The digital advertising industry has been thrown into chaos this year. It’s more than just a deep stock market sell-off that’s eating away at digital adware companies. ApplePrivacy changes to apps on its devices have triggered a migration away from “cookies” (small files downloaded to your device from a website that sometimes track your activity elsewhere) and online user activity tracking . In turn, these changes are impacting how advertisers and their partners measure the effectiveness of ad campaigns, not to mention how some companies monetize their apps.
Amid these changes, however, some advertising technologists are more than holding on. The trading post (TTD -1.94%) and PubMatic (PUBM 1.32%) are two such stocks that still look like great long-term buys right now. Here’s why.
1. The Trade Desk: An industry pioneer continues to extend its lead
With regard to stand-alone advertising technology outside walled gardens (such as Alphabet and Meta platform‘s Facebook), The Trade Desk still ranks among the largest. Co-founders Jeff Green (CEO) and David Pickles (CTO) have been developing advertising technology for a long time, and The Trade Desk’s approach to creating a more open and accessible Internet continues to appeal to many industry users.
The first quarter of 2022 is another example: revenue of $315 million was up 43% year over year, and 96% from the first quarter of 2020 at the start of the pandemic. While some adware companies have floundered in recent quarters, The Trade Desk continues to enjoy steady and rapid expansion.
The success of the Trade Desk lies in its ability to evolve with changes in the industry. It took proactive steps to launch Unified ID 2.0 (UID2), helping to move digital advertising beyond cookies and giving consumers more control over their privacy. Green reported that UID2 adoption is going well among ad agencies and marketers. The same goes for the company’s recent launch of OpenPath, which allows The Trade Desk users to see publishers’ ad inventory directly from the same platform – rather than using a separate sell-side advertising technology (more on that in a moment).
The Trade Desk continues to expand its lead in the digital advertising technology space with some of the best growth rates in the industry. And while it’s not a cheap stock (it’s currently trading 64 times over 12 months of free cash flow), The Trade Desk is very profitable and the bottom line is growing at a much faster rate. than income. If you’re looking for a long-term bet in this area, The Trade Desk is a great place to start right now.
2. PubMatic: An Upstart Too Cheap to Ignore
PubMatic is a much more recent entrant to the scene. The little outfit completed its IPO at the end of 2020 with great fanfare. But the high-growth, highly-valued stocks started to take a hit soon after, and it mostly went downhill from there. PubMatic’s share price is down 27% since its stock market debut.
That’s not to say PubMatic has been doing badly since becoming a public concern. On the contrary, revenue of $54.6 million grew 25% year over year in the first quarter of 2022, a rate of expansion that management expects to be able to sustain for the remainder of the year. year. Along the way, its adjusted EBITDA profit margin should be 36% to 37%. Despite what the stock price might indicate, PubMatic has actually done well since its IPO.
Of course, there are some concerns here. PubMatic is a sell-side digital advertising platform. It works with publishers listing ad slots available for purchase, precisely the type of inventory The Trade Desk is trying to consolidate on its own platform for marketers. PubMatic also owns and manages its own technological infrastructure (data centers and others), which has enabled it to increase its profit margins with increasing use. However, with inflation currently a concern and rising technology hardware costs, owning the infrastructure may not be as lucrative for PubMatic in the future as it has been in the past.
Nonetheless, on the supply side of the digital advertising equation, PubMatic is doing exceptionally well. Not only does he expect steady growth this year in sales and earnings, he has an impeccable balance sheet with $175 million in cash and short-term investments and no debt. At 22 times 12-month free cash flow, this stock looks like a steal if business can continue to grow at the rate it has been for the next few years.