We recently compiled a list of the 8 High Growth Software Stocks That Are Profitable In 2024. In this article, we are going to take a look at where The Trade Desk Inc. (NASDAQ:TTD) stands against the other high growth software stocks.
The Software Industry: An Analysis
The software market is experiencing robust growth, driven by various trends and technological advancements. According to Precedence Research, the global software market size reached $659.17 billion in 2023. Looking forward, the market is expected to grow at a compound annual growth rate (CAGR) of 11.8% during 2024 – 2034 to reach $2.24 trillion by the end of the forecast period. In 2023, the North American region led the software market, holding a substantial share of 44%. The Asia-Pacific region is expected to witness significant growth during the forecast period.
A key factor influencing the market is the rise of artificial intelligence (AI). AI technologies are being integrated into software solutions to enhance efficiency and automate repetitive tasks. A study from Salesforce reveals that 85% of IT leaders expect AI to boost developer productivity over the next three years. This expectation underscores the growing recognition of AI’s role in streamlining workflows and optimizing software performance.
Another significant trend is the shift towards cloud-based software. Companies are migrating from traditional on-premises solutions to cloud services due to their flexibility, scalability, and cost-effectiveness. This transition allows businesses to access applications remotely and across various devices, which has become crucial in today’s digital landscape.
The 2024 AlgoSec State of Network Security report highlights a notable shift towards multi-cloud environments. The research, based on surveys conducted in H2 of 2022 and 2023, evaluated major players like AWS and Microsoft Azure. It indicates that security, continuity, and compliance are key factors driving organizations to adopt cloud platforms. While cloud adoption is growing, Azure remains the most popular platform, with AWS rapidly gaining ground.
The report also reveals that the move to remote work has significantly boosted Software-Defined Wide Area Networks (SD-WAN) deployment, dropping the percentage of organizations without SD-WAN from 55.2% in 2022 to 34% in 2023. Secure Access Service Edge (SASE) has become a popular solution for organizations by consolidating security functions into a unified cloud service. Additionally, firewall implementation has surged, with only 7.1% of respondents reporting no firewalls in 2023, down from 28.4% in 2022. This trend reflects a growing focus on securing cloud networks against external threats.
With an overview of the global software market in mind, let’s take a look at the 8 high-growth software stocks that are profitable in 2024.
Methodology
To compile our list of the 8 high-growth software stocks that are profitable in 2024, we used stock screeners from Finviz and Yahoo Finance. We sorted our results based on market capitalization and picked the top 50 largest software companies by market cap.
To narrow down our list to high-growth software stocks, we focused on companies with a compound annual growth rate (CAGR) in net revenue exceeding 18% over the past 5 years.
Next, we focused on profitability. From this initial list of high-growth software stocks, we narrowed our choices to stocks that had positive trailing twelve-month (TTM) net income and stocks that have grown their net income positively over the past 5 years.
To ensure the reliability of our findings, we consulted reputable sources such as SeekingAlpha, which provided insights into the net income CAGR and revenue CAGR over the past five years, and YCharts, which offered information on TTM net income.
Finally, from this list of high-growth software stocks that met our criteria, we focused on the top 8 stocks most favored by institutional investors. Data for the hedge fund sentiment surrounding each stock was taken from Insider Monkey’s database of 912 elite hedge funds. The 8 high-growth software stocks that are profitable in 2024 are ranked below in ascending order based on the number of hedge funds holding stakes in them as of Q2 2024.
Why do we care about what hedge funds do? 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)
TTM Net Income: $253.36 Million
5-Year Net Income CAGR: 21.00%
5-Year Revenue CAGR: 31.16%
Number of Hedge Fund Holders: 46
The Trade Desk Inc. (NASDAQ:TTD) is a leading advertising technology company that specializes in advertising solutions for digital marketers. It offers a self-service, transparent software and cloud-based platform that allows advertisers to create, manage, and optimize their digital ad campaigns across various channels and devices.
The company is focused on enhancing its advertising technology with the recent launch of its innovative platform, Kokai. This platform allows clients to utilize data about their most loyal customers to identify and target new audiences. By leveraging AI, Kokai helps advertisers navigate approximately 15 million ad opportunities every second, optimizing their campaigns in line with their unique growth objectives. The company has also made significant progress in Connected TV (CTV) and retail media, strengthening its partnerships with major networks like Netflix and FOX to help engage their audiences and drive results.
In Q2 2024, The Trade Desk Inc. (NASDAQ:TTD) reported impressive financial results, with revenue reaching $585 million, marking a 26% increase year-over-year. Net income also saw substantial growth, rising to $85 million from $33 million in the same quarter last year. The company finished the second quarter with a solid cash and liquidity position, holding $1.5 billion in cash, cash equivalents, and short-term investments. In Q2 2024, The Trade Desk maintained a customer retention rate of over 95%, continuing a trend that has lasted for the past ten years.
TTD ranks among the most profitable high-growth stocks to invest in. Over the past five years, the company has seen its revenue grow at a compound annual growth rate (CAGR) of 31.16%, with net income increasing at a CAGR of 21%.
With ongoing innovations and a strong market position, The Trade Desk Inc. (NASDAQ:TTD) presents a compelling investment opportunity for those looking to capitalize on the evolving landscape of digital advertising.
As of the second quarter of 2024, The Trade Desk Inc. (NASDAQ:TTD) was held by 46 hedge funds, according to Insider Monkey’s database. Parnassus Investments stated the following regarding The Trade Desk Inc. (NASDAQ:TTD) in its “Parnassus Mid Cap Fund” second quarter 2024 investor letter:
“The Trade Desk Inc. (NASDAQ:TTD), a cloud-based media-buying platform for advertisement purchasers, reported a strong quarter based on increasing demand for connected TVs. The stock received another boost after the company announced a partnership with Netflix, which should accelerate Trade Desk’s growth.”
Overall TTD ranks 6th on our list of the high growth software stocks that are profitable in 2024. While we acknowledge the potential of TTD as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. 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.