The Trade Desk (NASDAQ:TTD) has been one of the big winners on the stock market this year. 

Shares of the cloud-based ad tech platform have more than tripled this year, and the stock is up nearly 2,000% over three years thanks to possessing the key qualities that growth stock investors look for. Revenue is surging with the top line up 32% in its most recent quarter, even in a challenging advertising platform, and, unlike most cloud stocks , the company generates fat profit margins. In the third quarter, it posted an adjusted net income of $62.7 million on revenue of $216.1 million, good for a 29% profit margin. It's also penetrating a huge addressable market as investors are salivating in particular over the opportunity in Connected TV (CTV), or ad-based streaming services. In the third quarter, spending on CTV more than doubled, and as streaming supplants linear TV, the ad market in CTV should continue to grow over the long run.

However, Trade Desk isn't the only ad tech stock that's boomed this year. Magnite (NASDAQ:MGNI), a sell-side ad platform, has more than doubled year to date after a recent surge, while Roku (NASDAQ:ROKU), the streaming device maker that acquired Dataxu last year and is also getting tailwinds from CTV, is also up triple digits. However, little-known small-cap demand side platform AcuityAds (NASDAQ:ATY) has outpaced them.

Shares of AcuityAds are up nearly 600% year to date. Toronto-based AcuityAds has received little coverage, as even after the recent run-up, the company is valued at less than $400 million and is not listed on a U.S. exchange. The business has been hit hard by the coronavirus pandemic, as nearly a third of its customers come from the travel and hospitality sector, but there were positive signs in its most recent earnings report. Quarter-over-quarter revenue increased 33% as the company emerged from the depths of the pandemic, finding new customers in direct-to-consumer and e-commerce. Like Trade Desk, AcuityAds is also seeing explosive growth in Connected TV, where revenue jumped 353% from the previous year.

However, there's one big reason that investors should take a closer look at AcuityAds.

Woman looking at glass screen with different images

Image source: Getty Images.

Here comes illumin

In the beginning of October, AcuityAds unveiled its new advertising automation platform, illumin, an interactive technology that allows brands to easily see how their ad campaigns are performing in real time. CEO Tal Hayek says illumin solves a lot of the challenges for the typical consumer who is using a demand-side platform like Trade Desk, Dataxu, or MediaMath and doesn't have clear visibility into how their ad campaigns are performing, or what's working and what isn't.

In a video, the company demonstrates how the new platform works and says it opens the black box of media plans that brands don't typically have access to. Its easy-to-follow, detailed performance metrics allow for quick decision-making and help raise advertising return on investment, saving costs for the customer. AcuityAds noted that 26% of marketing budgets are wasted on disconnects between creative strategy and ad placement strategy. In addition, setup time is much less than for the typical demand side platform, which is about 300 hours.

In an interview, Hayek sounded confident in illumin's prospects, envisioning the technology becoming the industry standard as he said none of AcuityAds' competitors have anything like it. In fact, he foresees the company changing its name to illumin as the product takes off, and as it becomes the core of the company's business in the next few years. Competitors will eventually come out with similar products, but by then Acuity would be on its third or fourth generation of illumin.

The early feedback for the new platform has been promising, as sales cycles have been shorter than expected. Among AcuityAds' customers that beta-tested before launch were Home Depot, MassMutual, Purple, and Lamark Media. Lamark Media's Joseph Choi explained the advantage of illumin, saying: "illumin has bridged the gap to allow anyone to plan and execute programmatic media buys through their easy drag and drop approach and user journey visualization."

Combined with tailwinds from Connected TV and the recovery in the travel and hospitality sectors, AcuityAds already looks poised for strong growth next year, and illumin should accelerate its long-term growth.

Additionally, the company is planning to list on the Nasdaq next year, an event that will draw increased attention to the stock as well as providing it with cash injection, and shares are likely to get a boost when it has its U.S. IPO.

With a market cap under $400 million, AcuityAds is worth less than 1% of Trade Desk today, which is valued at $43 billion. That shows how much upside potential AcuityAds has, especially given the secular growth in the ad tech space. Time will tell if illumin proves to be as groundbreaking as the company believes it will be, but if it is truly disruptive, AcuityAds is the type of stock that could be a ten-bagger in a few years, or even better.


This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.