April is drawing to a close. Tax season is behind us, the kids only have a few more weeks of school, and spring has sprung.
Meanwhile, the first-quarter earnings season is just starting up. Online ad giants Roku (ROKU -3.87%) and Alphabet (GOOG -0.75%) (GOOGL -0.77%) posted analyst-stumping results last week, suggesting that the digital ad tech industry is back on stable ground after a couple of shaky years.
That sector trend should be good news for The Trade Desk (TTD -1.59%) and Magnite (MGNI -1.95%), who also ply their trade in digital advertising technology. Both companies are scheduled to report first-quarter results on May 8, so you have a week and a half to take action if you agree that the incoming reports should boost their stock prices.
In fact, I think you should buy The Trade Desk and Magnite shares with confidence at the end of April. These companies are poised to benefit from a healthier advertising market, but from dramatically different angles. Read on to see which ad tech stock you'd rather buy this week. You might want to grab both, even.
Magnite is ready for advertising's comeback
Let's start with the simpler investment thesis: Magnite's stock is undervalued.
Full stop.
You might recall the ad-space seller's stock taking a 50% plunge last summer. A robust third-quarter report carries much less weight than a slate of modest guidance targets for the rest of the year, inspired by an unstable economy. It's no fun selling ads when consumers keep an iron-fisted grip on their family wallets. What's the point in launching expensive ad campaigns when no one is ready to buy the stuff you're trying to sell?
That was the situation in August 2023, and things are changing right now.
- Roku saw its ad-based platform sales rise 19% year over year in the first quarter. "The consumer packaged goods, retail, and auto verticals grew, while insurance remained challenged," management stated in the earnings report.
- Alphabet's Google advertising revenues increased by 13% over the same span, with particularly strong gains in the YouTube video service. Both brand-boosting marketing and specific product ads saw soaring ad-buyer interest in the first quarter, according to management comments on the earnings call.
Moreover, Google will keep third-party tracking cookies alive in the Chrome web-browsing platform a bit longer than expected. Previously expected to drop off a digital cliff by the end of 2024, those ad-campaign tracker tools will now stick around at least through the first few months of 2025. Magnite makes heavy use of these traffic-reporting data packets, so this delay is another bundle of positive news.
In other words, I expect Magnite to post strong first-quarter results paired with more optimistic guidance for the rest of the year. If that doesn't at least start to repair the damage dome by modes guidance last summer, I don't know what will. And in the meantime, Magnite's stock trades at just 2 times trailing sales, 10 times forward earnings estimates, and 6.6 times free cash flows. Those are bargain-bin valuation ratios, and I'm convinced that Magnite will deserve richer multiples after the first-quarter report.
Why The Trade Desk's stock is worth a premium price
The Trade Desk isn't as undervalued as Magnite, but the hyper-targeted ad campaign manager still looks like a great buy this week.
This company took a significant hit last August for the same reason as Magnite. But in this case, analysts immediately swarmed to The Trade Desk and called it a buying opportunity after a 15% price drop.
You see, The Trade Desk can do things that most ad tech companies can't. The company is ready to rumble when the third-party cookies go away, thanks to an encrypted user data collector called Unified ID 2.0, or UID2. This solution is shared with the rest of the digital advertising market as an industry standard, but The Trade Desk developed this privacy-respecting data tool and will always call the shots. Others may use it, but nobody will do it better than the original inventor.
In a larger sense, The Trade Desk is ready to reap the benefits of an aggressively innovative company culture. Its sales never really slowed down in the inflation-colored industry downturn, and the company keeps boosting the percentage of revenues it spends on research and development:
TTD Revenue (TTM) data by YCharts
With their earnings reports coming up soon, I urge you to consider buying The Trade Desk and Magnite shares before the end of April.
Magnite offers an undervalued entry point into the rebounding market, while The Trade Desk leads this industry in innovation. Ultimately, both stocks have the potential to reward investors. Want an extra edge? Consider grabbing both! And whatever you do, look out for those potentially game-changing earnings reports on May 8.
