We are headed to one of our worst years in tech stocks, but that doesn’t mean it is all bad.
It’s time to look at a digital ad company that could make your portfolio next year.
Many subsectors of tech have not been left unscathed, but I do see pockets of strength and there is one particular company that has done admirably this year even if its stock price has gotten hammered.
Robust tech stock next year will be the ones that had great business models and healthy profitable profiles this year.
Numbers will only improve.
The company I’m thinking about is digital ad company The Trade Desk (TTD).
The massive global advertising industry is not yet done, and it really is the present and future.
Don’t put a fork in it.
Television ads are quite a dinosaur at this point and TTD is in the business of selling digital ad inventory.
However, a number of headwinds this year slowed the stock. Amidst heightened economic uncertainty, many brands are halting marketing budgets.
Another problem that has been extensively chronicled is the collateral damage from Apple's privacy updates.
This allows users to opt out of app activity tracking lowering the value of digital ads on the lucrative iOS operating system.
In general, digital advertising technology will continue to expand and The Trade Desk (TTD) will be a growth element of that expansion.
The Trade Desk has been a best-in-class player in the advertising ecosystem for years.
A demand-side platform that helps marketers purchase ads from publishers, the company champions the "open internet."
It doesn't compete with its customers in the way that Alphabet's Google and other internet and media giants.
In addition, many of its ad marketplace and software solutions are open source allowing marketing agencies and the brands they represent to build their own proprietary systems atop The Trade Desk's platform.
Revenue in the 3rd quarter was up 31% year over year, compounding the 39% year-over-year increase in the same period of 2021.
Another problem tech firms face while their stock price is low is the high cost of stock-based compensation.
Stock-based comp was a drag on earnings per share last quarter as it totaled $121 million compared to $34.5 million last year.
Nevertheless, The Trade Desk remains highly profitable.
The balance sheet remains in pristine condition as well, with $1.32 billion in cash and short-term investments and zero debt as of the end of September.
Although the stock price has halved from the November 2021 peak, the stock is well placed for a positive 2023.
Revenue is growing around a 30% clip during down times and once the Fed starts lowering rates, TTD will be off to the races and you want to be on board.
The weakness in tech shares has been painful for everybody as literally, every force went against tech in 2022.
Growth tech will outperform traditional tech stocks as the liquidity gates start to open and there’s a strong chance the Fed will start to pivot before 2023 is done.
