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How Does The Trade Desk Make Money?

The Trade Desk (NASDAQ: TTD) specializes in programmatic digital advertising. In this Backstage Pass video, which was recorded on Oct. 13, 2021, Motley Fool contributor Trevor Jennewine explains how the company makes money, while giving on overview of its growth in recent years.

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Trevor Jennewine: Just to give a high-level overview of The Trade Desk, it's an ad tech company, and its programmatic tools help ad buyers create, measure, and optimize targeted ad campaigns. And that's across all these digital channels like desktop, mobile devices, connected TV. And before jumping in, I am going to put this in perspective.

Traditional media buying, even for digital ads, involves manual negotiations between ad buyers and publishers. This process -- obviously it takes time, it's costly, and it's also inefficient because advertisers lose the ability to optimize campaigns in real time. Data can only be collected after the campaign is finished, and so you can't really make those tweaks mid-campaign that you can with programmatic tools.

The programmatic tools that The Trade Desk offers, essentially allow for better targeting than the traditional solutions. This is just -- the slide right here just shows the growth of the Trade Desk business over time, and we'll get into that a little bit more deeply. This is The Trade Desk by the numbers. On the left-hand side, you can see revenue growth over time, and on the other right-hand side, you can see the gross spend.

This is important: The Trade Desk primarily generates revenue by charging their clients, which are ad buyers, a percentage of gross spend on the platform. Typically, you would expect to see these metrics moving at relatively the same rate, and that's what's happened. Sometimes gross spend is growing a little bit more quickly; other times revenue's growing a little bit more quickly.

There was a deceleration last year. You can see revenue really fell off, at 26% growth, and that has a lot to do with the pandemic. A lot of companies cut back on their ad budgets, and so that number fell. But The Trade Desk has reaccelerated revenue growth this year. In the most recent quarter, they actually grew revenue by triple-digits, and through the first six months of the year, I believe they've grown over about 67%. A strong acceleration in there.

Trevor Jennewine owns shares of The Trade Desk. The Motley Fool owns shares of and recommends The Trade Desk. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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