Better Buy: Pinterest vs. The Trade Desk

Pinterest (PINS 0.43%) and The Trade Desk (TTD 0.85%) both play important roles in helping brands and marketers reach potential customers. They compete in the digital ad space, a massive and growing market.

According to eMarketer, global digital ad spend will rise at roughly 12% per year to reach $526 billion by 2024. That gives both of these tech companies plenty of room to grow. But which is the better buy today?

Pinterest: The social network for inspiration

Pinterest is a visual social platform that helps users find inspiration, plan projects, and take action on their dreams. Whether you're looking for a new recipe, the latest styles, or trendy home décor ideas, Pinterest is a great place to start. That makes its platform fundamentally different than other social media like Facebook or Twitter.

Image source: Pinterest

As part of the company's growth strategy, Pinterest has focused on delivering more inspiring content to its users. For instance, creators (think influencers) can now publish story pins on the platform, a new content format that combines images, videos, and voiceover. This allows talented individuals like fitness and fashion experts to share their expertise with users.

Pinterest has also focused on empowering consumers to take action on their dreams. For instance, let's say you visit Pinterest looking for home décor, and you find the perfect piece of wall art -- wouldn't it be great if you could buy it right there? That's why Pinterest introduced multiple new ways to shop last year. And even if that wall art isn't for sale, Pinterest's artificial intelligence can help you find something similar (if not identical) that is.

The company's strong growth strategy has translated into stellar financial performance in recent years.

Data source: Pinterest SEC filings. CAGR = compound annual growth rate.

Investors should be aware that Pinterest is investing heavily in growth. As a result, the company is not currently profitable over the trailing-12-months on a net income basis.

Even so, Pinterest generated positive free cash flow of $11.4 million last year. In other words, the company's operations are generating enough cash to fund its growth. Paired with its debt-free balance sheet, that means Pinterest is well-positioned to continue gaining ground in the digital ad market.  

The Trade Desk: The content-agnostic ad platform

The Trade Desk offers a cloud-based demand-side platform (DSP) built for ad buyers. Marketers use the platform to launch, measure, and optimize digital ad campaigns across display, mobile, and connected TV (CTV). To make that possible, The Trade Desk partners with ad sellers like Magnite and PubMatic.

Image source: Getty Images

The Trade Desk's focus on transparency has distinguished it from larger rivals like Facebook and Alphabet. Rather than working on both the buy and sell sides of ad transactions, The Trade Desk works solely on the buy side. Furthermore, it doesn't own any content or media platforms (e.g. social media, a search engine, or a CTV platform). That means Trade Desk isn't biased toward its own ad space -- because it doesn't own any ad space.

The company's content-agnostic strategy has helped it gain significant market share in recent years. In fact, The Trade Desk was ranked as the third-most-popular DSP behind Amazon and Alphabet's Google in the most recent Advertiser Perceptions report. And the company's revenue growth has outpaced that of its larger rivals in the digital ad market.

Data source: Alphabet, Amazon, Facebook, and The Trade Desk SEC filings. CAGR = compound annual growth rate.

As a final point, The Trade Desk has taken a leadership role in the ad industry. In early 2020, when Alphabet announced its Chrome browser would phase out support for third-party cookies (which help marketers target ads), The Trade Desk took initiative and developed its Unified ID 2.0 solution. This will allow marketers to target ads based on hashed (encrypted) email addresses rather than cookies, and it's rapidly gaining traction throughout the industry.

The verdict

For what it's worth, I own both of these stocks, and they are two of my highest-conviction investments. That being said, I think Pinterest has the advantage here. The company generates more revenue, and it's growing more quickly.

Additionally, Pinterest collects data through its social media platform in a way that The Trade Desk cannot. And all that data does more than help Pinterest understand its users; it also provides the company with insights into upcoming trends. For example, Pinterest can use search data to spot increasingly popular phrases or ideas -- and that's valuable information.

Over time, Pinterest's ability to offer brands and marketers predictive insights should help the company capture a big chunk of digital ad spend around the globe. That's why Pinterest wins this contest.