revenue. They are concerned that SSPs may cut them off from high quality inventory at any time. And - a specially called out item for them - training for their platform is so important that they mentioned that if they fail to do it at a high level it could be an existential risk for their platform.

The ad tech industry has not done terribly well in the public markets over the past couple years, so TTD does go to some lengths to differentiate themselves. The discuss their view of the industry, and their position as a non-arbitrage, pure-technology, pure buy-side business with transparent optimization - implicitly contrasting against other public companies. They speak frequently about their customer retention (95%) and their rate of growth (>100% annually).