Insights

1 Top Tech Stock to Buy on the Dip

The stock market has not been kind to advertising technology companies so far this year. Shares of advertising-dependent companies like Meta Platforms have plummeted, and even The Trade Desk (NASDAQ: TTD) — a leading adtech platform — is down by almost 50% this year. 

Snap‘s (NYSE: SNAP) disappointing second-quarter earnings report added fuel to this fire. The company’s growth was far below expectations, leading some investors to be concerned about the rest of the advertising industry. However, these worries might be overblown, particularly in the case of The Trade Desk. In fact, right now looks like a prime opportunity to buy its shares.

External factors are weighing on The Trade Desk

Adtech stocks have slumped as fear has grown that the U.S. is heading toward a recession. If a recession hits, businesses will cut back on spending, and one of the most easily trimmed expenses is advertising. Considering that The Trade Desk facilitates ad transactions and helps companies purchase advertising space, declining demand for ads would hurt its business.

Largely, this had been a theoretical concern for investors — until Snap started feeling the negative effects of the challenging macroeconomic environment. In May, the company announced it was withdrawing its previous guidance for a top-line expansion in the range of 20% to 25% in the second quarter. The actual 13% year-over-year revenue increase it reported on July 21 was even more disappointing. And due to management’s uncertainty about its outlook, it did not offer guidance for the third quarter.

The market’s general response to this news was to assume the same factors that hurt Snap would hurt other digital ad sector businesses like The Trade Desk. However, these two companies diverge significantly in terms of business quality, and The Trade Desk is proving that. 

The Trade Desk isn’t Snap

The Trade Desk helps connect advertisers with sellers of ad space, and it has robust partnerships with hundreds of publishers. It works with top sell-side platforms like PubMatic, Microsoft‘s Xandr, and Magnite, and it has partnerships with large individual digital ad sellers like Yahoo as well.

This all provides The Trade Desk with a diverse inventory of ad space. Snap only has one source of ad inventory: its own platform. Therefore, if advertisers find advertising on Snapchat less effective than on other platforms, Snap has no alternatives to offer. On the other hand, a similar issue for one of The Trade Desk’s hundreds of publishing partners would be less problematic for the adtech company. 

As icing on the cake, The Trade Desk can supply inventory that might be more valuable to a given advertiser’s campaign. If a business needs to cut its ad budget, it might reduce its spending on platforms that target niche audiences (like Snap) but continue buying ad space on larger platforms that reach broader audiences like Disney — which recently inked a deal with The Trade Desk.

These benefits seem to be playing out right now. While Snap retracted its second-quarter guidance and subsequently underperformed analysts’ expectations, The Trade Desk has reiterated its outlook for at least $364 million of second-quarter revenue. This suggests Snap’s issues are not industry-wide problems.

Now could be a good entry point

Nonetheless, The Trade Desk stock has suffered. Its shares are down 49% year to date, bringing its valuation down to 18 times sales. On an absolute basis, this isn’t cheap, but it is the company’s lowest valuation since the very start of the COVID-19 pandemic.

Additionally, The Trade Desk is a high-quality company generating strong cash flow. As such, it might deserve a premium valuation. In the first quarter, it generated $105 million in non-GAAP net income and more than $136 million in free cash flow. 

The Trade Desk is a cash-generating leader in its industry, and it can outperform its peers both over the short and long run. Given its low valuation relative to its historical levels, investors might want to dip their toe into this investment right now.

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Jamie Louko has positions in PubMatic, Inc., The Trade Desk, and Walt Disney. The Motley Fool has positions in and recommends Magnite, Inc, Meta Platforms, Inc., Microsoft, PubMatic, Inc., The Trade Desk, and Walt Disney. The Motley Fool recommends the following options: long January 2024 $145 calls on Walt Disney and short January 2024 $155 calls on Walt Disney. The Motley Fool has a disclosure policy.

Trade The World Anywhere & Anytime!

Mobile app platform with over 50,000 global listed securities across 12 markets (over 70% global market capitalisation), right from your Android or iOS device.

Integrated with exclusive trading idea and investment analysis tools to help you find actionable insight on virtually every financial instrument across our 12 global markets, to help you optimise your trading strategies.

Refer Your Friends

Tell your friends about Monex and gift them FREE access to our trading tools.

  • This field is for validation purposes and should be left unchanged.

We respect your privacy and will only send this one email notification to your friends. 

Share With Your Friends

Rebate Rewards

Level 2 Rebate

Deposit $2,000 and get $200 Rebate
$ 200 Rebate
  • 3 Simple Steps
  • 1. Register Using The Link Below (Promo-Code: WEBREBATE)
  • 2. Deposit $2,000 and place one trade at any non-Austalian market within 30 calendar days
  • 3. Receive Your $200 Rebate
Popular

Level 1 Rebate

Deposit $1,000 and get $100 Rebate
$ 100 Rebate
  • 3 Simple Steps
  • 1. Register Using The Link Below (Promo-Code: WEBREBATE)
  • 2. Deposit $1,000 and place one trade at any non-Austalian market within 30 calendar days
  • 3. Receive Your $100 Rebate

Monex Trading Tools Access and Usage Terms

The Monex Trading Tools (referred to as ‘tools’ hereafter) are available to you inside your client portal;

To activate access to the tools, you must have a verified and approved trading account and have made a deposit of at least AUD $1000.

An active and funded account with a positive trading balance is required to continue to have access to the tools;

Although the tools are available to you, Monex Securities may at it’s discretion disable access to the tools in the future;

Monex Securities reserves the right to change these terms and conditions from time to time, as it sees fit, without notice.

EASY QUALIFICATION & LOW ENTRY
NEW CLIENT REBATE OFFER
EARN UP TO $200 CASH REBATE
Act Fast - Promotion Ends In
Click Here To Get Started
EASY QUALIFICATION & LOW ENTRY
NEW CLIENT REBATE OFFER
EARN UP TO $200 CASH REBATE
Act Fast - Promotion Ends In
Click Here For More Info