The Trade Desk - What Does It Really Do?

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In 1963, when the Salad-Oil scandal caused American-Express stock to plummet from 70 USD to 35 USD, Warren Buffett invested heavily despite the risks.

Notably, at that time, American-Express had maintained a stable profit growth rate of about 10%/year for the entire previous decade. And even today, after more than 60 years, the expected growth rate is still projected to remain stable at 10-15%/year.

The core reason comes from American-Express's unique business model: owning a “toll booth” in an ever-expanding market — the payment transaction market.

The payment market continuously grows thanks to 3 main drivers: inflation, population growth, and improved labor productivity.

• When population increases, transaction volume increases accordingly; productivity improves, people spend more

• Inflation makes the value of each transaction larger.

• Whatever the reason, American-Express steadily benefits, and more importantly, customers never complain about them when commodity prices rise.

It is precisely the power from these "toll booths" that has driven investors to seek similar businesses in other potential markets, such as the advertising market.

The advertising industry always expands as advertising costs are proportional to sales costs globally. That's also why giants like Meta or Google have grown steadily over many years. However, neither is a true "toll booth" because they directly own the media platforms.

In the advertising market, which company is the true “toll booth”?

The answer is The Trade Desk ($TTD). With an average revenue growth rate of 30%/year over the past 5 years, no debt, net cash over 1 billion USD, and gross margin up to 80%, The Trade Desk is truly a gem in the digital advertising industry.

In this week's article, Viet Hustler will explore deeper with readers into the strengths, prospects, and superior business model of The Trade Desk.

1. The Trade Desk's Formation Story

2. The Trade Desk's Business Model

3. Competitive Advantage Analysis

4. Financial Health Analysis

5. Future Prospects

6. Preliminary Valuation

7. Risks Investors Should Note

I. The Trade Desk's Formation Story

The way people receive information and content has changed very quickly over the past 30 years, which can be divided into 3 distinct stages:

• Before the 2000s: Information was fragmented.

  • Readers wanting to follow local and national news had to buy many different types of newspapers.

  • Advertising thus became very fragmented, making it difficult and costly for businesses to run campaigns across multiple channels.

• From the 2000s to early 2020s: Content gradually centralized thanks to the Internet, forming large platforms like Google, Facebook, Instagram.

  • These platforms attract most user traffic, making content and advertising distribution easy and efficient.

• From after 2020: The re-fragmentation trend reappears as more and more content creators want to escape dependence on large platforms (Walled gardens - Closed platforms like Google, Facebook, Instagram, etc..)

  • The concept of "Open Internet" – Open Internet was born, where content is freely distributed and not controlled by the “big guys”.

In the period from 2014 to 2023, the proportion of user time spent on closed platforms (Walled gardens) continuously decreased from 62% to 39%.

Conversely, open internet platforms (Open internet) increasingly attract more users, increasing from 38% to 61%.

The biggest problem with advertising on the Open Internet is the extremely high fragmentation. Businesses still need an intermediary to connect buy and sell advertising demand, but cannot rely on closed platforms like Google or Meta.

The solution to this problem is Ad Exchanges (ad exchanges):

• Ad Exchanges operate like a shopping mall, directly connecting businesses (buyers) and content publishers (sellers).

• Instead of contacting each unit individually, businesses just need to log into the exchange, set up the campaign once, and the ads will be distributed simultaneously to thousands of different websites.

  • Publishers also automatically receive a deserved share of revenue from the ads.

This idea is revolutionary, and Jeff Green was one of the first to recognize the huge opportunity in it:

• In 2003, Jeff Green founded one of the world's first Ad Exchanges named AdECN.

• In 2007, Jeff sold AdECN to Microsoft and continued in the role of Chief Operating Officer (COO). During his work, he noticed a major change in the online advertising industry: more and more ad exchanges appeared, creating overlapping competition and inefficient management.

• To solve this problem, a new type of platform emerged: Supply Side Platforms (SSPs). SSPs help publishers manage ad space, set floor prices, and select the highest bid prices from various ad exchanges.

However, Jeff Green quickly discovered the fatal weakness in this new system: SSPs focus on the interests of the sellers (publishers), not the buyers (businesses). Meanwhile, only businesses are the ones actually paying for the entire advertising ecosystem.

Recognizing the big opportunity on the buyer side, in 2009 Jeff Green founded The Trade Desk (TTD), a Demand Side Platform (DSP):

• DSP is a platform that directly represents businesses, connecting to multiple Ad Exchanges and SSPs at the same time to select the best ad inventory.

• The goal of DSP is to optimize businesses' budget utilization through data analysis and smart bidding strategies.

• The more efficiency it creates, the more businesses trust and use the DSP, thereby increasing revenue for both the platform and independent publishers.

It is this mindset of putting business interests at the center that has transformed The Trade Desk into one of the fastest-growing and most efficient digital advertising companies today, pioneering the promotion of open Internet advertising.

Jeff Green - the person behind The Trade Desk's success

Jeff Green, founder and CEO of The Trade Desk since 2009, is the key figure behind the company's outstanding success. He is a pioneer in the online advertising field, with a vision focused on transparency and innovating the entire digital advertising ecosystem.

Before founding The Trade Desk, in 2003, Jeff Green co-founded AdECN - which was later acquired by Microsoft in 2007 for an estimated nearly 100 million USD.

In 2009, he and his former Microsoft colleague, Dave Pickles, founded The Trade Desk, leveraging their experience and deep understanding of the advertising market.

• Proven management ability:

  • Under Jeff Green's leadership, The Trade Desk's revenue grew strongly from 661 million USD (2019) to an expected 2.1 billion USD (2024), equivalent to a CAGR of 22%/year.

  • The management always sets reasonable financial targets and exceeds them excellently, reflecting prudence, transparency, and reliability.

    • 2022: TTD set a revenue growth target of 20-22% and achieved 21%

    • 2023: TTD projected 18-20% and achieved 19%

    • 2024, TTD's target is 17-19% and achieved 18%.

• Commitment and alignment with shareholders:

  • Jeff Green currently owns approximately 42.4 million shares, accounting for 8.5% of outstanding shares, demonstrating long-term commitment

Jeff Green built The Trade Desk with a clear goal not to sell it off, but to comprehensively improve the online advertising ecosystem, creating a "win-win-win" model that brings sustainable benefits to businesses, content publishers, and consumers alike.

II. The Trade Desk's Business Model

The Trade Desk operates on a programmatic advertising model, helping businesses buy and distribute ads efficiently across the entire "open internet".

The entire process takes place in just a few milliseconds, specifically as follows:

Step 1: Set up advertising campaign

• Businesses set up campaigns directly on The Trade Desk's DSP platform, clearly defining budget, implementation time, target audience, ad content, bidding strategy, and performance metrics to track.

• The Trade Desk's algorithms will automatically search for suitable ad impression opportunities across the internet.

Step 2: Trigger ad opportunity

• A user accesses a website or app that monetizes through advertising.

• When the page starts loading, the publisher's server system recognizes that there is an ad slot that needs to be displayed.

Step 3: Process from the publisher side (Publisher-side)

• The publisher's ad server sends information to the SSP (Supply Side Platform) platform they are connected to.

• The sent information includes: ad placement size, website context, minimum price the publisher accepts (floor price), and some limited user information.

Step 4: Connect to DSP (The Trade Desk)

• If the SSP is directly linked to The Trade Desk (common with large SSPs), the bid request is sent directly to the The Trade Desk platform.

• If not directly linked, the SSP sends the request to ad exchanges (Ad Exchanges), then these exchanges send the bidding information to DSPs, including The Trade Desk.

Step 5: The Trade Desk makes bidding decision

• The Trade Desk receives the bid request along with relevant data about the user audience.

• If the opportunity matches the ad campaign criteria, The Trade Desk automatically sends the bid price.

Step 6: Auction

• SSP or Ad Exchange hosts the auction session.

• The highest bid usually wins, however, ad quality can also affect the outcome.

Step 7: Display ad

• If The Trade Desk wins, the system immediately notifies this platform.

• The Trade Desk's ad server sends the display ad to the user's browser or app.

Step 8: Track and optimize performance

• The Trade Desk closely tracks impressions, clicks, and conversions.

• The data is sent back to continuously optimize bidding strategies and improve effectiveness for subsequent campaigns.

This process happens extremely fast, in just a few milliseconds from when the user starts loading the page, the ad is already displayed.

The Trade Desk makes money by charging fees based on customers' total ad spend. When ad prices rise (due to sellers increasing prices), the company's revenue also increases accordingly because the commission fees collected are larger. The more ads traded, the more The Trade Desk benefits.

Where are The Trade Desk's ads displayed?

In fact, everywhere, except for closed platforms (Walled gardens) like Google or Meta. This is multi-channel ad buying across various different platforms:

• Online TV services (Connected TV) like Netflix, Hulu...

• Large content websites like Wall Street Journal, CBS...

• Digital audio platforms like Spotify, mobile apps...

• And many other websites and platforms in the "open internet".

This diverse and widespread accessibility is the superior strength of programmatic advertising on the open internet—and The Trade Desk is the "brain" behind the entire process, dominating and increasingly asserting its leading position.

III. Competitive Advantage Analysis

1. Programmatic Advertising Market Landscape

The programmatic advertising market is a fiercely competitive arena, where the strongest DSP (Demand-Side Platform) platforms compete intensely for every percentage of market share.

The main competitors of The Trade Desk (TTD) include:

• Google DV360:

  • Holding 41% DSP market share, maximizing exclusive advantages from YouTube, Google Maps, and AI technology strength.

  • However, Google faces major transparency issues due to controlling both selling and buying (conflict of interest).

• Amazon DSP:

  • Leveraging massive data from over 300 million customers, Prime Video, and Fire TV, dominating e-commerce related advertising.

  • Disadvantage: lack of flexibility and difficult to expand outside the Amazon ecosystem.

• Adobe Advertising Cloud and smaller DSPs (Adform, Xandr):

  • Adobe mainly serves large enterprises with cross-channel solutions, but less focused on programmatic advertising.

  • Smaller DSPs only occupy niche segments, hard to compete directly with the big 3 (Google, Amazon, TTD).

In this context, The Trade Desk emerges as the largest independent DSP, with the fourth largest global market share in 2022, after Google, Meta, and Amazon.

• Notably, TTD has quadrupled its market share over the last 5 years (2017–2022).

2. The Trade Desk's Superior Competitive Advantages

Moat #1: Multi-sided platform model (multi-sided platform)

The Trade Desk operates on a multi-dimensional platform structure, creating a strong network effect:

• Directly connects advertisers (buyers) and content publishers (sellers), creating two-way value.

• The larger the platform, the more it attracts new partners, from major publishers like Netflix, Hulu, Spotify, CBS, to the world's top advertisers.

• Creates a positive feedback loop: more ads, more data, leading to better optimization and higher profits.

Moat #2: Independence, transparency – "No conflict of interest"

The biggest difference between The Trade Desk and Google or Amazon is complete independence:

• TTD does not own ads, only focuses on optimizing benefits for businesses.

• This is a big advantage for businesses wanting to escape the pressure and dependence on "walled gardens" like Google or Meta, which tightly control both supply and demand sides.

Moat #3: Superior technology – Unified ID 2.0

As privacy regulations increasingly tighten the use of third-party cookies for user tracking, The Trade Desk proactively addressed this issue early with Unified ID 2.0:

• Unified ID 2.0 uses hashed email or phone number to identify users securely and privately, without relying on cookies.

• This technology allows TTD to maintain accurate targeting and ad measurement capabilities, while other competitors gradually lose customer data tracking abilities.

• TTD's customers can easily comply with new privacy regulations, creating high switching barriers for existing customers.

Moat #4: Effective tracking capabilities and proprietary data

The Trade Desk continuously collects vast amounts of data from countless different ad channels, building a user database that far surpasses any other independent DSP:

• Rich data helps TTD achieve superior ad performance optimization, ensuring higher ROI.

• Data analysis and accurate tracking capabilities are the reason TTD retains customers effectively. Customer retention rate up to 95% is the clearest evidence.

IV. Financial Health Analysis

1. Outstanding business performance

The Trade Desk is one of the few businesses with stable and impressive top-tier growth rates in the digital advertising market.

• The Trade Desk's revenue has grown steadily at a CAGR of ~30%/year over the past 5 years.

Particularly impressive: since IPO in 2016 to now (8 years), the company has only missed revenue targets once. This is a rare achievement, demonstrating very tight and reliable business management capabilities.

• Although net profit margins have not kept pace with revenue growth as the company continues to heavily reinvest in technology and expand market share in the digital advertising market – this is a reasonable strategy to capitalize on long-term growth opportunities.

2. Financial position: "Solid as a rock"

The Trade Desk's financial foundation is extremely solid:

• The company holds over $1 billion in net cash and total equity of up to $2.9 billion.

• This means The Trade Desk is fully capable of:

  • Withstanding any financial crisis.

  • Continuing heavy reinvestment to expand and strengthen competitive position.

3. Profitability and capital allocation efficiency

Gross margin and net profit

• The Trade Desk's gross margin has consistently been above 80% - a sign that the company has not faced excessive pricing pressure

• Net profit margin has trended down from 30% to about 16% over the past 5 years as the business continuously increases investment in technological innovation, data, and user identification platforms to maintain market leadership.

Return on Invested Capital (ROIC)

• An important question when a business invests heavily is: Are these investments delivering high returns?

• Although ROIC dropped sharply from 38% (2020) to about 5% in 2022 due to heavy investment increases, it quickly recovered thereafter and reached over 27% in 2025 – double the average ROIC (~12%) of US companies.

• Proving that The Trade Desk's major investments in technology and platforms are yielding very positive and superior results.

→ Overall, TTD is a company with a strong financial foundation, safe financial condition, high growth potential, and especially capital investment efficiency far exceeding the industry average. The company is currently sacrificing short-term profits to invest in long-term growth—this is nothing to worry about, as the effectiveness of these investments will soon positively reflect in future business results.

V. Future Prospects of The Trade Desk

The Trade Desk is strategically positioned at the center of the programmatic advertising market – a fast-growing, massive, high-tech market.

With an operating model like a “stock exchange” for digital advertising, the company not only benefits from the shift toward digital advertising but also reshapes how brands connect with consumers globally.

The entire digital advertising market is undergoing a strong expansion cycle thanks to 3 main drivers:

Pillar #1: Open internet is growing faster than closed platforms

• After peaking in 2021, the digital advertising market share of “walled gardens” like Google, Meta began to decline slightly.

• Content creators and publishers are gradually abandoning dependence on these platforms, seeking to own and monetize their own audiences.

• The Trade Desk, with the advantage of independent operation and not owning ad inventory, is the ideal bridge between businesses and the rapidly developing open internet.

Market growth forecast:

• Global advertising spend is expected to reach 700 billion USD by 2027.

• Programmatic advertising is expected to grow at a CAGR of 12% through 2030.

• Long-term total addressable market (TAM) is estimated to approach the threshold 1,000 billion USD.

Pillar #2: CTV (Connected TV) – the biggest opportunity in digital advertising

• Connected TV advertising is the fastest-growing segment in the digital advertising industry. Users are still gradually shifting from cable TV to CTV due to convenience and cost flexibility.

• Seen as the new "gold mine" as streaming platforms are forced to implement ad-supported models to boost profitability.

• Users are willing to accept watching ads in exchange for lower subscription fees.

• The Trade Desk is currently the DSP platform with the largest CTV reach, allowing advertisers to access viewers on platforms like Netflix, Disney, NBCUniversal, BBC, Roku...

Pillar #3: Plenty of room to expand profit margins

• Although gross margins are already high (over 80%), TTD's net margins remain low compared to giants like Meta.

• The reason is that the company is still in a growth phase, heavily investing in R&D and operating expenses (SG&A).

• When scale reaches optimal levels and costs stabilize more, net profit margins could exceed 30%, opening up greater profit safety margins for investors.

VI. Preliminary Valuation

Trade Desk has all the conditions for a reliable valuation:

• Low cyclicality.

• Stable growth.

• High return on equity.

• Strong market position.

Revenue and profit estimates

• Revenue: In 2024, The Trade Desk is estimated to achieve revenue of approximately 2.4 billion USD.

  • With revenue growing at 30% CAGR over the past 4 years, conservatively assume this growth rate will decline to 20% over the next 5 years.

→ Projected revenue in 2030: 6 billion USD

• Net profit margin: In 2020, TTD's net margin reached 29%. With an asset-light model and expanding market position, net margins can fully stabilize at 30% in the long term – comparable to advertising companies like Meta (Meta's net margin is 35%)

→ Net profit in 2030: 1.8 billion USD

Valuation and growth potential

• TTD's current Forward P/E is 31.13

• Conservatively apply valuation multiple P/E = 25 – suitable for a high-growth company with industry-leading position and long-term competitive advantages:

→ Projected market cap in 2030: 45 billion USD

→ Using a 10% annual discount rate, the value of TTD is ~28 billion USD, quite consistent with the current market cap of 27.71 billion USD (03/31/2025).

→ The Trade Desk is being fairly valued by the market, with an expected return of about 10–11%/year, not accounting for potential margin expansion or faster-than-expected growth.

Long-term perspective

What is noteworthy is not just the 10–11%/year figure, but the depth of the growth “runway” that The Trade Desk possesses:

• The company is currently only 1/40 the revenue scale of Meta, but operates in a market growing steadily at ~12%/year, lasting for many decades to come.

• Each year, as digital advertising expands in both volume and value, The Trade Desk – in its role as a "toll booth" – will continue to benefit doubly.

VII. Risks that investors need to pay attention to

Although The Trade Desk possesses many sustainable competitive advantages, no “economic moat” is impenetrable. The business model based on technology platform and high scalability also harbors risks that could affect growth or investor sentiment.

1. Strategic and operational risks

• Dependence on key personnel: Jeff Green – founder and CEO – is not only the strategic soul but also the cultural leadership icon of The Trade Desk. If he steps down without a worthy successor, the company could fall into a leadership vacuum, affecting long-term growth momentum.

• Stock-based compensation costs and risk of talent loss: More than 20% of current revenue is allocated to stock compensation for employees (SBC).

  • If the stock price declines or stagnates for a long time, the incentive to retain talented personnel – especially in technology – will weaken, potentially causing them to “jump ship” to competitors like Google or Amazon.

2. Risks from legal environment and competition

• Legal risks beyond privacy: In addition to GDPR and CCPA, governments may increase antitrust scrutiny on large DSP platforms like The Trade Desk.

  • If tightened on platform fees, data disclosure requirements, or limits on real-time bidding, TTD's business model may need significant adjustments, affecting margins.

• Customer concentration risk: Although the company has superior customer retention (>95%), if some large customers (e.g., FMCG conglomerates like P&G, Unilever) withdraw or switch to competitors, revenue could be significantly impacted.

3. Macro risks and uncertain events

• Macroeconomic shocks (Macro shocks): A trade war, inflation shock, or global economic recession could cause brands to sharply cut advertising budgets – directly impacting The Trade Desk's “fee per bid” model.

• Cybersecurity risk (Cybersecurity): A data leak or platform hack could collapse trust from both advertisers and publishers – who rely on TTD to handle user data.

• Service fee backlash (Fee backlash): If customers find TTD's 10–20% fees too high and pressure for price reductions, margins could be significantly compressed.

Conclusion

From the American Express story in 1963, investors have learned that: in ever-expanding markets, owning an efficient "toll booth" is the best way to reap long-term growth. Today, that model is being replicated in digital advertising – with The Trade Desk (TTD) as a prime example.

Without owning media platforms like Google or Meta, The Trade Desk chooses a neutral position, connecting advertisers to the open internet. Thanks to its asset-light platform model, optimized technology, proprietary data, and high scalability, TTD is becoming the “brain” behind billions of ad impressions daily, across thousands of large and small platforms.

Although down 60% from the peak, based on the numbers, TTD is still at fair value rather than undervalued. TTD's bull case mainly comes from the potential for market expansion over time, which is not certain at all.

Overall, in unstable market conditions, we should seek stocks below fair value, so holding TTD at the current $61 price is okay, but not great.