One of the Best-Performing Stocks Since the Downturn Is Just Getting Started

One of the most notable and immediate impacts of the downturn in March was the wholesale slashing of marketing budgets to preserve precious capital. Companies in the advertising space were like lambs to the slaughter, falling heavily as the economy dipped into recession. However, the ability to target appropriate audiences and give advertisers bang for their buck brought this one company back from the brink. It's been riding high ever since.

On this episode of Fool Live that aired on Nov. 20, "The Wrap" host Jason Hall and Fool.com contributors Danny Vena and Asit Sharma discussed this digital advertising company and why it still has plenty of room to run.

Danny Vena: We've got a question here from Fool Sunny who asks, "Is The Trade Desk (TTD 3.35%) a buy, sell, or just starting to gain momentum again?" I really like that question because I'm an avid follower of The Trade Desk. To look at what's happening with The Trade Desk, you have to backup a little bit and look at the big picture.

We know that when the pandemic hit in March, the first thing that happened was companies scaled back quickly on their advertising budgets because that's something that companies can quickly do to preserve capital in an uncertain economic environment. Many of the companies that are involved in digital advertising, companies like Facebook (META -0.52%), and like [Alphabet's (GOOGL 0.55%) (GOOG 0.74%)] Google, and like Roku (ROKU 0.15%), and like The Trade Desk, all of a sudden saw a rapid deceleration in their fortunes. Because all of a sudden, those marketing and advertising budget seemed to dry up almost overnight.

But in the time since then, and really it happened relatively quickly compared to what we've seen historically. When people saw that the sky wasn't necessarily falling, although we did have a long road ahead of us, they not only went back into advertising and started spending money again, but they started looking for the best bang that they could get for their buck. They wanted to be able to do advertising that was measurable.

So for companies like The Trade Desk who can really target that advertising, The Trade Desk has done remarkably well. I'm going to share my screen here for just a moment so that you can see how well because it really is pretty phenomenal what The Trade Desk has been able to accomplish so far this year.

Now, this is a chart for The Trade Desk and you'll notice that it ended the day of about $827 a share. If you go back to March, it was $144, a bottomed out on the 18th. We're talking at least five, six times what it was at its lows in March. Right now, if you go back to the beginning of the year, the stock is up 218%.

Now, it's not just the stock, I'm going to also share here just a quick look at the company's third- quarter results page and then make this a little bit bigger here. But if you look and see for the three months that ended Sept. 30th, revenue was up 32% year-over-year. The company's diluted earnings per share was more than double of what it was this time last year. If you scroll down just a little bit, you can see what it was that's driving that.

They have a couple of areas of high growth segments; connected TV, mobile video, audio, like for podcasts. What you're seeing is connected TV grew 100% year-over-year. Mobile video and audio both grew 70% year-over-year. Not only that, but the company has a customer retention rate of 95% and has done every quarter going back more than five years.

That's really indicative of what I think the opportunity is for The Trade Desk. The Trade Desk does programmatic advertising, which essentially a high speed matching of advertising with the channels that are available where they're going to meet those consumers that are most likely to act on that ad.

If you go back to 2019, I called The Trade Desk my highest conviction stock for 2019. I still feel that way in 2020. The amount of revenue that the company is generating is still very small. This quarter revenue was $216 million, so they haven't even reached a billion dollars annually in revenue. That gives you an idea of just how much further this company can grow. I think it's an amazing opportunity. I think right now, the market cap is about $38 billion, $39 billion, so still a very small company that can grow tremendously from here. For me, The Trade Desk is a buy, and actually I added to my The Trade Desk position several months ago.

Jason Hall: Yeah, it's a great company and it certainly highly valued. I mean, there's no getting around that. But just about any metric, it's one of those tech stocks that's in a weird place for tech stocks this year revenue-driven. What do you think about the burgeoning growth of connected TVs? I mean, there are very few companies that I think have the prospects that Trade Desk does over the next decade, so love it. I agree with you there, Danny. Asit, you got anything for us? 

Asit Sharma: Yeah. I lost my button. Yeah, I wanted to also just make a quick comment. I really like that The Trade Desk customers are advertising agency. So it's like they're very embedded with the people who are buying it. Not necessarily end buyers, but the agencies themselves. That's a great relationship to have if you think about what kind of moat does this company have. But really great explication as always, Danny, the advantages of that stock, and I'm still kicking myself I don't own it yet.