Alphabet's (GOOG -3.33%) (GOOGL -3.37%) Google is often considered the 800-pound gorilla of the advertising market. The tech giant owns the world's largest search engine, the most popular streaming video platform, and a massive ad network that extends its reach beyond its core websites. A whopping 39% of all digital advertising spending worldwide flows to Google's ecosystem, according to Statista.
The growth of Google's advertising business has turned Alphabet into one of the world's largest companies with a massive market cap of $1.9 trillion. Alphabet's stock might still have plenty of room to run, but its ad sales have certainly cooled off in recent years as it's faced a litany of macroeconomic, regulatory, and competitive headwinds.
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Alphabet is still a decent long-term investment, but it probably won't replicate its massive gains from the past two decades. Therefore, growth-oriented investors who are looking for the "next Alphabet" should check out The Trade Desk (TTD -0.27%), a promising ad tech company that could head much higher than Alphabet over the next few years.
What does The Trade Desk do?
The digital advertising market is split into sell-side platforms (SSPs), which help publishers sell their own ad inventories, and demand-side platforms (DSPs), which help advertisers automatically purchase ad space across a wide range of platforms.
Google's advertising ecosystem bundles together SSPs, DSPs, and other advertising tools, but it locks publishers and advertisers into its own walled garden. Meta Platforms (META -2.41%), which ranks second in the global digital advertising market, adopts the same tactics across its Facebook, Instagram, and Audience Network.
Those walled gardens make it hard for advertisers to reach websites and apps across the "open internet" that isn't directly tethered to Alphabet or Meta. To crack open those walled gardens, more independent SSPs and DSPs emerged.
The Trade Desk is the world's largest independent DSP. It sits at the opposite end of the ad supply chain from big independent SSPs like Magnite. The Trade Desk sells ad space across desktop, mobile, and connected TV (CTV) platforms, but most of its recent growth has been driven by major CTV customers like Disney and Warner Bros. Discovery's HBO Max. Many of those streaming video platforms have been rolling out cheaper ad-supported tiers to broaden their audience, and The Trade Desk helps advertisers buy up all of that ad space.
The Trade Desk also continues to expand its ecosystem with Solimar, an AI-powered platform that leverages its first-party data to place ads without relying on third-party data; Unified ID 2.0, which replaces third-party cookies; and OpenPath, a tool that bypasses SSPs and directly connects advertisers to publishers. Those bold moves could transform The Trade Desk into a diversified advertising giant that gradually breaks through Alphabet's walled garden with its decentralized ads.
How much larger could The Trade Desk grow?
The Trade Desk went public in September 2016. From 2016 to 2023, its revenue grew at a compound annual growth rate (CAGR) of 46%, its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) increased at a CAGR of 51%, and its adjusted EBITDA margin expanded from 32% to 40%.
It generated $1.95 billion in revenue in 2023, which is comparable to Alphabet's pre-IPO revenue of $1.5 billion back in 2003. Over the following 20 years, Alphabet's revenue grew at a CAGR of 30% and reached $307.4 billion in 2023.
Analysts expect The Trade Desk's revenue to grow at a CAGR of 21% from 2023 to 2026 as its adjusted EBITDA increases at a CAGR of 27%. Those growth rates are impressive, but it could struggle to match Alphabet's growth trajectory.
The main difference is that Google's core search engine and YouTube were disruptive consumer-facing platforms, while The Trade Desk operates behind the scenes. Google benefited from the secular growth of the search, streaming video, and mobile markets over the past two decades, but The Trade Desk arguably lacks those fiery growth engines.
According to IRB Market Insights, the global DSP market could grow at a CAGR of 26% from 2023 to 2031. That's a high growth rate, but The Trade Desk still faces stiff competition from diversified tech giants like Amazon and Adobe, as well as leading CTV platforms like Roku, which has been bundling its own ad tech services into its streaming video software.
Could The Trade Desk become the next Alphabet?
It's still too early to tell if The Trade Desk, which has a market cap of $43 billion, will ever evolve into a trillion-dollar tech giant like Alphabet. Its stock also isn't cheap at 18 times this year's sales and 43 times its adjusted EBITDA.
That said, The Trade Desk is still growing faster than Alphabet, which is only expected to grow its revenue at a CAGR of 11% over the next three years. Therefore, The Trade Desk could be a much better choice for growth investors over the next few years, even if it doesn't come close to matching Alphabet's jaw-dropping gains from the past two decades.
