Trade Desk: Downgrading Moat to None on Increasing Competitive Intensity Despite OpenAI Report

Key Morningstar Metrics for Trade Desk

• Fair Value Estimate
  : $33.00
• Morningstar Rating
  : ★★★
• Morningstar Economic Moat Rating
  : None
• Morningstar Uncertainty Rating
  : Very High

We downgrade Trade Desk’s TTD moat to none from narrow, and note a recent report in The Information that OpenAI is exploring an advertising relationship with the firm.

Why it matters: Value in the ad tech ecosystem is shifting from thin user interfaces and learned workflows to vertically integrated platforms that own high-quality data assets and manage auction mechanisms, ultimately placing Trade Desk at a disadvantage. The OpenAI reports are positive but not a panacea.

• We believe pure-play demand-side platforms—which lack ownership of ad supply, auction mechanics, and behavior data—are at a structural data disadvantage. Platforms like Trade Desk are vulnerable to diminishing switching costs.
• We believe that any relationship with OpenAI will be non-exclusive, similar to the semi-open Netflix ecosystem which allows various DSPs to access inventory. This makes sense, given publishers’ ultimate goal of maximizing yield by using multiple bid sources.

The bottom line: We also lower our fair value estimate for Trade Desk to $33 per share from $35, reflecting a decrease in our three-year average annual growth from a mid-teens percentage to the low teens, as well as a reduction in our long-term growth projections beyond 10 years, better accounting for competitive deficits and increasing competition.

• While Trade Desk’s operating system should retain value for ad buyers that need to fine-tune targeting strategies, we see brands steadily shifting demand toward more outcome-based, low-touch optimization tools. They favor players like Google, Meta, and AppLovin, forcing Trade Desk to invest more aggressively in new products to remain competitive.
• Amazon, with its extensive network covering retail advertising on its own marketplace inventory (and more recently, open internet advertising), has significantly encroached on Trade Desk’s open internet advertising proposition. Amazon’s scale will pressure Trade Desk’s margins, while its owned data should steal customers.