The stock market has shown remarkable resilience so far this year despite the odds of a recession and the recent banking turmoil in the U.S., which is evident from the S&P 500 index's 4% gains in 2023.
Meanwhile, the tech-heavy Nasdaq-100 Technology Sector index has clocked stronger gains of 19% thanks to a rally in tech stocks. It is worth noting that the S&P 500 has a history of bouncing back strongly following a bear market. The index has averaged a 38% return in the 12 months after hitting lows during a bear market. The Nasdaq-100 also tends to deliver big gains in the year following a bear market, suggesting that a bull market may be in the cards as the Federal Reserve eventually pivots and starts cutting interest rates.
That's why investors can consider buying shares of The Trade Desk (TTD -4.63%). The stock has jumped 32% so far in 2023, and it could deliver more upside thanks to the lucrative market the company is operating in and the impressive growth rate it has been delivering. Let's look at the reasons why buying The Trade Desk could turn out to be a genius move.
The Trade Desk is outperforming the advertising industry
Advertising technology provider The Trade Desk had a solid 2022 with a 32% increase in revenue to $1.58 billion. Worth noting is that The Trade Desk's impressive revenue jump came at a time when the broader digital advertising market lost steam, recording just 8.6% growth last year after 2021's massive jump of 29.5%.
However, The Trade Desk's customers significantly ramped up their spending on the company's platform last year despite a marked deceleration in the digital advertising market. This allowed the company to grow at a much faster pace than the advertising industry. It is not surprising to see why advertisers are shifting their budgets toward The Trade Desk.
CEO Jeff Green remarked in the company's February earnings press release that "the world's leading advertisers are gravitating to fast-growing channels such as Connected TV (CTV) and retail media, which offer premium value at scale."
In simpler words, the growing adoption of streaming applications allows advertisers to improve audience targeting and drive higher returns on their ad spending. The Trade Desk claims that it has a wide reach in this market, with access to more than 90 million households and over 120 million connected television (TV) devices.
Insider Intelligence forecasts that spending on retail media channels such as CTV is expected to jump from $32 billion last year to $67 billion in 2026 in the U.S. alone. This terrific growth will be driven by advertisers shifting their ad dollars to on-demand video providers. Another estimate from the Interactive Advertising Bureau (IAB) suggests that ad investments in CTV could increase 14.4% this year, while traditional linear TV would witness a 6.3% decline.
Moreover, The Trade Desk has a solid opportunity to grow its business in the long run as it got 90% of the ad spending on its platform from North America last year. Only 10% of gross spending on the company's platform came from the global markets in 2022. But it is worth noting that 67% of all advertisement dollars were spent in the global market last year versus 33% in North America.
This explains why The Trade Desk is busy expanding its footprint in international markets. The company has struck partnerships with leading retailers such as Tesco in Europe and FairPrice in Singapore. As a result, it won't be surprising to see The Trade Desk's revenue head higher in the coming years, and this is what analysts are expecting from the company as well.
TTD Revenue Estimates for Current Fiscal Year data by YCharts
This impressive top-line growth is expected to filter down to the company's earnings as well, with consensus estimates forecasting 24% annual earnings growth at The Trade Desk over the next five years.
The stock is expected to head higher
The Trade Desk's healthy growth potential explains why analysts are expecting a healthy upside from the stock. It carries a median 12-month price target of $75 based on a consensus of 21 analysts, which would translate into a 26% upside from current levels. The Street-high price target of $90 points toward a potential upside of 52%.
The company's massive addressable market in the programmatic advertising space is expected to hit $725 billion by 2026 globally compared to $493 billion last year. The Trade Desk is already riding this secular growth opportunity, as the increase in advertising spend on its platform indicates. As such, it won't be surprising to see The Trade Desk stock head substantially higher in the future.
But the stock's forward price-to-earnings ratio of 56 means investors will have to pay a rich valuation to buy The Trade Desk. However, growth investors can consider paying such a multiple for The Trade Desk now as its growing influence in the advertising space suggests that it could maintain a high pace of growth for years to come and justify the rich valuation.
