Don't Miss This Major Announcement From The Trade Desk and What It Means for the Long Term

Key Points

• The Trade Desk unveiled its first Ventura streaming TV operating system partner: DirecTV.

• Ventura aims to be a TV operating system without owning its own streaming service.

• The move could open new doors -- but it may also absorb time and capital without moving the financial needle soon.

• 10 stocks we like better than The Trade Desk ›

The first big customer for The Trade Desk's (NASDAQ: TTD) TV operating system (OS) is finally here. The ad-buying platform announced on Wednesday that it will co-develop a custom version of its Ventura TV OS with DirecTV, pairing DirecTV's consumer interface with Ventura's ad-tech plumbing and app store. The announcement arrives nearly a year after Ventura was introduced, giving investors their first look at how the company plans to bring its TV platform to market.

For readers newer to the story, The Trade Desk operates a software platform that helps advertisers buy and measure digital ads across the internet. The company has been pushing deeper into connected TV (CTV) for years. Ventura is the boldest step yet -- a TV operating system meant to give manufacturers and content companies an alternative to platforms that also own content or a streaming service.

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What Ventura is and why DirecTV matters

Ventura is pitched as a neutral operating system for smart TVs and other screens. The company said in its announcement of Ventura that it is designed to provide a "much cleaner supply chain streaming TV advertising, minimizing supply chain hops and costs -- ensuring maximum ROI for every advertising dollar and optimized yield for publishers." In other words, The Trade Desk believes it will support a supply chain that lets advertisers measure performance more precisely and ultimately optimize spending better.

Importantly, Ventura is not tied to a house streaming service, which the company argues reduces conflicts of interest and keeps it a more unbiased partner for publishers, TV makers, and retailers. This is a pointed contrast with incumbents like Roku or Amazon's Fire TV, which operate platforms while also owning major ad-supported channels and inventory.

DirecTV gives Ventura an on-ramp that consumers recognize. The partners plan to integrate DirecTV's familiar interface -- including access to MyFree DirecTV (its free ad-supported TV service), optional genre packs, and premium bundles -- into a Ventura build that any third-party TV manufacturer, retailer, hotel, or venue could deploy.

In other words, an OEM (original equipment manufacturer) can ship a TV that boots into DirecTV's experience, but the advertising marketplace and measurement behind the scenes will run on Ventura. As Matthew Henick, senior vice president of Ventura TV OS, put it, "TV manufacturers deserve more choice in how they build their businesses," adding that the goal is a "more transparent and equitable ecosystem" for advertisers and publishers.

Financially, The Trade Desk enters this next phase during a time when investors are dubious about how sustainable its high growth rate is. Second-quarter revenue grew 19% year over year to $694 million, and customer retention stayed above 95% while adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) margin was an impressive 39%. But this growth rate was down from Q1, and management expects even lower growth in Q3. While tough comparisons to year-ago quarters (due primarily to political advertising spending last year) are weighing on results, some investors worry that increasing competition is also to blame.

A catalyst -- and a potential distraction

A credible distribution partner could help The Trade Desk push Ventura into living rooms quickly. If OEMs adopt this DirecTV-skinned version, Ventura may improve ad transparency, streamline supply paths, and potentially lower take rates in CTV -- outcomes that could make its core ad-buying platform more attractive as its marketers benefit from better economics when buying Ventura OS inventory.

But investors should be cautious about extrapolating too much from a single partnership. Building and supporting a TV OS is expensive and operationally messy. The business model relies on lining up multiple constituents (OEMs, publishers, retailers, and distribution partners) and then demonstrating that stakeholders can earn more money on Ventura than on incumbent platforms. That process takes time. It is also possible the effort will distract management from the day-to-day of strengthening Kokai, its artificial intelligence (AI)-forward ad-buying platform.

Additionally, The Trade Desk's valuation arguably already prices in success with both its core business and in new ventures. Even after a tough stretch for the stock, shares trade at close to 10 times sales -- a premium that implies steady execution and continued share gains across CTV and the open internet. If Ventura ramps slowly, or if macroeconomic headwinds suppress large brands' ad budgets (as The Trade Desk management warned of in its last earnings call), that premium may be hard to defend. And competition isn't standing still: Platform owners with their own channels can bundle distribution, data, and ad inventory in ways Ventura will need to match, with clear economic benefits for partners.

None of this diminishes the strategic logic. If Ventura delivers an OS that reduces friction for viewers and advertisers while improving monetization for content owners, this could lead to a cleaner and more efficient supply chain for CTV, ultimately benefiting The Trade Desk's core platform and making it more valuable over time. The DirecTV tie-up is an important first step toward testing that thesis in the wild.

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Daniel Sparks and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Roku, and The Trade Desk. The Motley Fool has a disclosure policy.