The Trade Desk (TTD 3.29%) has been a gold mine for early investors. The company went public in September 2016 at $18 per share and ended its first day of trading at $30. Since then, the stock has been on a breakneck run, currently trading at over $315 per share.
Making millionaires out of ordinary investors is a tall order, so let's see where early shareholders stand today and if The Trade Desk can make millionaires out of more recent investors.
The early bird gets the worm
The IPO price typically isn't available to ordinary investors. For the sake of discussion, however, if investors had put down $50,000 at the IPO price, they could have picked up 2,777 shares at $18, and those shares would be worth more than $876,000 today -- with a cool million just 14% higher than the current stock price.
Buying shares on the open market, investors had numerous opportunities to acquire the stock at less than the first day closing price. In fact, in late October 2016, shares sold for less than $24 per share. Assuming the same $50,000 investment, investors could have picked up 2,083 shares, which would be worth more than $657,000 today, with the $1 million threshold about 52% above current prices.
A current path to $1 million?
Investors putting down the same $50,000 today would need to achieve 20 times their initial investment in order to surpass that million-dollar benchmark. That would be a pretty tall order considering The Trade Desk's current market cap of over $14 billion.
At current prices, The Trade Desk would have to become a $280 billion company in order to make millionaires of investors. That would mean exceeding the market caps of such well-known behemoths as Disney, Comcast, The Home Depot, and even The Coca-Cola Company -- and while anything's possible, it isn't very likely.
Expecting the stock to increase 20-fold from today's price might be unrealistic. My colleague Brian Stoffel suggested defining a "millionaire-maker" as "a stock that can return 10 times its value in 20 years." Using that criteria, The Trade Desk could potentially reach a market cap of $140 billion, which is much more reasonable -- and even possible.
The Trade Desk currently sits at the intersection of several powerful growth trends that could result in it becoming a 10-bagger -- a stock that appreciates in value by 10 times its original purchase price. Let's look at the tailwinds that could propel the stock to these lofty heights.
Advertising: An industry in transition
As streaming continues to account for a greater amount of consumer viewing time, advertising is beginning to make the shift from traditional media -- which includes print, broadcast, and cable television -- and is gradually following viewers to the digital realm, which includes internet and in-app channels, as well as streaming video and music.
The phenomenon of cord-cutting is accelerating. In the third quarter of 2019, pay-TV providers shed a record 1.74 million customers, the largest single-quarter loss in history. As viewers ditch broadcast television and cable, they're increasingly adopting streaming video, with many opting for ad-supported apps and channels.
A significant addressable market
Overall, advertising is growing at a snail's pace, increasing about 4% year over year to $725 billion, but the majority of that growth is coming courtesy of digital advertising, which is growing about 18%, and now represents just 50% of the total.
Programmatic advertising is The Trade Desk's bread and butter. It uses high-speed computers and complex algorithms to match ads with their target markets. This segment of the market is growing even faster, up 20% year over year to about $34 billion in 2019 and accounting for 65% of digital advertising. This puts The Trade Desk in the fastest-growing segment of a market that's expected to top $1 trillion in the coming decade.
Tapping into growing trends
The Trade Desk is tapping several significant growth trends in the advertising industry and gaining steam. For the first nine months of 2019, The Trade Desk's revenue grew 40% year over year -- 10 times the rate of the overall ad industry and twice the rate of programmatic, which shows that it's stealing market share from the competition. It expects full-year revenue of about $658 million, accounting for less than 2% of the overall programmatic market.
The Trade Desk's newest advertising channels are also its hottest growth areas. Connected TV and audio have been growing in multiples faster than the more established areas of its business. Connected TV ads generated year-over-year growth of 300%, 250%, and 145%, respectively, in the first, second, and third quarters of 2019. At the same time, the trajectory of audio ads was equally impressive, up 270%, 270%, and 160%, respectively.
Is it a millionaire-maker?
While some deceleration will occur, the company should continue to post strong growth numbers, which will lead to further stock-price gains. But there are concerns investors should consider.
The stock comes with a lofty valuation for one. It carries a price-to-earnings (P/E) ratio of 156, with an only slightly more reasonable forward valuation of 83. This illustrates just how much growth is already priced into the stock and presents the potential for significant volatility. If the company fails to deliver, its stock price could plummet.
While this high-growth company has all the makings of a millionaire-maker stock, those buying today might not reach that lofty goal. However, for investors with a sufficient time horizon and the stomach for some gut-churning volatility along the way, The Trade Desk is positioned to create long-term wealth for its shareholders.