Media-streaming technologist Roku (NASDAQ:ROKU) and ad-buying software developer The Trade Desk (NYSE:TTM) are two of the newest additions to my personal investment portfolio. I grabbed some shares of both in the middle of March, aiming to take advantage of attractive buy-in prices and start positions in a few stocks that had been on my radar for quite some time.
These investments have been very good to me so far, and I see great things ahead for both The Trade Desk and Roku. But I would also recommend investing more money in one of these promising tickers than the other.
What's up with The Trade Desk?
The Trade Desk helps advertisers publish their marketing messages across a wide range of media platforms and track the results. The company handles audio and video ads on every digital media platform you've heard of, aiming to produce highly effective marketing campaigns in an increasingly digital media market.
The company has quadrupled its annual sales in four years. That's great. The Trade Desk is proving its worth as a simplifying and unifying force in the fragmented advertising market. However, investors have already been richly rewarded for this success. The stock has gained 1,450% over the same four-year period, including a 79% gain in 2020 alone.
My personal real-money position in The Trade Desk has surged 168% higher since March 17. You should let your winners keep winning, so I have no intention to close out this investment any time soon. At the same time, I'm not tempted to add more money to it at these lofty prices. I could certainly add to my investment in The Trade Desk over time, but I'd be buying on the dips that surely will appear at some point -- we're talking about a high-flying and volatile stock with a large short-seller cohort. So I'll just have to be patient and keep an eye out for another buying window to match the one we all saw in March.
How about Roku?
Roku made a name for itself as a maker of tiny set-top boxes that connect your TV to streaming video services like Netflix (NASDAQ:NFLX) and Hulu. The Netflix connection was incredibly important because Roku had the first media streaming hardware on the market when the DVD mailer veteran first launched its digital streaming service. Netflix invested in Roku early on and even hired founder Anthony Wood to run its "Internet TV" division in 2007.
The business model has evolved over the years. Roku still sells its own streaming boxes but that's not what the company is about anymore. Instead, Roku's time-honored media platform has become a leading software solution for makers of internet-connected smart TV sets. The customer list includes household names such as Sharp, Hitachi, and Philips and the list of Roku-powered TV brands keeps growing.
Roku's diverse media platform has also made it a significant player in digital advertising. Consumers use Roku as a launching pad for lots and lots of streaming media services, and the company can inject marketing messages into that experience in several ways. The recently acquired ad-buying platform dataxu has been rebranded as Roku OneView, boosting the company's ad management abilities and starting a head-to-head rivalry with The Trade Desk.
The COVID-19 crisis has obviously helped Roku reach more entertainment-starved consumers under stay-at-home orders. Hardware sales rose 35% year over year in the second quarter and so-called platform revenue (advertising plus software license sales) surged 46% higher. Roku now has 43 million active user accounts, accounting for 14.6 billion streaming hours in the three-month period from April to June.
Roku shocked the Street in the second quarter. Sales exceeded the analyst consensus by 13% and the bottom-line loss was smaller than expected.
Here's where it gets interesting.
Roku is in the middle of a game-changing experience here. Streaming media is quickly becoming the norm, the gold standard, the best option in mass-market entertainment. Roku is an established leader in that industry, and its standing is still on the rise. Meanwhile, the streaming media market itself is growing by leaps and bounds around the world.
All of these positive factors should be obvious to Roku investors but the stock chart doesn't tell the same story. Share prices plunged in March even though the COVID-19 pandemic clearly was a net benefit for Roku. The shares I picked up in mid-March have gained 73% on the rebound but the total return year to date stops at just 10%.
This stock should be soaring right now, but it has actually only just returned to January's prices. Bluntly speaking, Roku is the best buy I see on the market today.
Buy Roku, hold The Trade Desk
Again, I'm not knocking The Trade Desk at all. That's a solid investment and a valued part of my own portfolio, but Roku is a much better buy at today's prices.
You really can't go wrong with picking solid winners in booming industries such as digital media and online marketing. The Trade Desk is fairly valued these days but Roku should be trading much higher. If I was forced to buy one stock and sell the other, I'd gladly add to my Roku position and reluctantly cash in my profits in The Trade Desk.
More realistically, you'll probably find me adding to the Roku position a bit faster for the foreseeable future -- unless another unexpected round of price cuts changes the equation again. The real trick to building profitable investments for the long run is to stay flexible and pounce on great long-term opportunities when they pop up at temporary discounts.