Why The Trade Desk Would Be the 1 Stock I would Own For the Next 5 Years

The global advertising market is growing larger. A big part of that increase is the prominent role that digital advertising plays. 

In this segment from "The Five," recorded on Dec. 14, Fool.com contributor Trevor Jennewine discusses how The Trade Desk (TTD -2.44%) offers advertisers a more flexible and efficient way of purchasing ad inventory, and why its programmatic technology will likely become the industry standard.

Trevor Jennewine: If I had to pick a stock, I would go with the growth stock as well. I think the theme here is that we're really not letting the interest rates influence our opinion too much. Connor earlier mentioned that rising interest rates are going to happen. That's not going to change whether or not a company becomes the next great growth stock to own or it's not going to change the company's trajectory. It's going to change the share price in the short term, but over the long term, I think things will still play out the same way. Let's see. I would go with The Trade Desk. Can you guys see that?

Connor Allen: Yes.

Trevor Jennewine: The Trade Desk I already owned the stock ticker symbol TTD. In fact, The Trade Desk is actually my largest holding. This is an independent demand-side platform. Using the Trade Desk's technology, advertisers can purchase ad inventory programmatically, and then they can create, measure, and optimize targeted campaigns in real-time. One of the things I like here is the programmatic technology automates the ad buying process with real-time bidding. That's much more efficient than the traditional approach where ad buyers and publishers would engage in manual discussions and they set prices, and ad inventory we repurchased ahead of time. Because of your purchasing it ahead of time, it's harder to target your ads and it's not possible to make any changes during the campaign. You basically have to take your data and then you can tweak the campaign for the next round. Programmatic technology is so much more efficient way to purchase ad space. In terms of The Trade Desk's moat, it is the largest independent demand-side platform, integrates with 82 ad exchanges and supply side platforms and 237 data providers. That gives its users access to over 600 billion impressions each day. When I say independent it means The Trade Desk doesn't own any content, so you have companies like Alphabet and Meta Platforms , both of which are leaders in the digital ad space. They provide ad-tech ad buyers. They also sell their own ad inventory and they provide ad-tech to add sellers. When you do all of those things, there's a conflict of interest there. They are obviously incentivize to sell their own ad-inventory first. When they have such control over all the variables in the environment, that's where the term walled garden comes from. Those walled gardens, they have a conflict of interests and The Trade Desk doesn't suffer from that type of conflict of interest.

It only works with ad buyers and it doesn't own any inventory, it doesn't own any content. It's just a tool that helps advertisers buy the content. Being the largest independent demand-side platform, they collect lots of data each time an ad is delivered through its platform. They can correlate viewer demographics with clicks and conversions. That makes their artificial intelligence models more effective overtime, so their platform becomes more valuable over time. I think that has contributed to their retention rates. For the last seven years, they've kept their retention rate above 95 percent. They're keeping the vast majority of their customers. That evidence is the fact that they have a very sticky platform. If you look at the financial picture, is strong. Over the last year, revenue rose 53 percent to 1.1 billion free cash flow is up over 100 percent to 317 million. But early I mentioned the benefits of programmatic advertising. This year, if you add up all programmatic ad spend in the world, is supposed to reach about $155 billion. That's up 20 percent from last year, so that the industry is growing quickly. But if you zoom out, that 155 billion represents just 32 percent of all digital ad spend and only 20 percent of total ad spend. Total ad spend is about $780 billion. The current forecasts based on eMarketer's predictions for 2021. There's still a lot of room for programmatic advertising to gain share, and Jeff Green, the CEO of The Trade Desk, has mentioned on several occasions that, all ads will be eventually be transacted programmatically just because it's more efficient. With the stock is down about 24, 25 percent from its high right now. If I had to pick one company to own over the next five years, it would be The Trade Desk.