A less-than-stellar third-quarter earnings report from Snap on Oct. 21 sent many top adtech stocks into a tailspin. Snap cited Apple's updated user privacy as the reason for its shaky balance sheet in the quarter. In this segment of Backstage Pass, recorded on Oct. 22, Fool contributors Jason Hall, Rachel Warren, and Toby Bordelon discuss some of their favorite companies trading in the adtech space.
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Jason Hall: Let's talk about some stocks we like in this area here. Who wants to go first?
Rachel Warren: I'll go first.
Warren: I'll jump in. I'm going to talk briefly about a stock we mentioned earlier. I think for investors it's definitely not fun when you see these bumps in the road of share price with companies on a day like today, a lot of these adtech companies were having a shaky day, but I don't think over the long term it changes the trajectory like Toby was saying, for a fundamentally great business. I do think one company that's really great in this space is The Trade Desk (TTD 4.42%) the media buying platform. Last I checked, I think it was down about 9% today.
Warren: But it's a great company, revenue jumped more than 100% year-over-year in the second quarter of this year. Its net income nearly doubled, continuing to grow its client base and seize up market share. That adtech space is a very competitive one. The Trade Desk has maintained a really strong foothold despite more and more entrants into the space. I think it's an interesting stock to buy and you might be able to get it at a sale. [laughs] Right now.
Hall: Trade Desk stocks is still down like it's down, now it is. It recovered a little bit, but it's still down about 8% so far this year. It's down pretty substantially from its all-time high that it reached. It's been more than a year ago now. I think there was so much interest in this business that really drove the stock price up substantially. But Jeff Green and his team, they are all in. They are just like a partner with the big ad firms. They're like the catbird seat here in terms of this business, I really think they're set to be a big winner, Rachel. I agree. That's my pitch, is I'm just going to agree with Rachel. Toby.
Toby Bordelon: I have a hard time coming up with something better than the Trade Desk in adtech, honestly. I remember it was not too long ago. I guess, maybe in a few months ago now, when we were doing our three-minute stock show, I believe this was when it was when Brian Stoffel pitched.
He was talking about The Trade Desk, I asked him about this specific issue, hey, this is a thing. This has been announced and it's going to be an issue. His response was, no, they've already told us how they're going to deal with this. We know it's coming, we know everyone is going to crack down on privacy at some point and he didn't really have any concern that they'll figure it out and they've already told us that they're starting to figure it out.
That was months ago. I give them props for being ahead of the game, being on top of that. I would throw out maybe you want to consider company like Alphabet (GOOGL 1.90%) (GOOG 1.56%), because are they going to do something similar to Apple? Of course. Those two companies are going to continue to go back and forth on how much privacy control they want for their users. But the thing with Apple that right, is, not only do they sell ads, [laughs] they also operate the platforms in question.
Bordelon: Right. They're not going to screw themselves over, like when they roll out a privacy control, they are already going to know how to continue to make money selling advertising into that new system. I think they probably have a leg up on some others in terms of that.
Hall: You guys, would you believe that Alphabet stock is up 58% this year?
Hall: Isn't that incredible? Yeah, there was a laggard a lot most of last year because of its ad business and economic downturns, ad revenues go down. It was a bit of an underperformer last year. It has really crushed it this year.
I'm going to throw one more out there guys that I think when you think about everything that's happening with this ad space, with the privacy concerns you talked about the reality for the companies that are in the middle, The Trade Desk, PubMatic, AcuityAds, some of those companies, Magnite. Another big winner in ad spend, Amazon (AMZN 3.04%).
Amazon, that's like the fastest-growing [laughs] part of their business. There's a lot of money that very well could go to Amazon. Because again, is the ability to have targeted investment to get better return on that versus any challenges that any of these other companies have that maybe they can't be as effective, Amazon is going to keep being a big winner right there.