Among the gurus and savants of the investment world, the topic of Bitcoin invites some sharp and heated disagreements. Some, such as Cathie Wood, are extremely bullish on the cryptocurrency. The ARK Invest CEO forecasts it will hit $560,000 a token by 2026. Others, like Charlie Munger, view it with far more negativity; the Berkshire Hathaway vice-chairman has called Bitcoin "disgusting and contrary to the interests of civilization."
When an asset's investment thesis is conflicted, some folks may think it wiser to steer clear and look for options where the future is a bit more visible. Right now, I think that The Trade Desk (TTD 2.13%) and Snowflake (SNOW 1.42%) both offer great potential and strong investment cases that are hard to argue against.
1. The Trade Desk
Whether it is delivered via billboards, TV commercials, newspapers, or in the digital margins of this article, advertising is nearly everywhere. This isn't bad per se -- many consumers don't mind discovering new products or companies that they might be interested in via ads. In fact, according to a survey conducted by Adlucent, 71% of respondents prefer targeted ads.
The Trade Desk's platform assists advertisers with reaching their intended audiences. The company operates a demand-side platform that allows clients to run programmatic advertising campaigns. Essentially, businesses define the profiles of the customers they want to reach, and how much they will pay per ad view, and The Trade Desk's software does the rest. It also aggregates information about who clicks on those ads. This allows businesses to understand if they could be reaching another audience base.
The company's third-quarter results featured 39% year-over-year revenue growth and a 20% GAAP net income margin. Tech stocks with explosive revenue growth that are also profitable are few and far between in today's market, but The Trade Desk checks those boxes.
One issue that concerned some investors was Alphabet's elimination of tracking cookies. If The Trade Desk can't figure out what ads should be shown to which viewers, then it's not worth as much to advertisers. However, The Trade Desk has developed a solution called Unified ID 2.0 (UID2) it believes will change the advertising landscape. UID2 is open-source and gives consumers more control over what can be tracked while providing better data security.
As more consumers switch to streaming TV, indiscriminate advertising of the linear TV variety will begin to fade; programmatic advertising is the future of TV ads. Recently, NBC inked a deal with The Trade Desk that added its Peacock streaming service to its bidding platform, showcasing how important connected TV ads are becoming.
As the leader in a changing advertising environment, The Trade Desk is well-positioned to deliver excellent returns.
Investors in the tech sector are probably familiar with the phrase "data is the new oil." Among the reasons that quip makes sense is because like oil, data in its raw state is basically useless. It must be refined before anything practical can be done with it.
Snowflake's business is comparable to that of an oil refiner. It stores data and provides different processing methods. One of the most useful features is Snowflake's architecture. It allows structured data, semi-structured, and unstructured data to be used, freeing engineers to focus on interpreting data, not organizing it. Multiple industries -- including manufacturing, financial services, education, and advertising -- can benefit from Snowflake's services. In fact, the company supports The Trade Desk's UID2 data format, allowing the information it gathers to be analyzed while not breaching privacy regarding information that would make individuals identifiable.
Many business clients are realizing the benefits of data analysis, and Snowflake's most recent quarterly results reflect that. During its fiscal third quarter, which ended Oct. 31, its revenue grew by 110% year over year to $312.5 million. Its customers are also expanding their spending with it -- a fact reflected in its unparalleled 173% net revenue retention rate. Q3 marked the fifth quarter in a row that metric increased. As of the end of the quarter, Snowflake had 5,416 customers, up 52% from a year prior. Of those, 148 are spending more than $1 million annually with the company, 128% more than were last year. It also serves 223 of the Fortune 500 companies.
Snowflake has room to grab more customers and can still expand overseas. At this point, 82% of its revenue is derived from North America, so huge opportunities still exist overseas. Customers also love Snowflake; it scored a 100% Dresner Customer Satisfaction Score for the third year in a row when evaluated in January 2021. It also has a net promoter score of 68 -- another customer satisfaction rating system, which puts it on par with brands like Apple and Southwest Airlines.
Snowflake operates in a huge market, pulls in growing revenue, and caters to customers that are expanding their use of its services, making it seem like an investment that could perform spectacularly.
One argument against investing in either of these stocks involves their valuations. Each trades at a high price-to-sales (PS) ratio.
However, the market is valuing them at such premiums because of their execution, opportunity, and growth. If either company slips up, the market will punish it. Quarterly reports will have huge impacts on each of these stocks, so investors who buy shares must be prepared at least four times each year for volatile price movements.
If investors can stomach these potentially sharp moves, The Trade Desk and Snowflake present compelling investment opportunities. The verdict is still out on Bitcoin, but Snowflake and The Trade Desk are capturing market share within massive and growing spaces. Consider purchasing each stock if your holding period is three to five years, or even longer.