This company has the ingredients to grow its business by 10 times.
When it comes to growth stocks, investors will be quick to name companies like Shopify, the leading e-commerce software company; Palantir, a leading artificial intelligence (AI) software company; and the mighty Tesla, which requires no introduction.
Still, some well-performing companies don’t get as much attention from investors but have quietly been delivering massive shareholder returns over the years. This article will highlight one of those outperformers, The Trade Desk (TTD -0.24%), a leading programmatic advertising platform company.
Image source: Getty Images.
The Trade Desk brings enormous value to its customers
The Trade Desk might not have been a household name like Alphabet‘s Google or Meta Platforms‘ Facebook, but it’s a critical player in digital advertising.
For starters, the tech company provides a unified, multifunctional platform for advertisers and agencies to manage their digital advertising campaigns. Using this platform, advertisers can bid for ad impressions in real time across almost every advertising channel, including mobile, video, audio, and connected TV, among others.
To help advertisers make the most of their budget, The Trade Desk integrates data from various sources (including first and third parties) to provide insights to its advertisers. Doing so helps advertisers better target their audience — using information on demographics, geography, age, and so forth — to ensure the ads reach the most relevant audiences.
Moreover, The Trade Desk provides detailed reporting tools to help advertisers track the performance of their advertising campaigns in real time, allowing them to make adjustments quickly when their advertising campaigns are not working as planned. This not only helps customers improve their return on investment (ROI), but also improves their workflows.
In short, The Trade Desk aims to become the go-to platform for advertisers, giving them all the tools needed to achieve their objectives while minimizing their work. To this end, it employs the latest technologies, such as artificial intelligence (AI), to continuously improve its software platform. This approach ensures that it competes favorably against competitors, which include walled gardens, like Alphabet and Meta Platforms, and other programmatic platforms like MediaMath.
And the tech company is well positioned to grow for a long time
The Trade Desk’s relentless pursuit of customer success has given it the right recipe for success, evidenced by its numbers. From 2015 to 2023, revenue has grown 17-fold, from $114 million to $1,946 million. More impressively, it has been profitable since 2013, a feat that most growth companies fail to achieve.
As investors, we know that the past is no guarantee of future results. Still, in The Trade Desk’s case, its prospects look equally (if not more) promising than in the past.
The global advertising industry is massive at $900 billion and is expected to grow. So, while the Trade Desk has been massively successful, it has just touched around 1% of this opportunity. It could increase 10 times its present size and remain a “small” player.
There are many ways The Trade Desk can grow its market share. It can continue to delight its customers with better software and tools, which will help it gain new customers and grow with existing ones. To this end, it’s beneficial that the company is surfing a massive tailwind of ongoing movement from traditional advertising to programmatic advertising — the latter is more effective, cheaper, and easier to manage on a single platform.
Among all the growth sectors, connected TV (CTV) and going global are two of the most obvious opportunities for the company to capitalize on. The former is driven by the increase in smart TV penetration and the more cost-effective way of consuming content with ad-supported programming. The latter depends on the huge advertising budget (two-thirds of global ad spending) outside North America.
In short, the sky seems to be the limit for this growth company. The vast opportunity ahead also means that while competition will likely remain intense, there is enough space for multiple players to do well.
What it means for investors
It’s unusual to find a company that consistently delivers high growth and profitability over many years, and it’s even rarer to find such a company with a clear path to sustain its growth for many years.
Unsurprisingly, The Trade Desk, with so many desirable qualities, trades at a premium valuation. As of writing, its price-to-earnings (PE) ratio is 251, which is expensive even for a company with a promising future.
Clearly, while the stock might not have been as popular as those like Tesla, it does have its ardent supporters. So, while this article aims to bring more investors’ attention to the company, it is not a buy recommendation.
Investors should do their detailed homework before investing in the stock.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Lawrence Nga has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Meta Platforms, Palantir Technologies, Shopify, and The Trade Desk. The Motley Fool has a disclosure policy.
