The Trade Desk (TTD 1.67%) has been a longtime winner as the stock is up over 2,000% since its initial public offering (IPO) in 2016. While repeating that performance is likely impossible (a 2,000% return at today's market cap would yield a $664 billion-sized company), the prospects are great enough for the stock to beat the market consistently.
I think there are three reasons why The Trade Desk stock should be a permanent staple in your portfolio, as each will continue to drive revenue growth for many years.
1. UID 2.0
The Trade Desk is in the advertising technology business, and it specifically helps advertisers place their ads in front of the correct audience. Using multiple data streams (including third-party, The Trade Desk's in-house, and first-party data), The Trade Desk can pinpoint where an ad will be most effective, which is critical for maximum return on advertisement spend.
With digital advertising expanding onto other platforms like connected TV, pinpointing what consumer is watching the ad is difficult, as tracking cookies don't follow users onto smart TVs. That's where The Trade Desk's Unified ID 2.0 (UID2) comes in.
UID2 converts email addresses into anonymous IDs, which allow advertising data to follow users around from device to device. While this may seem like a security concern, UID2 is an open-source technology, so it's more transparent about what data is being collected on users.
This technology is a strong candidate to become the industry standard once tracking cookies are phased out (currently planned for 2024 but delayed multiple times this year) and will solidify The Trade Desk's leadership position.
2. Ad tech is recession proof
Advertising has always been a tricky industry to invest in, as economic uncertainty causes advertisers to cut their budgets because it's an easy item to control spending. However, The Trade Desk has proved resistant to this trend. In the fourth quarter, The Trade Desk retained at least 95% of its customers, marking the ninth straight year it has achieved this feat. While most of the nine years have seen a strong economic operating environment, the last three have been a roller coaster.
TTD Revenue (TTM) data by YCharts.
Ad tech may prove to be more sticky than advertising thanks to its subscription nature and how integrated it has become into advertising campaigns. Because The Trade Desk helps its clients to spend efficiently, eliminating the tool that makes ads more effective on a smaller budget is unwise.
The Trade Desk's appearing like a recession-proof business adds to its allure as an investment.
3. Advertising isn't going away
Advertising is one of the oldest industries in the world. In fact, the oldest advertisement found is dated to 3,000 B.C. in Egypt. While there may be changes that occur within the industry, the business of advertising will never fade away.
With The Trade Desk ushering in the next wave of advertising, digital, it will likely stay on the cutting edge of new developments. This makes the stock a great candidate to keep in your portfolio for many years or even decades, as the advertising digital transformation is still in the early innings.
While those are my three reasons why The Trade Desk deserves a place in your portfolio, there are many others, including the company's strong revenue growth (24% growth in Q4) and profitability (The Trade Desk posted a 14% profit margin in Q4).
The Trade Desk has a strong business and a great approach to ad tech. While its days of 20-fold returns are likely over, it still has the potential to deliver market-beating returns each year.
