While investors were otherwise engaged, The Trade Desk (TTD 3.35%) quietly became a force in digital advertising -- and those that were paying attention were rewarded. In fact, in the roughly five years leading up to November 2021, the company grew revenue by 891%, driving its stock up by more than 3,600%.
Then came the macroeconomic headwinds. The combination of high inflation, rising interest rates, and the bear market caused a time-honored tradition in the marketing business: In times of uncertain economic times, advertising spending slows to a crawl. Fears regarding a persistent downturn sent investors running for cover. As a result, the stock shed more than half its value, plunging 54% from its peak in late 2021.
The plunging stock notwithstanding, I think investors are underestimating the little adtech company that could. Here are three predictions about what to expect from The Trade Desk in 2023.
Image source: Getty Images.
1. The Trade Desk will gain (more) market share
You wouldn't know it by the stock price, but The Trade Desk has performed admirably since the commencement of the bear market. In fact, when compared with two of the biggest names in digital advertising, its results were superb.
In the third quarter, Alphabet's sales grew by a measly 6% year over year, while revenue at Meta Platforms actually declined 4%. At the same time, The Trade Desk's revenue jumped 31%, showing that the company is stealing market share from its rivals.
There's additional evidence of its market-share gains. The U.S. ad market was forecast to grow 7.3% in 2022. At the same time, digital advertising was expected to growth at 9.3%. For the first nine months of 2022 (the most recent results available), the company grew revenue by 36% compared with the prior-year period, illustrating that it's growing several times faster than the overall industry. Look for that industry-beating growth to continue.
2. Data privacy concerns will fuel The Trade Desk's growth
Two of the biggest developments in online advertising over the past couple of years have been the paradigm shift to data privacy and the pending demise of ad-tracking cookies. Consumers are increasingly keen to protect their personal data, which got a boost from Apple's move requiring users to opt-in for each app, which severely hobbled the effectiveness of ad tracking on its devices.
The Trade Desk long ago saw the writing on the wall and developed its Unified ID 2.0, which provides marketers with the data they need to target audiences, without the need to gather and use personally identifiable information. Furthermore, the latest version of its platform also allows marketers to integrate first-party data, helping advertisers better reach their target market.
Expect the trend toward data privacy to continue, which will in turn fuel The Trade Desk's growth.
3. Adoption of connected TV continues
One of the biggest shifts in advertising is quietly changing the future of marketing -- right under our noses. Traditional broadcast and cable television are in secular (though gradual) decline, and streaming video continues to grow in popularity. At the same time, ad dollars have been slow to make the shift to streaming, but that's changing.
Total ad spending on streaming platforms is expected to surpass cable and broadcast TV combined by 2025, fueled by the rapid adoption of connected TVs (CTV), according to a report by research firm TVREV. The premium video market -- which includes CTV advertising -- is already The Trade Desk's biggest channel, so the company is well positioned to benefit from the ongoing shift.
Bonus prediction: The Trade Desk stock rebounds
As stated previously, The Trade Desk stock is down roughly 54% from its high reached in late 2021. Yet that belies the company's continued growth and market-share gains. Furthermore, while it never was cheap in terms of traditional valuation metrics, the stock is cheap by historical standards. At roughly 10 times next year's sales, The Trade Desk's price-to-sales ratio hasn't been this low in several years.
Given The Trade Desk's reasonable sticker price, its industry-leading growth, and secular tailwinds, I'm comfortable predicting The Trade Desk's stock price will recover -- and likely soar -- in 2023.
