Should Investing in The Trade Desk's Shares Be Considered at Present?
Selling goods and services is the foundation of the worldwide economic system. What guides individuals on where to allocate their money? That would be advertising. It should come as no shock then, that businesses invest significant funds into ads. In fact, estimates suggest that global ad spending will exceed $1 trillion next year.
The advertising sector is undergoing a transformation, shifting away from traditional printed media and radio/tv broadcasts to digital formats like the Internet and streaming services. Giants such as Meta Platforms and Alphabet (Google's parent company) have cornered a substantial portion of the digital ad market due to their dominance in social media and search engines. However, there's potential for other players.
That's where The Trade Desk (TTD) steps in. After its successful IPO in 2016, the company has consistently outperformed the market, fueled by its extensive success.
Want to beat the market? Identify winning stocks. The Trade Desk has proven its worth, but the question remains: Is it priced correctly for investors today?
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The Trade Desk is an advertising technology company that operates on the demand side. In simpler terms, it pairs advertisers with their target audiences. For example, if you're looking to advertise tailgating equipment, the company uses data like demographics, browsing history, etc., to show that ad to people most likely interested in tailgating equipment. The Trade Desk performs these tasks automatically and in real-time, working with over 400 digital media partners.
It's essential to note that The Trade Desk is relatively small compared to the larger digital advertising market. Last year, its platform accounted for only $9.6 billion in ad spend, representing less than 1% of the global ad market and a fraction of what Meta Platforms and Alphabet generate. The advantage these large tech companies have is control and leverage over their customers. If you'd like to advertise on their dominant, self-contained media or search ecosystems, you must conform to their rules. What if a company advertising on Google Search (just an example) competes with another Alphabet sector? Conflict of interest could arise.
The Trade Desk aims to be more transparent and give advertisers more control over their data and campaigns. It’s essentially a partnership, and the demand for such services has grown into a thriving market. The Trade Desk has been profitable since 2013 and consistently grows revenue at nearly 30%.
Will The Trade Desk ever surpass these dominant players in digital advertising? Likely not. But it doesn't need to.
The Trade Desk has seen significant growth in recent months. Revenue picked up pace in Q2 last year, following a broader advertising industry pullback due to the COVID-19 pandemic. The company's performance and the Fed's recent interest rate cuts have led to a nearly 90% rise in the stock price over the last year.
The company's size relative to the total global advertising revenue means it may be able to maintain growth for an extended period. The Trade Desk is planning to release a streaming TV operating software next year, potentially capturing television ad spending. However, the stock price currently reflects high growth expectations, resulting in a steep forward P/E ratio of 75. Analysts predict an average of 25% annual growth over the following three to five years. With a PEG ratio of about 3.0, the stock's valuation is significantly high, even for a high-quality company like this.
Is The Trade Desk a buy now?
Thriving, profitable companies like The Trade Desk rarely go on sale. If you had purchased shares at their previous earnings multiples of 35 to 40, you’d be ahead of the curve. While stock prices are unpredictable, they usually see fluctuations, so it's possible future buying chances will arise.
Investors should consider taking a small position to get involved but may want to exercise caution at these elevated valuations. Patience is key for those waiting for lower buying opportunities. Until then, many investors should view the stock as a hold, not a buy.
In the realm of finance and investing, many individuals are interested in finding profitable opportunities. The advertising technology company, The Trade Desk, has proven its success in pairing advertisers with their target audiences, using data to show ads to interested individuals.
While The Trade Desk is relatively small compared to giants like Meta Platforms and Alphabet in the digital ad market, it offers transparency and control over data and campaigns, making it an attractive option for many businesses. The company's strong performance and growth potential have led to a significant increase in its stock price, but its high valuation may require caution from potential investors.
