The Trade Desk IPO: Great For Ad Tech, But No Panacea For All Firms With IPO Dreams

youssefsqualiYoussef Squali will speak at AdExchanger's PROGRAMMATIC I/O Conference in New York on October 27.

All eyes are on The Trade Desk as a much hoped-for bellwether of the revivification of ad tech IPOs. There’s a lot of goodwill coming from all directions, even from competitors.

A rising tide will raise all ships. That’s the hope and assumption, at least.

But whether The Trade Desk can change the public market perception of ad tech – or whether it’s an exception – is still an open question.

“It’s too early to tell because ultimately whether The Trade Desk succeeds or not is a matter of dollars and cents,” said Youssef Squali, managing director and global head of internet and media equity research at Cantor Fitzgerald. “They need to continue to impress the Street.”

Right now, The Trade Desk is doing a good job. The company reached profitability in 2013 and grew north of 100% last year in an industry that’s growing at around 20% on average. Its margin and revenue are healthy.

“It’s all very impressive, and management explains it by the fact they they’re different because of their focus on agencies and their transparency, and it’s Kool-Aid we are all happy to drink,” Squali said. “But at the same time, we need to remember when Rubicon went public. People were talking about their scale, the liquidity they provided to the market – and it worked pretty well until the numbers started going south, the header bidding issue came about and the stock started not trading very well.”

The same ultimately proved true for TubeMogul, YuMe and most publicly traded ad tech companies other than Criteo, he said.

“The Street always gives a honeymoon period to all companies to prove that they can do as public companies what they promised or were able to do as private companies,” Squali said. “They have two to three quarters to show they have the chops to be public. I would say Criteo has done a good job of that, but they’re the only one, really, that’s been public for more than two years and continued to grow at or above the industry rate.”

Although the jury is still out on how The Trade Desk will perform in the long term, people are very willing to give them the benefit of the doubt, Squali said.

“Investors are rooting for them,” Squali said, noting that the number of tech IPOs this year sunk from an average of around 150 in previous years to just 14 this year to date, and only seven or eight of those were internet-related.

“We want IPOs to work because they bring others into the market, and if The Trade Desk is successful others will follow, like AppNexus next and then maybe Moat and Videology,” he said. “But history has proven that more often than not … they’re not successful, especially if you look at the dozen IPOs in the ad tech space that have happened in the last couple of years.”

As successful as The Trade Desk has the potential to be, “these are not stocks that you buy and forget about,” Squali said.

“You don’t buy ad tech stocks for your kids’ college fund like you do with Google or Facebook or Amazon,” he added. “These companies are highly volatile in a crazy complicated environment, and that environment needs to be judged quarter by quarter.

 

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