5 things to know about the Trade Desk and its stock

Investors have been nervous about the digital advertising sector in 2022. Almost all stocks in this market segment have underperformed the S&P500 this year, with ripple effects extending to nearly every nook and cranny of the global economy. Companies dare not splurge on ad campaigns when the economy is bad. When advertisers hold back, that’s terrible news for both buyers and sellers of ad space.

However, there is a light at the end of the tunnel. Savvy investors are looking for a return to normalcy in the advertising industry, and The trading post (TTD 3.29%) stands out today as a particularly interesting value in this sector. However, before you jump into The Trade Desk stocks, here are a few things you need to know about the company and the investment.

1. The Trade Desk is a giant in its field

The Trade Desk was one of the first pure ad service providers on the ad buying side. The company has partnered with many publishing platforms and sells advertising space on these platforms through a self-service system. Ad buyers have access to tons of data on the performance of their marketing program, and the management of each program is fully automated.

No one else does exactly what The Trade Desk does. The closest competitors are specialty services within large advertising packages from tech conglomerates like Verizonis Yahoo! Where AlphabetGoogle platforms. It’s the kind of industry leader you want in your portfolio when it comes to a rapidly growing market like online advertising.

2. Advertisers move online

…and the radical change has only just begun.

You know about the collapse of online advertising markets that I mentioned? It was a real disappointment that weighed on the stock price of The Trade Desk and its industry peers throughout the year. At the same time, many other industries would sell their parent companies for sales growth like this:

TTD Revenue Data (TTM) by YCharts

Trade Desk management estimates that the global advertising market was worth around $750 billion in 2019. Digital display ads accounted for just $50 billion of that massive pie. As streaming media and online news continue to steal market share from traditional media, alternative news also offers more targeted advertising and greater effectiveness. Therefore, the market is not only shifting to the online space but also getting bigger over time as advertisers adopt a more efficient model.

3. Digital video is a particularly interesting prospect

Online video was taking off in 2019. waltz disney (SAY -2.31%) opened the floodgates on the introduction of the Disney+ streaming service, hoping to catch up with the industry leader netflix (NFLX 0.13%) long-term. Then the coronavirus pandemic came to accelerate this game-changing market trend. Now, every media publisher worth its salt has at least one streaming service of its own. Both Disney and Netflix have over 220 million paid subscribers.

Both are set to give those numbers a big jolt by introducing low-cost, ad-supported service plans. Netflix has turned elsewhere, but Disney+ is working directly with The Trade Desk.

This is the future of media on a global scale. The Trade Desk has a big finger in this exciting pie and should find more customers as other media streaming hopefuls follow Disney and Netflix’s lead.

4. The Trade Desk in numbers

I’ve mentioned global markets several times in this recap, but The Trade Desk has so far only dipped its toes into the overseas opportunity. Last year, only 14% of the company’s managed ad spend was made outside of North America. There’s plenty of pie left to serve here, especially since the market itself is growing rapidly.

The company’s revenue reached $1.2 billion in 2021 and $1.4 billion in the second quarter of 2022. 82% of incoming revenue is retained as gross profit, as The Trade’s operating model Desk is quite light.

This growing profit base gives The Trade Desk the freedom to invest in its own trading prospects. As a result, sales and marketing expenses are growing even faster than these booming revenue and gross profit lines, setting the stage for continued high-octane growth in years to come.

Table of research and development expenditure (TTM) of TTD

Research and Development Expenditure (TTM) TTD Data by YCharts

5. This stock is a great buy right now

The Trade Desk is a well-run business with fantastic growth prospects in an exciting long-term market. However, slowing ad spend growth and macroeconomic fears sent the stock price nearly 50% below all-time highs from last November.

It’s not a cheap stock by value-oriented measures, trading at 50 times forward earnings and 21 times downsells. But you’re paying a premium for an industry-leading growth stock that isn’t yet focused on bottom line profits. So all things considered, The Trade Desk is an obvious buy in my book.

Suzanne Frey, an executive at Alphabet, is a board member of The Motley Fool. Anders Bylund holds positions at Alphabet (A shares), Netflix, The Trade Desk and Walt Disney. The Motley Fool owns and recommends Alphabet (A and C shares), Magnite, Netflix, The Trade Desk and Walt Disney. The Motley Fool recommends Verizon Communications and recommends the following options: January 2024 Long Calls at $145 on Walt Disney and January 2024 Short Calls at $155 on Walt Disney. The Motley Fool has a disclosure policy.

About Ricardo Schulte

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