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LoganRegistered BoarderLoganRegistered Boarder
The Trade Desk Stock Tripled Last Year. Is It Still a Buy?
2020 was a phenomenal year for advertising technology stocks. The Trade Desk (NASDAQ:TTD), the leading demand-side platform (DSP), racked up a gain of 208%, as the company wowed investors with its ability to deliver strong growth even in one of the worst advertising environments in memory.
2021 looks set to be one of the best years for the business. Here’s why.
The economic reopening
In all likelihood, the coronavirus pandemic will reach some sort of end this year as the vaccine rollout continues, and that means the economy will normalize. The economic reopening is likely to unleash a wave of pent-up demand in areas like travel and hospitality, restaurants, and entertainment that have been affected by the social distancing requirements during the global health crisis.
For platforms like The Trade Desk, that’s likely to mean a surge in ad spending from those affected industries, as well as a desire to better target customers so these cash-strapped businesses can maximize their return on investment during a crucial time.
The Connected TV revolution
The brightest opportunity in ad tech today is Connected TV (CTV), or ad-driven streaming television. CTV appears to be at a turning point right now, poised to disrupt linear TV, which accounts for about a quarter of the U.S. ad market. That presents a massive opportunity for The Trade Desk and its peers.
Streaming consumption has surged during the pandemic, with significant growth at platforms like Hulu, YouTube TV, and Sling TV, as well as new ad-driven services like Peacock and Discovery+ that have also jumped into the fray. Meanwhile, cord-cutting appears to be accelerating, with traditional pay-TV services losing more than 1 million subscribers in the most recent quarter, and eMarketer estimates that cable TV subscriptions declined 7.5% in 2020.
LoganRegistered BoarderThanks @Rathi_b for your reply and sharing your thoughts with us.
In the November conference call he said the loc is for sorting out all the issues and not necessarily for growth- I think he meant to close off Daum issue. He also talked about bringing in stable investors and it was a personal endeavour of his and he had made a good progress on that.
(Maybe get the price to 5PE and then stable investors start coming in and he can’t say this in public?)
Also in the September call, if you remember, he gave a speech at the end about where he thinks the industry is going and he was very confident that the company has a great future and he also mentioned that they have great plans for the future (didn’t say what those plans are).
Don’t know what to take out from these but maybe after many years (2016) they are finally looking at growth again. The industry is changing so much and if he takes good decisions then it’ll benefit us. Whatever he does, he should not keep investors in the dark.
LoganRegistered Boarder@Rathi_b, please don’t mind me asking this – why do you think the LOC is getting delayed?
We were hoping the company would get the first tranche by last quarter (Oct-Dec) but still there’s no update on that. Since they are getting cash by issuing warrants, do you think they’d still be interested in LOC?
LoganRegistered BoarderOne thing I’ve noticed is that people were frustrated with BCG for not closing off Axis issue and that may have led many people (maybe not the g gang) to exit or trim down their holdings. Except for this recent rally, the price didn’t move for many months and all the other tech companies’ shares were making all time highs and this led people to look at other companies.
Many will think why should I hold this laggard when I can find many other opportunities.
Also the g gang is not doing their usual frequent trades like they did in the past – maybe for the last 3 months or more. They’ve stopped it in BCG, Subex, Moldtek and Intense Technologies.
4+LoganRegistered BoarderEverything depends on 2 things. Execution from the company’s side and perception/sentiment from the market side. If the company takes good decisions then it doesn’t matter if retail investors hold more shares.
When Tanla was trading below 10-20, it had more than 65k retail shareholders (share capital up to Rs. 1 lakh) and they held 45% of the company. Tanla also issued warrants etc but they were mostly to promoters and they didn’t dilute like how BCG is diluting.
Recently, we saw how the price went up from 4.7 to 9 even in spite of the issuance of warrants. This shows that the market doesn’t care about dilution and all it cares about is actions from the company’s side. The market just wants the company to get past all the issues. All these years the company was struggling for value recognition but that is changing now, most of the market participants understand BCG’s value thanks to 2 things –
1. Affle coming to the market.
2. The COVID-19 pandemic which made people understand the importance of digital sector especially new age technology.Though I don’t give much importance to things like Axis and Daum, I understand how much impact these have on the sentiment and the valuation of the company. Nobody likes to come on board if a company has pending issues. Would anyone agree to live in a rented house if the owner/house had any litigation? Here also it’s the same. Good thing is that magnitude of the issues is not as big as how people are thinking about them.
ICICI Direct wrote this about Affle – We believe the rally in Affle is just tip of the iceberg and can see sustained rally for many years. People are seeing Affle as a new age company but when they see BCG they see only India debt, pledged shares, Lycos-Daum etc.
There should be a shift in how people see the company -when they think of BCG people should start seeing more of Brightcom and less of Lycos. That is when BCG will become famous. ICICI Direct and others won’t look at BCG now because of the market cap and low PE multiple but they’ll praise the same company when it reaches certain valuation.
LoganRegistered Boarder@jmathew, Affle’s revenue is not 200crs, for FY20 it was 340crs and this year it may make more than 400 or 450crs.
3+LoganRegistered BoarderContinued…
That doesn’t mean profits are useless – in fact profits are very important for many things. It is because of profits that BCG didn’t borrow external money for doing normal business. Without profits BCG’s business wouldn’t have sustained and we’d have seen fall in revenues and profits. It is because of profits (converted to cash) that BCG could pay off the loans (more than 250crs) without borrowing – All the loans were paid by using it’s own money.
Profits are very important for sustaining the business but you need cash/liquidity for growth or to pay off entire loan amount in one go or to pay for settlement with Daum in one go.
LoganRegistered BoarderSimple way to make people understand the difference between profits and cash flows.
If any genius starts doubting the profits of BCG then please ask him/her this simple question-
You have Rs.100 with you and you decide to buy a share of a company trading at Rs.100 per share. After a year that share price goes to Rs.150. You don’t sell the shares and decide to keep it. Now the profit is Rs.50 but how much cash you have? Zero right? Does that mean your profits are fake?
You need to pay loans of Rs.10, how will you do it-you don’t have any cash. You have Rs.50 profit but why can’t you pay just Rs.10?
The only way to pay the loans is if you sell the share. Your profits will be realised only if you sell the share.
In businesses also, there’ll be profits but not all of that will be in cash. The above example is very very simple but as we know doing business is complex and involves many parties. Companies buy many things on credit, for some they pay instantly which impacts the cash flows.
With BCG, although it’s making profits, the company is not getting the cash from clients whenever it wants. Some profits are stuck in receivables, some are reinvested back into the business. If you want to continue business with a client then you have to agree to their demands and you can’t demand them to pay cash sooner. If you do that then you’ll end up losing that account.
LoganRegistered Boarder@odysee, I don’t know about that particular index but in other indexes (indices), they see many factors like market cap, price of the stock (they’ll try to exclude stocks trading below 10), growth of the business, future aspects etc.
Recently in the Dow Jones index, giants like Exxon Mobil (before that GE) were replaced by modern companies like Salesforce.
With BCG, the good thing is that it’s in a growing industry. All the traditional advertising is shifting to programmatic. The market is very huge – global ad spend will be close to $700B in 2021 of which more than half will be digital according to eMarketer.
This doesn’t mean BCG will be recognised just because its in that industry, it all depends on execution and if the CEO takes good decisions then we can expect a turnaround story like Tanla. If the market cap reaches a certain level then many parties will be interested. Most of the fund houses look for stability so they try to avoid small caps.
LoganRegistered BoarderLong term loans and advances: Advances to collocation centres, service providers such as algorithm developers.
Short term loans and advances: Advances to publishers, brand development in geographies, and new market development.
Other current assets: Investments in products, databases, internal productivity tools.
Loans and advances are given to publishers and receivables should be collected from the advertisers. The loans and advances are huge but that’s what BCG has to do to get good publishers, media space etc. If they don’t pay publishers on time then those publishers will go with other companies who will pay sooner. Also, sometimes you’ve to pay more in advance to get priority. The loans and advances are more but payables are less which shows that they don’t owe much to publishers which is a good sign but that impacts cash flows/liquidity. If you check TTD and Magnite Inc, both have huge payables and receivables (more than double the revenues). Since they are not paying like BCG does, they have more liquidity i.e. they’ll have more cash on hand which they can use for growth etc.
Getting the Line of Credit (LOC) should allay concerns on receivables because the lenders will go through everything before giving the LOC. One more good thing is that BCG paid 190crs tax amount in 2019-20 which is not small. That’s more than half the revenue of Affle.
LoganRegistered Boarder@vgsatwork, the industry that BCG is in is still growing, it’s not an old industry to give companies P/E of 5 or P/S of 1.
When Magnite Inc was trading at 4 times revenue (P/S-4), Motley Fool website called it undervalued. Magnite has losses but it’s revenues are growing. Only thing that’s not working for BCG recently is that the growth rates are low but if you see the growth rates between 2010-16, they were very good and the margins are also better than many other companies. So BCG should get at least 3-5PS or 10-15PE. If the growth rates are higher in the future then BCG should get higher PE.
If sold, OMS alone will get you close to 5000crs (P/E-20 or P/S-5).
LoganRegistered Boarder@Rathi_b, thanks for your reply. Hope we’ll see actions soon. This is a very good time for tech company stocks, if the CEO takes good decisions then surely the market will reward the company.
LoganRegistered BoarderLoganRegistered BoarderThanks @Rathi_b and team for your efforts. We all are eagerly waiting for your updates.
LoganRegistered Boarder@Rathi_b, please ask him about the lack of details about few items in the balance sheet like other assets, other receivables, loans and advances etc. In the conference call he told us that complete details of all these items would be mentioned in the annual report but he ignored it.
Only old investors know about these items and new investors and analysts will always read annual reports so it’s always good to mention complete details in the annual report or make regular presentations and update the investors.
Also ask him why the company still hasn’t improved in communications with the investors. They won’t even reply to our mails.
LoganRegistered BoarderLooking for the Next Trade Desk? This Under-the-Radar Small-Cap Stock Could Be It
All the adtech stocks are gaining attention except BCG. The penny price of the stock is what’s making it not popular. The management’s focus should be on that (which even the CEO talked about).
LoganRegistered BoarderEither it (the issuance of warrants) must be very good or it will be very stupid. The CEO has chosen to do it just before the AGM which means more scrutiny but without knowing why these warrants are issued how can we vote to approve it? The management team, the board lack basic common sense.
For many years the company failed to gain value recognition but now thanks to interest in new age companies, material developments (and also because of Affle listing) there is value recognition but value realization hasn’t yet happened because of the pending issues. When we were close to it, Axis case happened and now when we thought we would get past all the issues (with the help of LOC), we have to worry about the dilution of shares. Though that dilution may provide the company with capital, it is really bad to dilute the shares by this much when the price is trading at lower prices.
LoganRegistered Boarder@Raj, we have proof that a company which is controlled by someone who is allotted the warrants is trading shares intra-day. This is not a good sign for stability of the share prices, he can’t ignore that.
We asked about G group and Oak but he didn’t answer because they were third parties but this person/company is directly involved.
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