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Got $500? Buy This Tech Stock During the Market Correction

By Trevor Jennewine - May 21, 2021 at 8:30AM

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Now looks like a good time to pick up a few shares of The Trade Desk.

Last week, The Trade Desk (TTD 4.15%) announced strong earnings. Sales growth accelerated to 37%, and adjusted profit came in at $1.41 per diluted share, up 57% from first-quarter 2020. Even so, Wall Street wasn't impressed and the stock dropped over 20%.

That plunge came atop a more prolonged sell-off, leaving shares 45% off their 52-week high. But rather than dwell on those losses, think of this as a buying opportunity. Here's why.

The Trade Desk is a leader

The Trade Desk is the leading independent demand-side platform (DSP). In other words, unlike Alphabet's Google and Facebook, the company doesn't own any content platforms or sell any ad inventory. It works solely on the buy-side, giving marketers tools to programmatically (i.e. automatically) purchase ad space and launch data-driven campaigns across display, video, audio, social, and mobile channels.

Digital cortex with arrows pointing at a digital target.

Image source: Getty Images.

By comparison, Google and Facebook own content platforms (Google Search, YouTube, Facebook, Instagram). More to the point, both of these big tech companies provide buy-side tools, and they sell ad space to marketers. In other words, they operate on both sides of the transaction, creating a conflict of interest.

The Trade Desk's business model is better aligned with its clients, which has helped the company keep its customer retention rate over 95% for the past seven years.

The market opportunity is massive

The world is becoming increasingly digital. More people are shopping online, shifting away from traditional TV, interacting through social media, and engaging with mobile apps. Those trends are fueling the rapid growth of the digital ad market, which is expected to reach $455 billion worldwide in 2021, according to eMarketer.

Notably, The Trade Desk is gaining ground in that massive market. Between 2017 and 2020, its sales surged 171%, growing more than twice as fast as global digital ad spend.

Metric

2017

2020

CAGR

The Trade Desk revenue

$308 million

$836 million

39%

Digital ad spend

$232 billion

$378 billion

18%

Data source: The Trade Desk SEC Filings and eMarketer. CAGR: compound annual growth rate.

Even after that strong performance, The Trade Desk still has less than 1% market share. That leaves plenty of room for this tech company to grow.

The future looks bright

During the most recent earnings call, The Trade Desk's CEO Jeff Green highlighted three key growth drivers: Connected TV (CTV), international markets, and retail advertising.

Starting from the top, the company has invested in expanding access to CTV ad inventory, and it's easy to see why. According to Pixalate, roughly 78% of U.S. households are now reachable via programmatic CTV ads, and programmatic CTV ad spend surged 98% in North America last year. Notably, CTV ads are the fastest-growing segment of The Trade Desk's business.

International markets represent another big opportunity. In Q1 2021, The Trade Desk generated 86% of revenue from U.S. customers, but that figure should drop over time. During the earnings call, Green noted that "international spend grew much faster than spend in North America."

Finally, in retail advertising, The Trade Desk puts its addressable market at $200 billion. To that end, the company recently partnered with Walmart -- the world's largest retailer -- to launch a new ad tech platform, giving marketers access to Walmart's shopper data and sales measurements.

Going forward, investors should pay attention to the company's ability to capitalize on these three opportunities. But if history is any indicator, I expect The Trade Desk to continue taking market share. That's why the stock looks like a good buy during the sell-off.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Trevor Jennewine owns shares of The Trade Desk. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Facebook, and The Trade Desk. The Motley Fool has a disclosure policy.

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Stocks Mentioned

The Trade Desk Stock Quote
The Trade Desk
TTD
$54.97 (4.15%) $2.19
Wal-Mart Stores, Inc. Stock Quote
Wal-Mart Stores, Inc.
WMT
$127.61 (0.81%) $1.03
Meta Platforms, Inc. Stock Quote
Meta Platforms, Inc.
META
$170.25 (1.88%) $3.14
Alphabet Inc. Stock Quote
Alphabet Inc.
GOOGL
$117.30 (-0.14%) $0.17
Alphabet Inc. Stock Quote
Alphabet Inc.
GOOG
$118.14 (-0.07%) $0.08

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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