Equities

Trade Desk Up 5%, Eyes $500M Boost from Netflix Ads

Netflix's ad strategy boosts The Trade Desk and highlights ExlService's AI potential, with analysts projecting significant revenue growth.

By Alex P. Chase

5/16, 11:16 EDT
Dell Technologies Inc.
ExlService Holdings, Inc.
Intel Corporation
Netflix, Inc.
NVIDIA Corporation
Palo Alto Networks, Inc.
The Trade Desk, Inc.
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Key Takeaway

  • The Trade Desk benefits from Netflix's ad strategy, with a 5% stock rise and a potential $500 million increase in 2025 gross billings.
  • ExlService Holdings, highlighted by Citi for AI opportunities, sees a 22% price target upside with significant growth in its AI-led business.
  • Analyst optimism extends across tech stocks like Nvidia and Netflix, reflecting growth opportunities and strategic market positions.

Netflix's Advertising Strategy Shift

Netflix has announced plans to launch its own advertising platform, partnering with The Trade Desk and Magnite as it aims to expand its ad-tier to 40 million monthly subscribers globally. This move is seen as a significant step for Netflix in enhancing its revenue streams through advertising. Analyst Matt Farrell from Piper Sandler views The Trade Desk's involvement as a confirmation of its strong position in the connected TV (CTV) landscape, benefiting from recent partnerships with Roku, Disney+, and NBCU. The Trade Desk's stock has seen a notable increase, with shares rising 5% during Thursday's session and a 30% rally year to date.

The Trade Desk's Market Position

The Trade Desk is recognized for its competitive position, low variable costs, and B2B business model. It is valued for its scarcity as the only scaled independent demand-side platform (DSP) with leadership in the coveted CTV category. Analysts from various firms, including Citi and Morgan Stanley, have projected positive outcomes from this partnership. Citi's Ygal Arounian estimates an addition of $500 million in 2025 gross billings for The Trade Desk, while Morgan Stanley's Matthew Cost anticipates Netflix could generate $3 billion in advertising-based video on demand (AVOD) revenue, with every 10% of business through The Trade Desk potentially adding 2% to its revenues.

ExlService Holdings' AI Opportunity

Citi has highlighted ExlService Holdings as an under-the-radar company poised to benefit from data and AI opportunities. ExlService, an analytics and digital solutions company, has shifted its focus towards AI, with about 51% of its 2023 revenue coming from data and AI-led business. This segment has grown at a 32% compound annual growth rate since 2020. The company's total addressable market has reportedly expanded nearly threefold to $950 billion, driven by its AI business. Citi has given ExlService a buy rating with a price target reflecting a 22% upside, aligning with the consensus among analysts covering the stock.

Analyst Perspectives on Tech Stocks

Recent analyst calls have shed light on various tech stocks, including upgrades and optimistic earnings expectations for companies like Nvidia, Netflix, and Intel. Citi upgraded Prime, highlighting a favorable risk/reward outlook, while Wolfe Research upgraded Intel. Piper Sandler and JPMorgan have set positive expectations for Nvidia and Netflix, respectively, with adjustments in price targets for other tech firms like Palo Alto Networks and Dell. These calls reflect a broader sentiment of opportunity and growth within the tech sector, influenced by strategic market positions and financial forecasts.

Street Views

  • Matt Farrell, Piper Sandler (Bullish on The Trade Desk):

    "Overall, we continue to believe Trade Desk holds a unique position within the [connected TV] landscape, and this announcement, along with the recent Roku, Disney+, and NBCU announcements, confirm our thesis that TTD is a long-term winner in this secular growth market."

  • Ygal Arounian, Citi (Bullish on The Trade Desk):

    "While the partnership may take time to ramp up... it could add $500 million in 2025 gross billings to The Trade Desk."

  • Matthew Cost, Morgan Stanley (Bullish on The Trade Desk):

    "Every 10% of business funneled through The Trade Desk by 2026 could generate 2% upside to revenues... We recognize TTD’s competitive position as well as its low variable costs and B2B business model. We also highlight TTD’s scarcity value as the only scaled independent [demand-side platform] and its leadership in the highly-coveted CTV category."

  • Chris Kuntarich, UBS (Bullish on The Trade Desk):

    "Bottom line, when we initiated back in Sept we saw a NFLX/TTD as a potential catalyst this year but it was only one part of the bull case," noting that investors need to assign a non-zero probability to a potential deal between The Trade Desk and Amazon which could offer further upside.