Shares of advertising-dependent companies like Meta Platforms have plummeted, and even The Trade Desk — a leading ad tech platform — is down by almost 50 percent this year. On the other hand, Adobe and Salesforce are terrific investments.
Snap’s (NYSE: SNAP) dismal earnings report for the second quarter. Some investors are worried the rest of the advertising industry will suffer due to the company’s slow growth. So purchasing company shares seem wise.
Breaking Forecasts: Amazon stock forecast today is $3,680, Tesla stock forecast today is $976.82, and PayPal stock forecast today is $124.27.
1. The Trade Desk is struggling under the influence of external factors.
As concerns about a recession in the United States have grown, ad tech shares have fallen. Advertising is a cost that businesses can quickly reduce during a downturn. As an organization that helps companies buy advertising space and manage their ad campaigns, The Trade Desk will lose money if the demand for such services decreases.
This had been a theoretical concern for investors until Snap started feeling the adverse effects of the challenging macroeconomic environment. The company previously predicted a 20-25% increase in revenue for the second quarter, but in May, they retracted that projection. The company’s revenue growth of 13% year over year was reported on July 21. No third-quarter guidance was provided because management lacked confidence.
The market’s initial reaction to this news was the widespread belief that other companies in the digital advertising sector, such as The Trade Desk, would suffer the same fate as Snap. But instead, the Trade Desk demonstrates a substantial quality gap between the two companies.
2. Adobe
To say that Adobe is a primary software developer would be an understatement. Its fame stems mainly from the widespread adoption of its PDF file format. In addition, software for educational and artistic purposes, such as graphic design and video editing, is available.
Over the years, Adobe has consistently delivered strong growth. In just five years, sales have gone from $9 to $16 billion, a 200% increase. In addition, Adobe posted year-over-year revenue growth of 14 percent in the first quarter, despite a slowing economy.
Long-term social trends favor Adobe, making the company a good investment. The rise of social media, particularly video-sharing sites like Alphabet’s YouTube, is fueling the emergence of the creator economy. As a result, a possible fifty million people in the globe identify as “content creators,” with over 2 million creating content full-time.
Adobe’s continued success can be attributed in large part to the expanding market for digital media.
Shares of Adobe are not cheap because the company has demonstrated consistent, high growth, which justifies a premium valuation. Claims are down 30% year to date, but at a price-to-earnings ratio of 36, this is a quality stock worth buying on the dip.
3. The Trading Floor isn’t as Easy as Snap
Regarding buying and selling media, The Trade Desk is a go-to resource, and its partnerships with hundreds of publishers make it a powerhouse in the industry. In addition, the company has partnerships with major individual digital ad sellers like Yahoo and the most popular sell-side platforms like PubMatic, Microsoft’s Xandr, and Magnate.
Together, these factors expand The Trade Desk’s selection of available advertising space. Snap’s ad inventory has come exclusively from within the app itself. Therefore, Snap has nothing to offer its advertisers if they find their Snapchat ads less effective than those on other platforms. Conversely, if one of The Trade Desk’s numerous publishing partners ran into a similar problem, it is not nearly as significant for the ad tech firm.
The Trade Desk offers additional value to advertisers by providing inventory that may be more relevant to a particular ad campaign. For example, businesses looking to cut costs may advertise less on smaller platforms (like Snap) but more on larger venues (like Disney, which just signed a deal with The Trade Desk) because those consumers are more likely to be exposed to the ads.
These advantages appear to be materializing at present. For example, the Trade Desk has maintained its forecast for at least $364 million in second-quarter revenue, in contrast to Snap’s decision to retract its guidance and subsequent underperformance. This provides evidence that Snap’s problems are unique to the company.
4.SalesForce.com
One more leading SaaS company that any prudent investor should have a significant stake in is Salesforce. Consistent with its past performance, Salesforce saw first-quarter revenue increase by 24% year-over-year. Moreover, compared to the $28 billion in revenue it brought last year, the company’s free cash flow looks relatively healthy at $5.7 billion.
Among CRM vendors, Salesforce stands head and shoulders above the competition. Their software is used to streamline internal company communications and sales, marketing, and e-commerce operations. As a cloud-based service offered on a subscription basis, it is highly appealing to businesses due to its low barrier to entry and quick time to value.
Over the past two decades, investors have earned returns in the multi-bagger range from this stock. According to IDC, it has maintained its position as the market leader in customer relationship management (CRM) for the past nine years.
The stock has always seemed pricey, but with the recent market downturn, investors now have a fantastic chance to add this stellar performer to their portfolios at a bargain price. In addition, the stock’s current price of 6.2 times trailing sales is significantly lower than its historical average.
The company’s first-quarter update demonstrates its continued expansion and widening lead over rivals. So don’t be scared of the market downturn from investing in this high-quality growth stock.
As of right now, it might be a good time to start.
The Trade Desk stock has declined despite this, however. With a valuation of 18 times annual sales, its stock price has steadily increased because it has dropped by 49% since the beginning of the year. Of course, this is still not a low price, but it is the lowest valuation experienced since the first signs of the COVID-19 pandemic.
The Trade Desk is a high-quality business that also produces healthy profits. So, it could be worth more because of that reason. Non-GAAP net income was $105 million in the first quarter, and free cash flow was over $136 million.
If you need a business that can outperform its competitors in the short and long term, look no further than The Trade Desk. As a result of its low price relative to its historical average, investors may want to test the waters with this one.
