Is It Too Late to Buy The Trade Desk Stock?

To the average consumer, the advertising on television probably doesn't seem much different on streaming services than it did on linear television. Ads on TV are commonplace, no matter how we consume the content. However, how those advertisements are bought and sold has seen a dramatic shift behind the scenes.

One of the major players in that shift is The Trade Desk (TTD 0.70%), the leading buyer of digital advertising. If you see an ad on your streaming service, there's a good chance The Trade Desk got it there. 

The Trade Desk's success in this space has yielded impressive results for investors. Since its initial public offering, The Trade Desk has returned over 1,900% for shareholders. That's a significant gain in less than 10 years, and potential investors may think they've missed out. Let's see if it's too late to buy The Trade Desk stock.

Benefiting from reduced ad spend

Part of the narrative over the past several quarters is that advertising spend has been slowing due to the macroeconomic conditions. If companies need to cut expenses, it stands to reason they would pull back on their advertising spending.

To accomplish this, companies are prioritizing their advertising dollars and spending where they can get the highest return on that investment. And based on the results, it appears The Trade Desk is the major beneficiary.

For 2022, The Trade Desk saw continued impressive results on the top line. Revenue grew 32% over 2021, continuing an impressive streak of growth.

Data source: The Trade Desk.

It's important to note that the only year revenue growth was under 30% was the pandemic-impacted 2020. It's clear that advertisers see the Trade Desk as a valuable partner for buying ad space.

The fact that companies are prioritizing their ad spend with The Trade Desk is no surprise considering the data advantage this partnership creates. By placing a company's ad on the right digital platform in front of the right demographic, companies can target their advertising in a way that wasn't possible in the past.

The future is streaming and ad-supported

The Trade Desk believes it is pursuing a total addressable market (TAM) worth more than $800 billion. Investors should always take a company's TAM estimates with a grain of salt, but there's no denying the opportunity is large.

One of the tailwinds that could push The Trade Desk toward this market opportunity is the growing popularity of connected TV. As more consumers make the switch from linear to connected TV, companies need to shift their advertising, or they will miss out on a core audience. 

This shift appears to be accelerating as well with major streaming companies like Netflix and Walt Disney adding ad-supported tiers to their subscription services.

Beyond the desire to reach potential customers, advertising on connected TV has a data advantage as well. Instead of buying ads that companies hope will be seen by the right viewers, connected-TV advertising provides key reporting metrics for brands to assess the quality of their ad spend.

Is it too late to buy the Trade Desk?

It's clear The Trade Desk has established itself as the premier player on the buy side of the digital advertising marketplace. It's also clear there's still a massive market opportunity to pursue. The remaining question for investors is whether the stock's performance to date means they have missed out.

Fortunately, that's not the case. Despite no specific company news to warrant such a steep drop, The Trade Desk was not able to escape the downward pressure from 2022's bear market as shares declined as much as 50% in the past year. And despite a significant recovery in early 2023, the stock is still down 33%.

The Trade Desk's current price-to-sales ratio (P/S) of 19 isn't cheap, but it's still below the company's three-, five-, and 10-year averages, presenting a compelling buying opportunity for potential investors.