We recently compiled a list of the 10 Best Advertising Stocks to Buy According to Short Sellers. In this article, we are going to take a look at where The Trade Desk, Inc. (NASDAQ:TTD) stands against the other advertising stocks.
When compared to the copy driven model of the late 1900s as popularized by shows such as Mad Men, the advertising era of 2024 is completely different. Today, advertisers have at their disposal the data of billions of people which they can characterize according to preference and target their ads to. This growth in digital advertising has been driven by the rise of video streaming platforms and digital publications, which continue to gain market share over paper newspapers.
Nowhere else is the impact of digital advertising in today’s era clear as through the value of the world’s largest search engine company. A mega cap stock, this firm has a market value of a whopping $2 trillion, making it one of the largest companies in the world in terms of market value. Yet, in another case of 2024 being a historic year of shifts for the technology industry as evidenced by technologies such as artificial intelligence, this firm is also facing the heat from the US government which might end up changing the very fabric of the industry.
The search engine giant, which earned $187 billion in trailing twelve month revenue from search and advertising, traces its roots back to the late 1990s when its founders created an algorithm called PageRank. This software determined which webpages were authoritative based on the amount and quality of backlinks they got, and as the engine grew, so did the firm’s dominance in the global advertising industry as it processes more than 22 billion searches per day. However, this gravy train might be ending as a Washington judge ruled in August that its $26 billion in payments to other firms to make the platform the default option on their devices was an anti competitive behavior that locked others out in the industry.
Following the ruling, there are rumors that the Justice Department might be considering breaking the company up by making it divest its mobile software and web browsing business divisions. However, any such decision will require court approval which will force the firm to comply. And while a court victory is great for news headlines, the US government has rarely broken up large companies in the modern era. The last such case was in 1982 through the breakup of the Bell System, and even if the browser and OS were made separate businesses, they are unlikely to survive on their own since both are provided to users for free.
Not to mention, the long drawn nature of anti-trust action could take years, and end up being enforced when the industry is vastly different from what it is now. This is because artificial intelligence is gnawing at the heels of the industry, with products such as OpenAI’s SearchGPT already in early stage releases. Speaking of AI, it’s also making its mark on the advertising industry. Just as advertisers are able to rely on millions of users’ data through search and social media platforms, AI helps them navigate through this data in novel and new ways.
As per McKinsey, marketing and sales could see a $931 billion productivity boost from AI through new features such as personalized campaigns and improved data use. These use cases have already become apparent, with the largest social media company in the world regularly sharing updates about how it is using AI to make advertisers’ jobs easier on its platform. Two tools that it offers are the Advantage+ and Advantage+ Shopping platform which enables advertisers and sellers to automate their campaign operations and determine the best advertisements to run. The platforms also appear to be driving results, with the firm quoting a study that is “demonstrating 22% higher return on ad spend for US advertisers after they adopted Advantage+ Shopping campaigns” with revenue for the firm through the two AI platforms doubling annually during Q1 2024.
Speaking of revenue, the advertising industry’s spending, which determines the fate of publishers is also determined by the state of the economy, consumer confidence, and advertisers’ outlook. One such firm with brands in more than 100 companies shared during its Q2 2024 earnings call that while the advertising market is not at its best right now, it does appear to be recovering. This recovery is taking place in areas such as food and technology which joins strong performance in healthcare, pharmaceuticals, and beauty care. Another publisher, which is one of the most well known digital media and lifestyle platforms in the world that relies on programmatic advertising (data driven user targeting through ads), saw its programmatic revenue grow by 3% annually during Q2 even as broader advertising revenue dropped by 19% annually.
With these details in mind let’s take a look at which advertising stocks to buy according to short sellers. For stocks that are driving advertising technology, you should check out 8 Best AdTech Stocks to Buy Now.
Our Methodology
To make our list of the best advertising stocks to buy according to short sellers, we listed the NASDAQ and NYSE listings of an advertising ETF by the percentage of shares outstanding that were sold short and selected the stocks with the lowest percentage. An added 23 stocks after an internet search were also analyzed, but all these had market caps below $300 million so they were excluded.
For these stocks, we also mentioned the number of hedge fund investors. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A large array of computer screens and tech equipment representing the technology company’s self-service cloud-based platform.
The Trade Desk, Inc. (NASDAQ:TTD)
Short Interest as % of Shares Outstanding: 2%
Number of Hedge Fund Investors In Q2 2024: 46
The Trade Desk, Inc. (NASDAQ:TTD) is an advertising technology company that provides advertisers with a unified service to run their ads on different platforms. Its platform supports social media and streaming devices as well, which places The Trade Desk, Inc. (NASDAQ:TTD) favorably to capture two of the fastest growing media platforms in the world. Additionally, programmatic advertising, the fastest growing advertising market with an estimated compounded annual growth rate (CAGR) of 22.8% also provides key tailwinds and opportunities to The Trade Desk, Inc. (NASDAQ:TTD) especially due to its strong market position. The firm counts several sizeable companies, like HP as its customers, and its programmatic advertising platform UID2 allows businesses to run ads on Disney+ and Hulu. The Trade Desk, Inc. (NASDAQ:TTD)’s significant exposure to the streaming industry can provide it with key growth moving forward, provided it does not suffer from macroeconomic uncertainty.
Rowan Street Capital mentioned The Trade Desk, Inc. (NASDAQ:TTD) in its Q1 2024 investor letter. Here is what the firm said:
“We bought TTD stock exactly 4 years ago at an average cost of $17.40 (split-adjusted). Since our purchase we have made 5x on our original investment, translating to ~50% annualized return. But it’s our journey to the 5-bagger return that is most interesting here. About 1.5 years following our purchase, the stock had skyrocketed to the highs of $107 in November 2021 as NASDAQ peaked. At the time we knew very well that the stock was overvalued and had gotten ahead of itself. After all, this was a 6-bagger in just 1.5 years, so the conventional wisdom would suggest to bag your prots. “You don’t go broke taking a prot” they say, which is the biggest lie on Wall Street in our opinion.
However, we decided to keep the stock, knowing that it will likely experience a correction sometime in the near future. And here is our rational… First of all, we had gotten to know Trade Desk and its management team relatively well during our 1.5 years of ownership. We were convinced that we had stumbled upon a great business with excellent long-term growth prospects. We were fortunate to establish a position at an attractive price as this stock has always been very expensive. If we were to bag our prots at the time, no one would criticize a 6x return over the course of 1.5 years. But… what would we do with the cash proceeds? First, our investors would be faced with a capital gain tax bill at the end of the year. Would we sit there in hopes that we can buy it back at a lower price? And if it dropped, would we have bought it back? Our experience has taught us that it sounds nice in theory but very unlikely in practice! Could we have avoided a setback? Yes, but who could be sure we would return to the stock in time before an important rally (close to impossible and not what we are good at). So 5x in 1.5 years is very nice, but 5x in 4 years as of now is still an amazing return. And… we still own a great business that will likely do well over time and we didn’t take all that capital and plow it into something we don’t know very well or is likely a mistake. There are not a lot of TTDs around! Truly exceptional companies are rare and our job is to buy right and to hold on!”
Overall TTD ranks 10th on our list of the best advertising stocks to buy according to short sellers. While we acknowledge the potential of TTD as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than TTD but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
