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After Tripling in 2020, Can The Trade Desk Stock Wow Investors Again?

By Trevor Jennewine - Feb 1, 2021 at 8:40AM

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Despite huge gains last year, this ad tech company still has a big market opportunity.

In 2020, business closures and social distancing precautions left many consumers stuck at home where they passed time by scrolling through mobile apps and binge-watching their favorite shows. This accelerated the shift of ad dollars to digital channels like mobile and connected TV (CTV). As a result, The Trade Desk's (TTD -1.94%) stock roared to new highs, gaining 208% over the course of the year.

After that impressive performance, many investors may be wondering what to do now. Is it time to cash out, or can The Trade Desk deliver something close to a repeat performance this year? Let's dig in.

The digital advertising market is growing

The Trade Desk's demand-side platform (DSP) enables marketers to plan, launch, and manage data-driven ad campaigns across various digital channels like desktop, mobile, social media, and CTV. This business model aligns perfectly with global and industrywide trends as both consumers and marketers are migrating to digital solutions.

Bullseye arrow in digital target surrounded by various digital icons.

Image source: Getty Images.

In fact, the digital ad market will see explosive growth in the coming years with global spend rising 58% from 2020 levels to reach $526 billion by 2024, according to eMarketer. What's more, the U.S. CTV market -- a core part of The Trade Desk's growth strategy -- is expected to expand even faster with ad spend surging 126% over the same period. These trends should be powerful growth drivers for The Trade Desk's business.

The Trade Desk is gaining market share

During turbulent times, great companies find a way to separate themselves from the pack, and that's exactly what happened with The Trade Desk last year. During the company's most recent earnings call in Nov. 2020, CEO Jeff Green noted the company likely gained more market share in the first three quarters of 2020 than any other period in the company's history.

But The Trade Desk's ability to execute is nothing new. Over the last three years, the company has easily outperformed larger rivals Alphabet and Facebook, growing revenue and free cash flow more quickly.

TTD Revenue (TTM) Chart

Data by YCharts.

The Trade Desk has an advantage

Unlike those advertising giants, The Trade Desk does not own content platforms, and the company works strictly with ad buyers. This strategy has helped the company garner a reputation for transparency, which has translated into strong traction with clients. In fact, according to the most recent Advertiser Perceptions report, The Trade Desk ranks as the third most popular DSP, behind only Amazon and Google. 

By comparison, Facebook and Google are often referred to as "walled gardens," a term that refers to their closed advertising ecosystems. Unlike The Trade Desk, these rivals deal on both the buy-side and sell-side of ad transactions, creating conflicts of interest and transparency issues. For instance, Facebook owns content platforms like its parent site and Instagram -- both of which sell ad inventory -- and at the same time, the company owns Facebook Ad Manager, the ad tech platform that helps marketers buy ad inventory and measure campaign performance.

While this strategy has certainly been effective for those companies, marketers looking for an ad tech platform with their best interests at heart won't find it there. In the long run, that should give The Trade Desk an advantage.

A final word

Going forward, investors should watch The Trade Desk's ability to continue growing revenue and market share. Despite concerns about transparency, bigger competitors still wield an immense amount of sway in the advertising market, which could ultimately limit The Trade Desk's future growth. Additionally, the company currently trades at sky-high valuation multiples -- 51 times sales and 262 times earnings -- so the slightest bit of bad news could send the stock into a tailspin.

But for investors willing to take the long view, The Trade Desk is a well-managed business with an industry-leading product and a big market opportunity. From that perspective, The Trade Desk's future looks bright and -- in time -- I believe this tech stock can again offer investors multibagger returns.

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Stocks Mentioned

The Trade Desk Stock Quote
The Trade Desk
$52.64 (-1.94%) $-1.04
Meta Platforms, Inc. Stock Quote
Meta Platforms, Inc.
$193.54 (1.18%) $2.25
Alphabet Inc. Stock Quote
Alphabet Inc.
$2,178.16 (-1.34%) $-29.52, Inc. Stock Quote, Inc.
$2,151.82 (0.25%) $5.44
Alphabet Inc. Stock Quote
Alphabet Inc.
$2,186.26 (-1.29%) $-28.65

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