Netflix (NFLX +0.53%) has become a staple of the streaming industry. Despite losing subscribers in the most recent quarter, it still ranks as the most popular premium service and its original content consistently tops the charts. Thanks to that dominance, the stock has soared 1,600% over the past decade.
However, the company is clearly losing momentum. Top-line growth is decelerating and Netflix is starting to look like a more mature business. That doesn't mean the stock is a bad investment, but shareholders will likely find better returns elsewhere in the streaming industry. For instance, with Walt Disney (DIS 0.72%) (and possibly Netflix) set to launch ad-supported services, Roku (ROKU +0.55%) and The Trade Desk (TTD +18.39%) look like smart long-term investments.
Here's what you should know about these two monster growth stocks.
Image source: Getty Images.
1. Roku
The Roku brand has become synonymous with streaming entertainment. Its platform connects viewers with content publishers, allowing users to access and manage virtually every premium and ad-supported streaming service. Better yet, Roku OS is the industry's only operating system purpose-built for connected TV (CTV), meaning it theoretically offers a better viewer experience than repurposed mobile operating systems like Amazon Fire OS.
Roku has further distinguished itself by adding original content and live TV to The Roku Channel, its own ad-supported streaming service. Collectively, those qualities have made Roku the most popular streaming platform worldwide. In the first quarter, Roku powered 31% of global streaming time. That's nearly double the market share of the next closest competitor, which happens to be Amazon Fire TV.
NASDAQ: ROKU
Key Data Points
In the first quarter, Roku grew active accounts and streaming hours by 14%. In both cases, those metrics decelerated from the prior year, driven by the fading impact of the pandemic. However, engagement on Roku still outpaced the broader industry, which saw streaming time rise 10%. More importantly, Roku still posted solid financial results over the past year. Revenue soared 44% to $1.9 billion and free cash flow climbed 16% to $183 million.
Looking ahead, Roku has plenty of room to grow, and it's working hard to differentiate its platform. The company recently added personalized recommendations to the Roku home screen, and it announced a wave of new (and renewed) original titles coming to The Roku Channel this year. Those efforts should drive active account growth and viewer engagement, which should ultimately bring more ad spend to the platform. CTV ad spend in the U.S. is set to hit $30 billion by 2024, according to eMarketer. But the Roku OneView ad tech platform also enables marketers to run campaigns across desktop and mobile devices, meaning its market opportunity extends beyond CTV.
In short, Roku enjoys a leadership position in a large market, and with the stock trading at 4.2 times sales -- its cheapest valuation in the past three years -- now is a great time to buy a few shares.
2. The Trade Desk
The Trade Desk specializes in digital advertising. Its platform enables marketers to buy ad inventory programmatically, meaning the process is automated through real-time bidding rather than manual negotiations. The Trade Desk also provides access to data sets and measurement tools, allowing clients to plan and optimize targeted campaigns across CTV, desktop, and mobile devices.
As the largest independent buy-side platform, The Trade Desk benefits from a significant data advantage. It sees 13 million ad opportunities every second, and each one is an opportunity to learn more about consumer tastes and preferences. Using that information, its platform leans on artificial intelligence to surface insights, improve targeting, and drive clicks and conversions for marketers.
NASDAQ: TTD
Key Data Points
Despite tough competition, The Trade Desk continued to gain market share in the first quarter, and that trend translated into strong financial results. Over the past year, revenue soared 44% to $1.3 billion and free cash flow jumped 11% to $394 million. The company also kept its retention rate above 95% for the eighth consecutive year, evidencing the value its platform creates for advertisers.
On that note, The Trade Desk is well-positioned to maintain its momentum. In the first quarter, CTV was once again the fastest-growing segment of its business. But CTV ad spend still accounts for a small part of total TV ad spend worldwide. As ad dollars shift from broadcast and cable to streaming, The Trade Desk should benefit. And Walt Disney's decision to launch an ad-supported version of Disney+ should supercharge that trend.
More broadly, The Trade Desk released its latest upgrade last year, Solimar, giving marketers access to a better AI engine and "the world's most advanced data marketplace." That type of innovation should keep the company at the forefront of digital advertising, an industry set to hit $785 billion by 2025. That's why this growth stock looks like a rewarding long-term investment.
