A diamond in the rough
Jamie Louko (The Trade Desk): Oftentimes, the best buying opportunities come when there is nothing but fear in the market, and I think that is the case with many tech stocks today. Profitable and fast-growing companies have been crushed, but as stocks recover, I think The Trade Desk could lead the charge.
The Trade Desk helps advertisers find digital ad space to promote their business, which can be difficult to do alone. Without facilitators like The Trade Desk, advertisers would have to hunt for publishers by themselves, and there would be no guarantee that the digital ad inventory they find would be the best way to reach their target audience. However, the Trade Desk has partnerships with over 225 publishers to help advertisers find inventory that will result in effective marketing.
The Trade Desk is the leader in this industry according to Gartner’s (IT 0.81%) Magic Quadrant, and that dominance is paying off. It generated $315 million in Q1 revenue, with over 43% of that turning into free cash flow. The company can use this cash generation to capitalize on the major opportunity ahead.
Despite being a leader, The Trade Desk still has plenty of room to expand. In 2021, the company had roughly $6.2 billion in ad spending run through its platform, but there was $439 billion in digital ad spending globally during the same period.
One of the risks that could come to light in 2022 is the implications of a recession. In a recession, businesses might have to cut back ad budgets, decreasing activity on The Trade Desk. While long-term investors should keep this in mind, it is important to realize that this is a short-term issue that affects the entire industry, not The Trade Desk alone. This could temporarily crimp the business, but investors who are focused on the next decade could still see amazing success from The Trade Desk, even if it was impacted by a recession.
Beaten-down industry leaders that still generate cash during these downturns are often ones that will thrive during the long-term, and The Trade Desk checks all those boxes. Shares have fallen 54% year-to-date, giving investors an appealing price to buy right now if the company can continue taking market share of the digital advertising space.
