If you had invested $25,000 in The Trade Desk's (TTD 1.67%) initial public offering (IPO) in 2016, your investment would be worth $1.07 million today. The ad tech company delivered that return because it grew like a weed: From 2016 to 2022, its revenue had a compound annual growth rate (CAGR) of 41% as its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) had a CAGR of 47%.
You might be kicking yourself for missing out on those millionaire-making gains, but the stock could still have plenty of room to grow. Let's take a fresh look at its core growth engines to see if can replicate those massive gains.
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What are The Trade Desk's growth engines?
The Trade Desk is the world's largest demand-side platform (DSP) for digital ads. DSPs enable advertisers to buy ad space across desktop, mobile, and connected TV (CTV) platforms.
They sit on the opposite end of the supply chain from supply-side platforms (SSPs) like Magnite, which help publishers sell their own ad inventories. The Trade Desk's growth was primarily driven by three catalysts over the past several years.
First, it carved out a niche as a compelling alternative to Alphabet's Google and Meta Platforms (then called Facebook) in the saturated digital advertising space. Google and Meta both bundle together DSPs, SSPs, and other ad tech tools in a single platform, but their ad tools lock advertisers into their walled ecosystems.
The Trade Desk enables advertisers to break out of those walls and purchase ads across the "open internet" of websites, apps, and streaming video platforms that aren't tethered to Google, Meta, or other big tech companies.
Second, The Trade Desk believes the growth of ad-supported streaming video services will drive more advertisers to its DSP platform for CTV ads. CTV ad spending in just the U.S. could expand at a CAGR of 20% between 2022 and 2026, according to eMarketer, as linear TV platforms (like cable and satellite TV) fade away.
And third, The Trade Desk continues to beef up its ecosystem with new features. Its redesigned platform Solimar leverages artificial intelligence to gather more first-party data for targeted ads. Its Unified ID 2.0 format eliminates the need for third-party cookies. And the company's OpenPath tool completely bypasses SSPs to directly connect advertisers to publishers.
All these tools could help advertisers cope with big platforms' changes -- including Apple's privacy changes on iOS and Google's elimination of third-party cookies on Chrome -- as it evolves into a more-diversified digital advertising platform.
Could The Trade Desk turn $25,000 into $1 million again?
The Trade Desk had a great run over the past six years, but it would be extremely difficult for it to deliver a gain of more than 4,000% over the next six years for two simple reasons: Its growth is slowing down, and its valuations are still high.
From 2022 to 2025, Wall Street expects revenue and adjusted EBITDA to both grow at a slower CAGR of 23%. By 2025, the expectation is for $2.96 billion in revenue and $1.25 billion in adjusted EBITDA. Assuming it hits those targets and continues to grow both metrics at a more modest CAGR of 20% through 2028, it could potentially generate $5.1 billion in revenue and $2.15 billion in adjusted EBITDA by the final year.
Those figures would be nearly three times higher than its projected revenue and adjusted EBITDA for 2023. Assuming its valuations hold steady, the stock could certainly triple and turn $25,000 to $75,000 in six years -- but spinning it into $1 million would require a lot more time and patience.
If The Trade Desk continues to grow its annual revenue and adjusted EBITDA at a compound annual rate of about 14% over the following two decades, it might come close to turning your original investment of $25,000 today into $1 million by 2048.
But that estimate assumes its valuations stay unchanged. If The Trade Desk isn't still trading at 20 times sales by then -- which would be a big ask for a company with mid-teens growth -- it could take many more years for it to crack the million-dollar mark.
Pay attention to the numbers that matter
The stock probably won't replicate its multibagger gains from the past six years within the next two decades, but it's still a best-in-breed play in the ad tech sector and a sound way to profit from the secular expansion of the CTV advertising market.
It might take a long time for The Trade Desk to generate more millionaire-making gains on its own, but it could work in tandem with other great growth stocks in your portfolio to help you join the six-zero club.
