Digital media and online marketing are often closely aligned with one another and marketing dollars are increasingly transitioning away from more traditional platforms like radio, print, and broadcast television to online platforms like mobile phones and connected television (CTV).
Roku (ROKU 4.43%) not only sells devices that work with CTVs, but also provides a platform for streaming digital content and collecting ad revenue from it. The Trade Desk (TTD 3.18%) is the premier software provider for advertisers targeting specific online audiences.
Both have suffered the ill effects of the pandemic on their business, but where one seemingly still languishes, offering a steep bargain, the other has bounced back smartly and now trades at a premium. Each still seems to have tremendous potential, but is one really the better buy? Let's find out!
A superior investment trading at bargain-bin prices
Anders Bylund (Roku): There is nothing wrong with owning shares in The Trade Desk. It's an innovator in the digital advertising sector with a bright future ahead of it, and I do hold a few shares myself.
However, Roku is more than just a good investment. The media-streaming technology expert is a screaming buy these days, spring-loaded for exciting gains in the short term and always in position for massive wealth-building in the long run.
While The Trade Desk stock is exploring fresh all-time highs at the moment, Roku trades 44% below the highs of late July.
The Roku bears have their reasons, of course. The last couple of earnings reports have suffered from the same supply chain issues as everybody else, slowing down production and deliveries of smart TVs and set-top boxes. Meanwhile, both Alphabet and Amazon are struggling with Roku over the terms of their content delivery agreements. So the recent price drops make sense in light of current headlines.
These are short-term issues that shouldn't shake the confidence of long-term Roku investors, though.
In reality, Alphabet doesn't want YouTube TV to be unavailable on the leading smart media platform, undermining the video service's booming sales. The same goes for Amazon's IMDb TV and Prime Video offerings. Though it is a smaller company than these FAANG giants, I believe Roku holds most of the cards in these negotiations. Here's how Roku's general manager, Scott Rosenberg, described his company's thinking in early November's earnings call:
As we said before, it's not about the money, it's about our ability to create the best possible experience for our customers. We're working to resolve this matter. [...]
We have renewal discussions with hundreds of partners each year. It's normal course of business. Our goal in these discussions is always to reach an agreement that's good for our partner, good for our customers, delivers a great user experience.
That's why I expect the dust to settle around both the Amazon and YouTube tussles. It will happen shortly and I'd be surprised to see much of a change to the actual publishing agreements. Business as usual, folks -- and each of the two announcements should restore some of spring in Roku's sagging stock chart.
Moreover, smart TV sales won't stay low forever. It could take a year or two to shake the sluggishness out of the supply chains, so the benefits to Roku's financial results could lag. That's OK.
At the end of the day, investors who buy Roku at today's low prices should pocket fantastic returns, starting with a quick pop and leading up to game-changing returns in the long run. Sure, you could buy some Trade Desk, too. But Roku is clearly the better place for new money now.
This leading player is worth the premium
Rich Duprey (The Trade Desk): Putting up high-growth software-as-a-service (SaaS) stock The Trade Desk against the connected television specialist Roku almost puts investors in an unfair position of having to choose between the two leading tech stocks.
The Trade Desk, however, inches out ahead of its rival. Revenue rose 59% in the just-reported third quarter and is 55% higher over the first three quarters of 2021 compared to last year as its focus on CTV -- and consumer acceptance of it -- propels sales higher. It says the move to CTV has been the fastest secular shift it's ever seen.
It's not just that The Trade Desk's customers are spending more with it, but they keep coming back. Its customer retention rate was 95% in the latest period, just as high as it has been for the past seven years, helping it secure the No. 6 spot on Fortune's list of the top 100 fastest-growing companies of 2021 and positioning it as one of the top software companies of the year.
The Trade Desk launched its new cloud-based advertising trading platform, Solimar, in the quarter and it expects this will bring in the majority of impressions by the beginning of 2022. Its ease of use, ability to control granular detail of programmatic ad buying, and ad campaign optimization is generating positive sentiment.
The total addressable market for the advertising industry is moving rapidly toward that $1 trillion and The Trade Desk is the largest independent demand-side platform. Importantly, it notes the new privacy features Apple recently launched for iOS users have created little to no impact on its business.
Non-North American revenue now represents 13% of its total revenue compared to 6.5% in 2015, and with two-thirds of the world's ad spend coming from outside of North America, The Trade Desk still has a substantial runway to expand.
The ad-buying platform's stock is not cheap, but with programmatic ad purchases amounting to about 20% of advertising globally, The Trade Desk as the leading platform has the opportunity to grow into its valuation.