The Trade Desk Q3 23’ Investment Thesis Update

Executive Summary

Thesis I: The Trade Desk Continues to Drive Share Gains from Platform Enhancements

• Kokai Technology Introduction: Focus on precision in digital advertising, enhancing ROI and ad relevance.

• Ad Targeting Strategies: Precise market segment targeting and contextually appropriate ads.

• Adapting to a Cookie-Less Future: Strong positioning with UID2 technology.

• UID 2's Role in Advertising: Enabling seamless cross-channel advertising.

• Industry Adoption and Impact: Widespread acceptance of UID 2 across the AdTech ecosystem.

• Strategic Positioning: Leadership in AdTech with investments in UID 2 and Kokai technology.

Thesis II: CTV and Retail Media Represent the Next Wave of Demand

• Advertising Transformation with CTV: CTV's high engagement rates attracting multinational corporations.

• Global Expansion in CTV Advertising: International reach reshaping brand strategies.

• Role of Platforms in CTV Evolution: Precision targeting capabilities offered by The Trade Desk.

• CTV and AVOD Integration: Expanding advertising inventory through AVOD services.

• Retail Data Integration in Advertising: Revolutionizing marketing through retail data integration.

• Collaborative Approach in Data-Driven Advertising: Collaborations with retailers for targeted advertising.

Thesis III: The Programmatic Advertising Market is Massive and Expanding

• Ecosystem Components: The interplay between advertisers, DSPs, publishers, SSPs, ad exchanges, and data management platforms.

• Revolutionizing Advertising: Automation, targeting, personalization, data-driven decisions, and integration.

• Digital Advertising Trends and Economic Factors: Post-pandemic digital surge and continued growth driven by e-commerce expansion.

• Rise of CTV Advertising: Personalized and engaging ads appealing to shifting consumer preferences.

• Growth Projections: US and global expansion in programmatic advertising, supported by positive economic indicators and e-commerce growth.

The Trade Desk's strategic advancements in digital advertising technologies, its role in the growing CTV market, and its position in the vast programmatic advertising landscape suggest a significant untapped growth potential. Despite these promising developments, the market has not fully capitalized on The Trade Desk's potential, primarily due to an excessive focus on short-term narratives. However, as these platform enhancements and market dynamics become increasingly evident, The Trade Desk is poised for material growth, aligning its business potential with market valuation.

Thesis I: The Trade Desk Continues to Drive Share Gains from Platform Enhancements

Thesis Summary

1. Kokai Technology Introduction:

   • The Trade Desk's Kokai technology, revealed in Q2 2023, focuses on precision, relevance, and certainty in digital advertising, marking a significant shift in ad targeting efficiency.

2. Strategic Advancements in Ad Targeting:

   • Kokai allows precise targeting of specific market segments, like luxury watch enthusiasts, enhancing ROI and reducing ad spend wastage.

   • Ensures contextually appropriate ads, boosting engagement and conversion rates.

3. Adapting to a Cookie-Less Future:

   • The Trade Desk's focus on UID2 in a post-cookie era positions them strongly for future digital advertising trends.

   • UID2’s emergence as a cookie substitute benefits data companies and platforms, while challenging traditional web-based publishers.

4. UID 2's Role in Cross-Channel Targeting:

   • UID 2 enables seamless cross-channel advertising, offering a more integrated and effective approach for advertisers.

5. Broader Industry Adoption and Impact:

   • UID 2's widespread acceptance across the AdTech ecosystem indicates a readiness for more sophisticated targeting methods.

   • The Trade Desk's platform optimized for UID 2 creates a cycle of increased ad spend and platform utility.

6. Strategic Positioning of The Trade Desk:

   • The Trade Desk’s strategic investment in UID 2 and Kokai technology cements its leadership in the AdTech space, aligning with the evolving market needs.

7. Future Outlook:

   • The introduction of Kokai and the strategic use of UID 2 signify The Trade Desk's innovative response to the dynamic digital advertising environment, setting a path for continued leadership and market influence in the evolving advertising landscape.

Kokai Technology Unveiled: Precision, Relevance, and Certainty in Digital Advertising

The unveiling of The Trade Desk's Kokai technology during their Q2 2023 earnings call marks a significant stride in advancing the sophistication and effectiveness of digital advertising. Kokai's emphasis on the three pivotal pillars of precision, relevance, and certainty reflects a deep understanding of the current needs and challenges in the digital advertising space, as well as a strategic vision for addressing these issues.

Firstly, Kokai's focus on precision in ad targeting represents a significant leap in how advertising campaigns can be fine-tuned and targeted. This level of precision ensures that advertisers can reach highly specific segments of the market, like luxury watch enthusiasts with a recent history of engaging with high-end goods. This targeting capability not only enhances the efficiency of ad spend by focusing on the most receptive audiences but also increases the potential for higher ROI. For advertisers, this means less wastage of resources on broad, untargeted campaigns and more focus on reaching the right consumer with the right message.

Secondly, the relevance of advertising is another critical aspect addressed by Kokai. By ensuring that ads are contextually appropriate — such as serving winter apparel ads to someone in a colder region — Kokai enhances the likelihood of ad engagement and conversion. This contextual targeting is not just about geographical relevance but also about aligning ads with the consumer's current environment and state of mind, thereby increasing the ad's appeal and effectiveness.

Furthermore, Kokai offers consistency and certainty in campaign delivery, which is a crucial factor in building trust between advertisers and digital platforms. The digital advertising landscape is often fraught with unpredictability due to various factors like ad fraud, inconsistent delivery, and fluctuating consumer attention. By providing a more stable and predictable ad delivery mechanism, Kokai aims to mitigate these challenges, ensuring that campaigns are executed as planned.

Kokai's development and implementation demonstrate The Trade Desk's commitment to enhancing the utility of advertising. By focusing on creating advertising messages that are not only precisely targeted but also contextually relevant and reliably delivered, The Trade Desk is positioning itself as a leader in the evolution of digital advertising. This approach aligns well with the broader industry trend towards more personalized, efficient, and impactful advertising experiences. For advertisers, Kokai represents an opportunity to optimize their campaigns in a way that aligns closely with consumer behavior and preferences, potentially leading to better engagement, conversion rates, and overall campaign success.

Adapting to a Cookie-Less Future: The Trade Desk's Strategic Positioning

The Trade Desk's approach to ad purchasing and its strategic positioning in the evolving digital advertising landscape, especially in the context of diminishing cookie-based tracking, offers insightful glimpses into the company’s adaptability and foresight.

Firstly, The Trade Desk’s ability to analyze a vast array of ad opportunities every second and make data-driven purchasing decisions underlines its technological prowess and efficiency in navigating the complex digital ad space. This capability is crucial in an environment where the sheer volume and speed of transactions require sophisticated algorithms and real-time decision-making.

With the impending reduction in identity information due to the phasing out of third-party cookies, The Trade Desk’s reliance on UID2 and CTV (Connected TV) becomes strategically significant. The company's confidence in maintaining its purchasing level, even amidst these changes, speaks to the robustness of its technology, particularly UID2. UID2’s role as an alternative identifier in a cookie-less world is central to this strategy. Its potential to accelerate adoption in a post-cookie era offers a glimpse of how The Trade Desk is positioning itself to not just adapt to but also capitalize on these industry shifts.

UID2’s emergence as an effective substitute for cookies could reshape the digital advertising landscape. This change is likely to benefit data companies and platforms like The Trade Desk that are already pivoting towards these new identification methods. However, for web-based publishers that have traditionally relied heavily on cookies for ad targeting and user tracking, this shift could pose significant challenges. These publishers might face pressure to adopt new technologies like UID2 to remain competitive and relevant in the changing advertising ecosystem.

The expectation of a wave of adoption when cookies are fully deprecated suggests a broader industry transformation. The Trade Desk, by investing in and promoting UID2, is not just adapting to this change but is actively shaping the future of digital advertising post-cookies. UID2’s design to offer utility similar to, if not better than, cookies positions The Trade Desk at the forefront of this transition, potentially giving it a competitive edge as the market evolves.

Advancing Cross-Channel Targeting: The Role of UID 2

The Trade Desk’s focus on its UID 2 identifier, as highlighted in their Q2 2023 earnings call, represents a significant advancement in the field of digital advertising, particularly in the realm of cross-channel targeting and identification. This development has notable implications not just for The Trade Desk but for the broader AdTech ecosystem.

UID 2's primary function as a cutting-edge identifier to enable cross-channel identification marks a considerable leap in targeting precision. This technology allows for a more integrated and seamless advertising experience, where brands can coordinate messages across various devices — from a user’s smartphone to their laptop. This coordination ensures that messaging remains consistent and relevant, irrespective of the device or platform. For advertisers, this means a more holistic approach to reaching their audience, enhancing the impact and coherence of their messaging.

The significance of UID 2 extends beyond just The Trade Desk's operations; it's gaining traction throughout the AdTech ecosystem. Its adoption by partners, competitors, and customers signifies a broader industry shift towards more sophisticated, user-centric targeting methods. This widespread adoption is crucial, as it indicates a market readiness for more advanced and integrated ad tech solutions, and positions UID 2 as a potential standard in the industry.

Furthermore, the fact that The Trade Desk’s platform is engineered to perform optimally when utilizing UID 2 is a strategic advantage. This synergy between the platform and UID 2 means that as more customers adopt this identifier, the more value they are likely to derive from The Trade Desk’s offerings. This creates a virtuous cycle: the increased utility and efficiency provided by UID 2 encourage more advertisers to use The Trade Desk’s platform, which in turn can drive a higher allocation of advertising spend towards it.

The anticipation that a greater embrace of UID 2 will funnel more advertising spend towards The Trade Desk’s platform underscores the strategic foresight behind this innovation. It’s not merely a technological enhancement; it's a move to cement The Trade Desk's position as a leader in the AdTech space by offering a distinct, valuable tool that aligns with the evolving needs of advertisers and the market.

Thesis II: CTV and Retail Media Represent the Next Wave of Demand

Thesis Summary

1. Transformation of Advertising with CTV:

   • CTV advertising is revolutionizing the industry, similar to the automotive industry's shift to electric vehicles.

   • Multinational corporations are increasingly preferring CTV for its higher engagement rates.

2. Global Expansion of CTV Advertising:

   • CTV's reach extends internationally, prompting major brands to tailor advertising for diverse markets.

   • This global phenomenon is reshaping brand strategies, akin to companies exploring emerging markets.

3. Role of Innovative Platforms in CTV Evolution:

   • Platforms like The Trade Desk are crucial in the CTV evolution, offering precise targeting capabilities.

   • Advertisers can reach specific demographics with higher accuracy, moving away from traditional broad targeting.

4. CTV and AVOD Integration:

   • Integration with AVOD services, like Disney's international rollout, expands advertising inventory.

   • This enhances the competition and benefits platforms facilitating access to CTV advertising opportunities.

5. Paradigm Shift in Advertising:

   • The rise of CTV represents a significant shift in advertising, introducing dynamic and effective strategies.

   • It's a fundamental change, akin to discovering a new, powerful current in a river system.

6. Integration of Retail Data in Advertising:

   • The Trade Desk's integration of retail data revolutionizes marketing and commerce.

   • Retail data allows for pinpointing product popularity and optimizing ad targeting and spend.

7. Collaborative Approach in Data-Driven Advertising:

   • Collaboration between retailers like Dollar General, Albertsons, Walgreens, and The Trade Desk.

   • Retailers contribute data for targeted advertising, benefiting both parties and enhancing consumer engagement.

8. Impact of Retail Media Integration:

   • The integration of retail media into The Trade Desk's platform offers comprehensive insights into consumer habits.

   • It enables strategic ad placements, maximizing effectiveness and potential sales.

The Rise of Connected TV (CTV) Advertising

Connected TV (CTV) advertising is experiencing a transformative rise, reshaping the global advertising landscape in profound ways. Its dominance over traditional formats is not just a trend but a significant strategic realignment in the advertising industry. For instance, large multinational corporations are increasingly favoring CTV platforms over traditional TV spots, recognizing the higher engagement rates these platforms offer. This shift is akin to the automotive industry's gradual pivot towards electric vehicles, representing a broader trend of adaptation and evolution.

The impact of CTV advertising extends far beyond national boundaries, marking a global phenomenon. This international expansion has led to a strategic shift among major brands, who are now tailoring their advertising strategies to leverage high engagement rates in diverse markets. The global reach of CTV is reshaping how brands approach advertising, similar to how companies explore and invest in emerging markets.

The Role of Innovative Platforms in CTV Evolution

Innovative platforms like The Trade Desk are playing a pivotal role in this evolution. They are enabling brands to utilize the precise targeting capabilities of CTV advertising. This allows advertisers to reach specific demographics with greater accuracy, moving away from the broad, untargeted approaches of traditional media. For example, a brand can now target ads to specific interest groups, such as sports enthusiasts or travel aficionados, enhancing the relevance and effectiveness of their campaigns.

CTV and AVOD Integration: Expanding Advertising Inventory

The integration of CTV with advertising-based video on demand (AVOD) services, exemplified by Disney's international rollout, further highlights the growing significance of CTV. This development not only expands the advertising inventory available but also intensifies competition in the CTV space, benefiting platforms like The Trade Desk that facilitate access to these new advertising opportunities.

CTV's rise in the advertising world is not just an incremental change but a paradigm shift. It is akin to the discovery of a new, powerful current in a vast river system, fundamentally altering the landscape. This shift signifies a move away from traditional methods, introducing dynamic, effective advertising strategies that are reshaping the industry.

Retail Data Integration in Advertising Strategies

The evolution of advertising strategies in recent times has been significantly influenced by The Trade Desk's innovative integration of retail data. This pivotal shift underscores The Trade Desk's leadership in harnessing consumer insights to revolutionize marketing and commerce. The Trade Desk's platform, a beacon in this transformation, demonstrates an advanced comprehension of consumer behavior, setting new standards for advertising campaigns.

A crucial element of this transformation is The Trade Desk's adept use of specific consumer data to enhance advertising precision. For instance, leveraging retail data, brands like Nike can pinpoint the popularity of new products in certain localities. The Trade Desk's platform enables these brands to target their advertisements more efficiently, optimizing ad spend and impact. This methodology epitomizes the sophisticated application of data analytics in modern marketing, reminiscent of the personalization seen in e-commerce.

Furthermore, The Trade Desk is at the forefront of incorporating retail media into advertising strategies. This approach combines insights from both online and physical store consumer activities, offering a holistic perspective of consumer habits. Through The Trade Desk, retailers like Walmart gain the ability to track comprehensive buying patterns, leading to more accurately targeted advertising campaigns and potentially higher sales.

Collaborative Approach in Data-Driven Advertising

The collaboration of retailers such as Dollar General, Albertsons, and Walgreens with The Trade Desk exemplifies another dimension of this trend. These retailers contribute their data to The Trade Desk's platform for targeted advertising, recognizing the mutual advantages of such partnerships. Consumer Packaged Goods (CPG) brands, for example, can use this data to reach consumers who have recently bought complementary products, thereby optimizing ad relevance and boosting store traffic and sales. This strategic data utilization fosters a symbiotic relationship between The Trade Desk and its data providers.

Moreover, The Trade Desk's integration of retail media into its platform marks a critical development in the advertising domain. This enables brands to leverage data from major retailers to ascertain optimal times and locations for reaching their target audience. Such sophisticated integration allows for the strategic placement of ads at crucial decision points, maximizing ad effectiveness and potential sales increases.

Overall, the current trends in the advertising industry highlight the vital role of retail data in formulating effective advertising strategies, with The Trade Desk leading this data-driven revolution. The synergy between retailers and The Trade Desk, coupled with the comprehensive consumer data integration, heralds a transformative era in advertising, paving the way for more advanced and impactful marketing techniques.

Thesis III: The Programmatic Advertising Market is Massive and Expanding

Thesis Summary

1. Ecosystem Components

• Advertisers and DSPs: Advertisers leverage DSPs for efficient ad inventory purchase and targeted audience reach.

• Publishers and SSPs: Publishers use SSPs to optimize ad space sales and maximize revenues.

• Ad Exchanges and Data Management: Ad Exchanges facilitate buying and selling, while DMPs provide audience insights.

• Ad Networks and Ad Servers: Ad Networks aggregate ad inventory, and Ad Servers manage ad delivery.

2. Revolutionizing the Advertising Industry

• Automation and Efficiency: Programmatic advertising automates ad buying, making the process faster and more efficient.

• Targeting and Personalization: Advertisers can target specific audiences with unprecedented precision.

• Data-Driven Decisions: Decisions are increasingly based on data, allowing for refined targeting strategies.

• Integration and Optimization: Programmatic advertising integrates multiple channels and enables continuous campaign optimization.

3. Digital Advertising Trends and Economic Factors

• Post-Pandemic Digital Surge: The pandemic led to a significant increase in digital advertising due to heightened online activity.

• Continued Growth Despite Moderation: Despite some moderation, digital advertising remains resilient, driven by ongoing economic growth.

• E-Commerce Expansion: The growth of e-commerce supports increased digital ad spend, with brands competing for online visibility.

4. Rise of CTV Advertising

• Personalized and Engaging Ads: CTV advertising offers targeted, engaging video ads.

• Shifting Consumer Preferences: The shift towards streaming platforms and AVOD services fuels the growth of CTV advertising.

5. Growth Projections for Programmatic Advertising

• US and Global Expansion: Programmatic advertising is projected to grow in the US and globally, driven by video content and CTV.

• Economic Indicators Supporting Growth: Positive economic indicators and e-commerce expansion suggest robust future growth for digital advertising.

Programmatic Advertising Ecosystem

The economic ecosystem of programmatic advertising is a dynamic and complex network that thrives on the interplay between technology and strategic market positioning. At its core, this ecosystem is designed to maximize efficiency and effectiveness in the digital advertising space, enabling activities that traditional methods could not achieve with the same level of precision or speed.

Advertisers are the catalysts of this ecosystem, initiating the demand for ad space with the goal of reaching potential customers. They leverage Demand-Side Platforms (DSPs), which offer a significant utility by allowing advertisers to manage multiple ad exchange accounts through a single interface. DSPs enable advertisers to purchase ad inventory efficiently, utilizing data to target audiences with precision and measure the impact of their campaigns in real-time. Without DSPs, advertisers would face a fragmented and cumbersome process, hampering their ability to respond swiftly to market changes.

Publishers, who own the platforms where ads are displayed, like websites or mobile apps, utilize Supply-Side Platforms (SSPs) to sell their ad space. SSPs optimize the sale of inventory, ensuring that publishers maximize their revenues. They provide the essential service of managing ad impressions to garner the highest possible rates and fill rates. Without SSPs, publishers would struggle to manually manage and optimize the sale of their digital ad spaces, leading to inefficiencies and lost revenue opportunities.

The Ad Exchanges act as the digital marketplaces where the buying and selling of ad inventories occur. They ensure liquidity in the market, maintaining a seamless flow of advertising opportunities and bids. This liquidity is vital for the real-time bidding (RTB) process, which would be unfeasible at such a scale without automated exchanges.

Data Management Platforms (DMPs) are the backbone of targeted advertising, analyzing vast amounts of data to inform purchasing decisions. They enable a level of audience segmentation that traditional advertising could never achieve, helping advertisers and publishers to understand their audience more deeply and engage them more effectively.

Ad Networks play a role akin to wholesalers in the traditional economy, aggregating ad inventory from various publishers to sell to advertisers. They simplify the process for advertisers who wish to buy space across a range of publishing platforms, providing reach and efficiency.

The unsung heroes of the ecosystem are the Ad Servers, the technologies that host and deliver ads to users. They enable the scheduling and targeting of ads, ensuring that the right ads reach the right users at the right times. Without ad servers, the delivery and management of online ads would be erratic and uncoordinated.

Finally, Ad Verification and Security Vendors ensure the integrity of programmatic advertising by validating the authenticity of ad placements and protecting against fraudulent activities. They provide the critical service of maintaining brand safety and ensuring that ads reach genuine audiences, which is a monumental task given the anonymity of the digital space.

Revolutionizing Advertising with Programmatic Techniques

Programmatic advertising has revolutionized the broader advertising industry by introducing automation and data-driven decision-making into the process of buying and selling ad space. Here is how it fits into and enhances the larger advertising landscape:

Automation: Programmatic advertising automates the ad buying process, using software to purchase digital advertising, as opposed to the traditional process that involved human negotiation and manual insertion orders. This automation makes the ad buying system more efficient and faster.

Real-Time Bidding (RTB): A significant part of programmatic advertising is RTB, which allows for the buying and selling of ads in real time. This means that advertisers can bid on ad space at the moment a user is viewing a webpage, allowing for the placement of ads that are more likely to be relevant to the viewer.

Targeting and Personalization: Programmatic technology enables advertisers to target audiences using a variety of metrics such as demographics, behavior, location, and even the time of day. This level of granularity was not possible with traditional advertising, which was more of a broad-stroke approach.

Efficiency and Cost-Effectiveness: With programmatic advertising, advertisers can use their budgets more efficiently. They can buy ad space based on the value it provides, which is often determined by the likelihood of the ad meeting its intended goal (like clicks, impressions, or conversions). This ensures that advertising budgets are not wasted on uninterested audiences.

Data-Driven Decisions: The use of DMPs in programmatic advertising means decisions are increasingly data-driven. Advertisers have access to more data than ever before, which can inform their strategies and help them to refine their targeting to reach the right people with the right message.

Scale and Reach: Programmatic advertising gives advertisers access to a global inventory across millions of websites, far beyond what traditional direct deals could achieve. This scale allows campaigns to reach broader audiences more easily.

Transparency and Control: Advertisers have greater transparency into where their ads are being placed and who is viewing them. They also have more control over their ad spend and can make adjustments to campaigns in real time based on performance data.

Integration of Multiple Channels: Programmatic allows advertisers to reach audiences across multiple channels and devices, including desktop, mobile, video, and social media, from a single platform. This integration ensures a cohesive advertising strategy that can adapt to consumer media consumption habits.

Optimization: Continuous optimization is a hallmark of programmatic advertising. Campaigns can be tweaked in real time for performance, ensuring that goals are met and budgets are used effectively.

Inventory Quality and Brand Safety: With advancements in programmatic technology, there are better controls in place to ensure the quality of inventory and protect brand safety. Advertisers can avoid placing ads on non-reputable sites or alongside inappropriate content.

By integrating these functionalities, programmatic advertising serves as the technological and strategic backbone of the modern advertising industry, driving innovation and ensuring that the industry keeps pace with the rapidly changing digital landscape. It complements traditional advertising channels by bringing added precision, efficiency, and effectiveness to ad campaigns.

Digital Advertising Surge and Post-Pandemic Moderation

The surge in digital advertising growth during the pandemic was a direct response to a confluence of factors: heightened online activity due to lockdowns, increased consumer spending power from economic stimuli, and a shift in lifestyles that favored digital consumption. Businesses capitalized on this by aggressively competing for consumer attention, particularly through digital channels like video streaming and Connected TV (CTV), which saw exponential growth. This increased demand for ad space led to a rise in CPM (cost per mille, or cost per thousand impressions), bolstering revenue throughout the digital advertising ecosystem.

As the initial pandemic conditions eased, a natural moderation in digital ad spend growth occurred, characterized by a leveling off from the previously high growth rates. This was partly due to base effects, as the exceptional growth during the pandemic set a high comparison benchmark, and partly due to economic caution. Despite concerns over the potential for a recession in 2022 and early 2023, which did lead to some conservatism in ad spend, the expected downturn did not materialize, thus the deceleration in ad spend was not as severe as some had anticipated.

The fundamental nature of advertising as a driving force in the economy came to the fore as businesses resumed advertising to vie for a share of the ongoing economic growth. This activity underscores the resilience and adaptability of the advertising sector. While there was a shift in the balance between service providers and goods retailers in their respective ad spends, overall investment in advertising increased once business confidence began to rebound. Contrary to some investors' expectations of a significant pullback in ad spend, the sector has proved more robust.

Currently, the advertising sector seems to be at a pivotal juncture, with underlying demand for advertising picking up again. This renewed vigor is likely driven by businesses recognizing that, irrespective of macroeconomic crosswinds, advertising remains an indispensable tool for market penetration, brand reinforcement, and sales growth. The 'fundamental law' of advertising as a necessary expenditure persists because it is an integral part of the commerce cycle, facilitating the connection between products and services and their potential consumers. Therefore, as consumer behavior continues to evolve and technology advances, the advertising industry, especially the digital segment, is expected to continue adapting and thriving.

Rise and Advantages of Connected TV (CTV) Advertising

Connected TV (CTV) advertising offers a multitude of benefits, chief among them being its sophisticated targeting capabilities. Unlike traditional TV advertising, which casts a wide net, CTV advertising can utilize viewer data to serve tailored ads to specific segments of the audience based on their viewing habits, interests, and demographics. This personalization ensures that the ads are more relevant to the viewer, potentially increasing engagement and conversion rates. Furthermore, as a video-based medium, CTV benefits from the high engagement rates associated with video content. Video ads are more likely to capture attention and can convey a brand's message more effectively than static ads, leveraging storytelling and emotional resonance.

The rise in CTV consumption can be attributed to the proliferation of streaming content and the increasing number of ad-supported viewing options. With more high-quality content available on various streaming platforms, consumers are increasingly turning to CTV as their primary mode of content consumption. Additionally, the growth of ad-supported video on demand (AVOD) services caters to consumers who prefer free or lower-cost subscriptions in exchange for viewing advertisements, broadening the audience for CTV advertising.

For digital advertising, the shift towards CTV represents a significant expansion of the ecosystem. CTV combines the broad reach and immersive experience of traditional television with the precision and analytical depth of digital advertising. As a result, advertisers can execute large-scale campaigns with measurable impact and granular control over who sees their ads and how they interact with them. As CTV viewership continues to climb, advertisers are likely to allocate more of their budgets to this channel, making it a pivotal element in the digital advertising mix.

Projected Growth in Programmatic Advertising

The forecasts by eMarketer and MAGNA suggest a robust and expanding programmatic advertising ecosystem, particularly in the United States and globally. The projected growth in US digital ad spend, despite a slight deceleration in 2023, indicates a strong recovery and upward trajectory into 2024 and 2025. The resilience of programmatic display ad spend, with a rebound from 6% growth in 2022 to a forecasted 9% in 2023, and further acceleration in the subsequent years, highlights the increasing reliance on and confidence in programmatic methods by advertisers.

The substantial growth rates forecasted for programmatic video spending, outpacing general digital ad spend, underscore the shifting preference towards video content — an area where programmatic advertising excels in targeting and engagement. The significant role of CTV in this growth narrative, with its exceptional year-on-year increases, reflects a broader consumer shift from linear TV to streaming platforms. This transition is not only reshaping viewing habits but also reallocating advertising budgets, with CTV becoming a key beneficiary of digital ad spend.

Globally, digital ad spend is expected to continue its steady climb, with programmatic display spending projected to outperform domestic growth. This global perspective indicates a widespread adoption of programmatic advertising techniques across different markets, suggesting that the infrastructure for programmatic advertising is becoming increasingly sophisticated and ubiquitous worldwide.

MAGNA's forecasts further reinforce the trend toward digital, with digital media owners seeing an upward revision in revenue forecasts, contrasting with the downgraded expectations for traditional media. This shift signifies a broader reallocation of advertising dollars from traditional formats to digital platforms, a trend that is expected to persist as digital advertising, particularly programmatic, proves to be more effective, measurable, and efficient.

Influence of Economic Indicators on Digital Ad Spend

Adobe’s projection of the e-commerce market growing by 50% over three years, coupled with eMarketer’s data showing e-commerce’s increasing share of total retail from 14% pre-pandemic to 19.5% in 2023, highlights the enduring shift in consumer purchasing behavior towards online platforms. This shift is not a temporary phenomenon but rather a structural change in the retail landscape, with expectations for e-commerce to account for 23% of retail sales by 2027.

This ongoing expansion in e-commerce is a tailwind for digital ad spend. As more retail transactions move online, retailers and brands will likely increase their investment in digital advertising to attract and retain customers. The continuous growth in e-commerce sales, as indicated by the Federal Reserve's data, suggests that businesses will maintain or even boost digital ad budgets to capitalize on the robust online retail environment.

The broader economic indicators, such as sustained job and wage growth, along with an increase in disposable income, provide consumers with the means to spend. This economic health drives consumer demand, which in turn fuels retail and e-commerce sales. As inflation moderates, the purchasing power of consumers is preserved or even enhanced, which can lead to more robust consumer spending and a healthy retail sector.

In such an environment, brands and retailers are incentivized to compete for consumer dollars, and one of the most effective ways to do so is through targeted digital advertising. Consequently, healthy economic indicators, coupled with the steady expansion of e-commerce, suggest that digital ad spend will remain robust as companies vie for visibility and sales in a burgeoning online marketplace. The interplay between e-commerce growth and economic health creates a virtuous cycle for digital advertising, where increased retail activity drives more digital ad spend, which in turn can stimulate further economic activity by driving consumer engagement and sales.

Forecast and Valuation

The Trade Desk's growth potential in the evolving digital advertising landscape is considerably undervalued by the market. Despite a growing focus on platform enhancements, CTV and retail media advancements, and the expansive programmatic advertising market, the stock does not fully reflect these promising developments. The introduction of Kokai technology marks a significant improvement in ad targeting efficiency, indicating a strategic shift in digital advertising. The Trade Desk's emphasis on UID2 positions it strongly for a post-cookie era.

The expansion in CTV advertising, likened to the automotive industry's shift to electric vehicles, and the integration of retail data into advertising strategies, demonstrate The Trade Desk's innovative response to changing market dynamics. As a leader in programmatic advertising, its substantial growth potential is yet to be fully recognized by the market.