Watching the value of your investments tank is never fun, but we've been through this before. While experts make predictions of where the economy is going this year, what is certain is that the market will eventually hit bottom, and when it does, some tech stocks are going to explode off their lows.
The Trade Desk (TTD 0.70%) and Spotify (SPOT -1.30%) have been beaten down in this bear market, but there are good reasons to expect these tech stocks to deliver fantastic returns over the next decade. Take a look at each.
1. The Trade Desk
The Trade Desk is a leading advertising management platform that helps advertisers buy, create, and better manage their campaigns across many channels and devices. It provides companies access to a wide variety of ad inventory and third-party data that is valuable to ad buyers as they seek to capitalize on the increasing consumption of digital media.
The stock soared in recent years and probably got a little too expensive. But after falling 49% year to date, despite strong growth in the first quarter, investors have a great buying opportunity. Fears of a slowing economy and a potentially slow advertising environment are obviously weighing on Trade Desk's stock performance, but revenue still grew 43% year over year in the last quarter, representing an acceleration over the previous quarter.
There are not many companies that reported accelerating growth in the recent quarter, so investors might be selling the company's value too short. As CEO Jeff Green said during the first-quarter earnings call, "I believe we are now firmly established as the default [demand side platform] for the open internet and that we are very well positioned to grow and grab share regardless of the macro environment."
There are a few factors working in the company's favor. First, Trade Desk operates an open platform that clients can customize to their needs. It also doesn't buy ad inventory to sell to clients for a profit, but instead, makes money by charging a fee based on the total advertising spent over its platform.
The growing use of connected TV and 5G wireless speeds are two trends that will drive The Trade Desk's growth over the next decade. These new technologies are fueling the growth of data and the digital ad market, which management believes will eventually comprise nearly all advertising spending -- a $1 trillion opportunity.
At these lower share price levels, The Trade Desk offers attractive upside over the next 10 years. While it serves a large advertising industry, its trailing-12-month revenue totaled just $1.3 billion. All this means Trade Desk can grow for a long time.
2. Spotify
Spotify has dominated the music streaming market over the last decade. As its 422 million monthly users know, Spotify's popularity has to do with its personalized music recommendations and ease of discovering new artists. Other services offer the same features, but Spotify's availability across many devices has allowed it to remain the No. 1 streaming platform. Over the last four years, its subscriber churn has fallen by 30% even with increasing competition from Apple Music, Qobuz, Tidal, and others.
Success in music has put the company in a great position to expand into other audio markets like podcasting and audiobooks -- two areas where management is investing for growth. The worry on Wall Street is that these investments might weigh on Spotify's profitability. But management views podcasts as potentially more profitable than music, which makes sense, given that exclusive podcast content can better differentiate Spotify's service from competitors that offer the same catalog of songs.
The top music streamers are not competing on music content but who can deliver the best streaming technology, recommendations, and overall user experience. But this doesn't lend itself to a durable competitive advantage over the long term. By expanding into the broader audio landscape, Spotify can turn itself into more of a content creation platform, and therefore, take more control over its ability to produce growing profits.
The stock is down almost 58% year to date, with concerns over Spotify's margins weighing on the shares along with the broader market sell-off. But Spotify has better growth prospects than investors are giving it credit for. Spending per capita on music has started to increase again for the first time in nearly two decades, and that plays to the advantage of the leading audio platform.
