Becoming a trillion-dollar company is a significant milestone. There aren't too many that have achieved that lucrative target, and fewer still have remained above the threshold. That said, it's not an impossible task. As of this writing, Apple and Microsoft boast market capitalizations of over $2 trillion, and Alphabet and Amazon are well over $1 trillion.
What each of those companies has in common is a solid competitive advantage, repeated innovation, and an enormous market opportunity. Let's dive into The Trade Desk's (TTD -3.38%) business to determine its chances of becoming a trillion-dollar stock.
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The Trade Desk's market opportunity is massive
The Trade Desk is a global tech platform for buyers of advertising. It is committed to working exclusively with the demand side to stay far from the conflicts of interest that can arise when working with both buyers and sellers of ad inventory.
The market opportunity ahead of The Trade Desk is massive. CEO Jeff Green believes The Trade Desk's total addressable market is close to $1 trillion. An immense market opportunity is key to achieving exponential market cap growth. A business never captures 100% of a market, so the more significant the opportunity, the more room for several companies to grow massive.
Already, The Trade Desk is demonstrating explosive growth. From 2014 to 2021, it grew revenue from $45 million to $1.2 billion. The company benefits from an increasing share of advertising moving to digital channels where it thrives. The trend is unlikely to reverse as digital advertising offers advantages not found through linear channels. For instance, marketing effectiveness is more accurately measured through digital spending. The number of people who viewed your advertisement is harder to discern when placing an ad on a billboard, on the radio, or in a print magazine.
Moreover, after calculating the return on investments, marketers find that spending with The Trade Desk is worthwhile. This fact was highlighted in 2021 when the top 25 advertisers on The Trade Desk platform increased their spending by 50% year over year. If they weren't happy with the return on investment, they would not be boosting their spending on The Trade Desk's platform.
Finally, The Trade Desk is providing innovative solutions to advertisers. Its latest, called Solimar, offers marketers completely new ways to think about data, measurement, and goal-setting. Most ad buyers like the new solution, and nearly all spending will move over to the new solution within a year of its launch.
Can The Trade Desk reach a one-trillion-dollar valuation?
As of this writing, The Trade Desk is selling at a market cap of $32.44 billion with a price-to-sales (P/S) ratio of 27.88. That's a long road to travel to one trillion. Keeping the P/S ratio constant, The Trade Desk would need to hit annual sales of $35.87 billion to earn a market cap of one trillion.
Starting from The Trade Desk's 2021 revenue of $1.2 billion and growing to $35.87 billion would require a compounded annual growth rate of 45.9% for nine years. Interestingly, in the last seven years, The Trade Desk has grown at a compound annual rate of 59.8%, so it has proven its capability.
So to answer the question posed in the headline, could The Trade Desk become a trillion-dollar stock by 2030? Certainly. Will it be extremely challenging? Absolutely!
