There aren’t many better growth stories in the market than The Trade Desk (NASDAQ:TTD). But the TTD stock price suggests investors have forgotten that fact.
From December highs, the stock has fallen more than 25%. It’s down 15% in just the last four weeks.
There are some reasons why. The biggest is that changes in the online advertising market clearly have spooked investors. “Cookies” have been used to identify and track internet users for decades. They’re going away.
But that shift might well be good news for The Trade Desk. At the least, the company has positioned itself to manage through any kind of environment going forward.
In other words, The Trade Desk will be fine. And once investors realize that fact, TTD stock will resume its impressive trajectory. In the meantime, this sell-off provides an opportunity.
The End of Cookies
Cookies aren’t going away entirely. The focus is on “third-party cookies,” rather than “first-party” cookies — which are used to remember users to specific websites.
The move isn’t a surprise. It’s not necessarily bad news for anyone, either. Users are tired of being tracked. Regulators have been cracking down. The European Union, for instance, issued the General Data Protection Regulation, or GDPR, in 2016. That’s added difficulty and expense for U.S. companies operating on the continent.
The question is, what replaces cookies? They do have some use to advertisers, who benefit from targeting the users most likely to have interest in their products and services.
The biggest online advertising company has pushed FLoC (Federated Learning of Cohorts), which essentially uses data analytics to mimic personal identifiers. That method has plenty of flaws.
For its part, The Trade Desk is leading a consortium backing Unified ID 2.0. Unified ID 2.0 is an open-source framework that uses encrypted email addresses — and discloses its benefits to consumers. And The Trade Desk’s longstanding focus on the “buyside” of the digital advertising ecosystem should allow it to bring other companies on board.
Navigating Uncertainty
Now, it’s possible Unified ID 2.0 doesn’t wind up working out.
That approach has some question marks as well. Users may decide not to sign up, deciding that even anonymous tracking is too much. And The Trade Desk still needs to get larger publishers on board.
We don’t know how the shift away from third-party cookies is going to work. But that’s not a bad thing.
After all, it’s not as if The Trade Desk is some brand-new startup. The company will easily top $1 billion in revenue this year. It’s the leader in programmatic advertising, which is where the industry is heading.
Whatever the changes are, and whatever the new paradigm proves to be, The Trade Desk is going to be a big part of it.
The fact that we don’t know precisely what the future looks like thus isn’t a bad thing. We know advertisers like programmatic, and we know The Trade Desk is dominant in that category.
There’s one more thing to remember: Not all digital ads are tracked by cookies. Connected TV is a massive opportunity for The Trade Desk: Its customer ad spend on CTV doubled in 2020. CTV doesn’t support cookies.
TTD Stock Will Be Fine
We see these kinds of moves with growth stocks all the time.
At first, once the opportunity is apparent, investors get excited. They see massive markets and big growth and extrapolate both into the future.
But, as always, the world changes. Markets change. The best companies in the world don’t follow linear paths to success.
Investors too often forget that. When any kind of turbulence — or even potential turbulence — arrives, they get nervous and sell.
That’s not a mistake that should be made with TTD stock. This is a company that literally has revolutionized digital advertising. It increased revenue 26% in 2020 despite the novel coronavirus pandemic. And yet it’s only scratched the surface of its potential.
No, TTD stock is not “cheap.” Of course, it shouldn’t be. Companies like this don’t get cheap.
But sometimes, when any kind of uncertainty arises, they get cheaper. Nearly all of the time, the best companies prove their worth and power through. I don’t expect The Trade Desk will be any different.
On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in the article.
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