Several technology stocks that went public in the last decade have generated exponential returns for investors. A low-interest-rate environment, widening GDP numbers, the enterprise-wide shift towards digital transformation, and the ongoing pandemic all acted as key catalysts for high-growth tech stocks in recent years.
One such technology stock is The Trade Desk (NASDAQ: TTD), which operates in the digital advertising space. The Trade Desk went public in September 2016 and listed its shares at $18. So, you could have purchased 55 shares of TTD for $1,000 during its initial public offer (IPO).
Last year, the management of The Trade Desk announced a 10-for-1 stock split, suggesting the split-adjusted IPO price for TTD reduces to $1.8. This also indicates you would have then had 555 shares of The Trade Desk after the stock split was announced.
The Trade Desk stock touched a record high of $108 in November 2021 and is currently trading at $43.
Despite the significant pullback in the last eight months, The Trade Desk has still returned 2,290% to investors since its IPO.
So, an investment of $1,000 in The Trade Desk stock would now be worth around $23,000, easily outpacing the broader markets. Comparatively, the S&P 500 index has returned less than 100% in this period.
However, investors should note that historical returns don’t matter much to future investors. Can the company continue delivering outsized gains to investors?
An overview of The Trade Desk
The Trade Desk is a company that provides digital advertising services to enterprises. Its cloud-based platform allows ad buyers to create, manage, and optimize data-driven digital ad campaigns across multiple formats and devices.
The Trade Desk’s robust platform provides ad buyers access to data, inventory, and publishing partners, improving their reach and capabilities. Its clients are primarily ad agencies with whom The Trade Desk has master service agreements. The Trade Desk generates revenue by charging clients a platform fee based on total ad spending on its platform.
In 2021, gross spending on The Trade Desk platform rose to $6.2 billion, an increase of 47% year-over-year, allowing it to report close to $400 million in free cash flow in the last year. The company also ended Q1 with a customer retention rate of 95%, making it one of the top picks for growth investors.
What next for The Trade Desk stock and investors?
The Trade Desk is well poised to gain traction in the connected TV or CTV vertical as it has access to more than 120 million devices in the U.S. It has already partnered with streaming heavyweights such as Disney. At the same time, the possibility of Netflix providing ad-supported content to lower-tier subscribers is quite an enticing prospect for The Trade Desk.
The significant decline in The Trade Desk stock makes it attractive, given the company grew revenue by 43% to $315 million in Q1 while reporting an adjusted EBITDA margin of 38%. Analysts tracking TTD stock expect the company’s sales to increase by 33% year-over-year to $1.6 billion, while adjusted earnings might expand by 10% to $1 per share in 2022.
It indicates that The Trade Desk stock is valued at 13-times forward-sales and 43-times forward-earnings, which might seem overvalued given a volatile stock market. However, as it’s impossible to time the market bottom, long-term investors should view every significant dip as a buying opportunity.
Wall Street remains bullish on The Trade Desk and has a 12 month average price target of $75 for the stock, suggesting an upside potential of 74%.
Writer at MyWallSt
Aditya took an interest in the stock market during the financial crash of 2008-09. His favorite stocks include Roku and Apple as both companies enjoy a leadership position in their respective verticals and are poised to beat the broader markets consistently going forward.