Investor sentiment has soured in response to economic uncertainty, sparking a sweeping downturn in the stock market. In fact, the broad-based S&P 500 and the tech-heavy Nasdaq Composite have both declined for three consecutive quarters, an event that last occurred during the Great Recession in 2009.
Yet, there is a silver lining for patient investors. Shares of some excellent companies have fallen dramatically to very attractive levels. For instance, Block (SQ 16.13%) and The Trade Desk (TTD -2.47%) have lost 71% and 57% of their value, respectively, providing a rare buying opportunity.
Block: Executing on a game-changing growth strategy
Block simplifies financial services for merchants and consumers. Its Square ecosystem removes the complexity from commerce by providing businesses with a cohesive suite of hardware, software, and services. Bundled systems from traditional providers of merchant services are often difficult to integrate and costly to maintain. But all Square products integrate seamlessly, making it easy for sellers to manage an omnichannel business.
Block brings an equally disruptive approach to consumer finance. Its Cash App makes it possible to deposit, borrow, spend, and invest money from a single platform, and that value proposition has inspired strong demand. In the first half of 2022, the Cash App ranked as the fourth-most-downloaded digital wallet worldwide and the most-downloaded digital wallet in the U.S.
In spite of economic headwinds, Block recently delivered a solid third-quarter earnings report. Gross profit climbed 38% to $1.6 billion, driven by exceptionally strong growth in the Cash App ecosystem, and adjusted earnings soared 68% to $0.42 per diluted share.
But investors have good reason to believe that the momentum will continue. Block has hardly scratched the surface of its addressable market of $190 billion in gross profit, and management is executing on a potentially game-changing growth strategy.
In the third quarter, Block added a "discover" tab to the Cash App interface, which lets consumers browse products from Afterpay and Cash App Pay merchants within the digital wallet. That marks the first step in transforming the Cash App into a commerce engine, a move that should benefit Block in two ways. It will theoretically boost sales for Square and Afterpay sellers, and it will allow the company to monetize the Cash App through digital advertising, just like Amazon monetizes its marketplace through sponsored product placements.
The Trade Desk: Gaining market share in digital advertising
The Trade Desk operates a demand-side platform (DSP) that lets marketers plan, measure, and optimize digital campaigns across desktop, mobile, and connected TV. At the heart of its platform is Koa, an artificial intelligence engine that finds insights based on consumer attributes, helping marketers spend ad dollars more effectively.
The Trade Desk also designed its DSP using bid-factor-based architecture. That unique system improves ad-campaign performance by letting marketers create very precise targeting for their ads with just a few clicks. Every other DSP is built on an architecture that is a more unwieldy method of targeting ads.
Also noteworthy, The Trade Desk operates an independent DSP, meaning it does not own any content platforms and therefore has no reason to push marketers toward any specific ad inventory. That removes the conflict of interest inherent with ad-tech vendors like Meta Platforms and Alphabet, both of which have a clear incentive to steer marketers toward their own web properties (e.g., Facebook and YouTube).
In a nutshell, The Trade Desk has distinguished itself with its unique platform architecture and its transparent business model, and those advantages continued to drive strong growth in the third quarter. Revenue climbed 31% to $394.8 million and adjusted earnings soared 44% to $0.26 per diluted share.
Those results are particularly impressive when compared to the broader industry. For instance, Alphabet posted single-digit sales growth in the most recent quarter, and Meta Platforms saw revenue decline. CEO Jeff Green said that The Trade Desk gained more market share in the third quarter than at any other point in its history.
Looking ahead, worldwide digital advertising spending is expected to grow at 10% annually to reach $876 billion by 2026, according to eMarketer, meaning that The Trade Desk has a long runway for growth. And with shares trading at 16.7 times sales -- a discount to its five-year average of 23.9 -- this growth stock is worth buying today.