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The Scariest Story Ever Told
I’m a big fan of horror movies. There are few better ways to spend an evening than on the couch with my wife, dogs, some popcorn, and a good flick. But no paranormal hunt, thriller, or psychological drama compared to the story I read yesterday in a financial publication.
A man in his 70s wrote to an advice column that he had very little savings, no significant assets, and expected to work indefinitely. He now was contending with health ailments and (understandably) panicking. I got that feeling, like looking over the edge of a tall building, reading this haunting tale. I genuinely feel for this person.
This is all too common, unfortunately. According to a recent study, more than half of Americans feel behind in retirement savings; many have no savings at all. Even if we shore up Social Security, most of us will need more to maintain our lifestyles. Investing to reach our retirement dreams is essential.
Long-term investing makes retirement dreams a reality.
The amount of people on Seeking Alpha interested in investing is fantastic (and if you are under 30 and growing a nest egg, you’re ahead of the game; congrats!). And for us older folks, it’s even more important.
There are many tools to help us reach our dream retirement. I’m a tremendous fan of dividend-growth stocks like AbbVie (ABBV), Analog Devices (ADI), and Texas Instruments (TXN), which I’ve covered most recently here, here, and here.
We can also make massive headway supplementing this with a couple of winning growth stocks.
Here’s an example.
The case of ServiceNow
Growth stocks that revolutionize industries have unique potential.
Take ServiceNow (NOW) as an example. Its platform-as-a-service ((PaaS)) transformed digital workflow operations so much that Forbes named it the #1 most innovative company in 2018. Folks who purchased it at its 2012 IPO have seen their money grow 1,700%, turning $10k into $178k, as shown below.
But there is no need to despair if we miss the company at IPO. A $10k investment at the beginning of 2016, or even 2018, is worth $51k and $34k today, respectively.
The Trade Desk (NASDAQ:TTD) is also widely recognized for innovation, and its tremendous results make it a compelling stock for long-term investors.
Let’s take a look.
A tool for a changing market
Advertising is changing. We all know this. Gone are the days when cable television and print were dominant. Advertisers need to harness social media, online video, streaming (connected television “CTV”), display ads embedded in websites, and more. Brands must be “omnichannel” (a fancy word for advertising on several mediums).
But this is easier said than done. There are billions of advertising opportunities daily, and brands must find their target audience. It doesn’t do much good advertising pet insurance to folks who don’t own pets.
This is where The Trade Desk’s platform takes off. It offers advertisers and their agencies oodles of omnichannel opportunities, first-party data, a user-friendly interface, and stats to make sure campaigns are efficient and effective.
Many are concerned that a recession will crimp advertising profits, but it could also cause companies to rethink how they spend precious ad dollars – benefitting The Trade Desk long-term. The company is growing much faster than the industry as a whole.
Growth areas
CTV is The Trade Desk’s most fertile growth area. Companies that aren’t advertising on streaming television are missing a massive market. And more streaming services, like Netflix (NFLX) and Disney+ (DIS), are realizing they need ad-supported subscription tiers to profit.
The Trade Desk reaches 90 million households and even more streaming devices. It also offers targeted ad buying and helpful reporting of key performance metrics.
Shopper marketing is also taking off. The Trade Desk partnered with Walmart (WMT) to create Walmart’s DSP, Walmart Connect, and partners with Target (TGT), Walgreens (WBA), and others, helping maximize sales of their online and in-store ad space.
They recently published a story about how Coca-Cola, one of the world’s largest advertisers, is thinking about shopper marketing. They are activating campaigns across more than 25 retail media networks…Since Coke started building out its retail media strategy a few years ago, it has seen a major uptick in return on ad spend and incremental reach…across more than 130 million households in the United States. This approach has helped the company better pinpoint audiences in targeted channels like programmatic display, connected TV, and social media.
As I said last quarter, we now provide access on our platform to about 80% of the leading retailers in the United States, and we are growing our international footprint every month.
-Jeff Green, The Trade Desk Founder, and CEO
Is The Trade Desk stock a buy?
The company produced nearly $1.6 billion in sales in 2022, with 32% growth, as shown below.
Data source: The Trade Desk
Revenue growth is phenomenal but not the only reason for optimism.
The Trade Desk is GAAP profitable (even during its growth phase) and a capital-light business – massive cash outflows for property and equipment won’t burden it. As the company grows, free cash flow will balloon.
Cash from operations has grown from $405 billion in 2020 to $549 billion in 2022.
The company has no long-term debt, and cash and investments of nearly $1.5 billion. The fortress balance sheet was created with a giant boost from the stock-based compensation (SBC) given to founder and CEO Jeff Green. Many shareholders dislike SBC, so The Trade Desk isn’t for everyone. But when a company is uber-successful, this feeling dissipates. I doubt many early investors in Amazon (AMZN) worry about Jeff Bezos’s wealth.
Aside from saving cash, SBC aligns management and employees with shareholders – we all make more money when the stock price rises. It was encouraging that The Trade Desk introduced a $700 million stock buyback program last quarter. This is a standard way that large companies negate the dilutive effects of SBC and reward shareholders.
It’s tough to value a growth company. The price-to-earnings ((P/E)) ratio isn’t an appropriate measure at this stage (most young growth stocks don’t even have a P/E since they aren’t GAAP profitable), and long-term discounted cash flow models rely on significant subjective assumptions.
The Trade Desk currently trades near the same price-to-sales ((P/S)) ratio as it did before the pandemic, as shown below.
It also trades at a lower price-to-free cash flow ratio. Volatility is the norm for growth stocks, so dollar-cost averaging, a long-term investing mindset, and diversification are crucial; don’t let retirement dreams morph into nightmares. Many have soured on growth, which could mean it’s a terrific time to nibble.
The Trade Desk has compelling characteristics of secular growth stock winners; innovation, excellent management, terrific product, strong financials, and a massive market opportunity.
