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Technological advancements have revolutionized the advertising and marketing landscape in recent years, empowering businesses to connect with their target audiences more effectively through innovative tools like data analytics, artificial intelligence (AI), automation, and personalization.
Projections indicate that global ad spending will hit a whopping $1.1 trillion this year. Looking ahead to 2029, it is anticipated that 84.9% of advertising revenue will be generated through programmatic advertising, an automated process of buying and selling digital ad space through software algorithms.
Considering the massive scope of technology within the advertising industry, earlier this month, analysts at Jefferies (JEF) highlighted the bullish potential of two software companies, The Trade Desk, Inc. (TTD) and AppLovin Corporation (APP), which it believes are poised for growth thanks to their innovative solutions.
As both companies gear up to announce their upcoming quarterly results this week, let’s take a closer look.
Growth Stock #1: The Trade Desk
With a solid market cap of over $44.7 billion, Ventura, California-based The Trade Desk, Inc. (TTD) is a leading self-service cloud-based platform that empowers brands and agencies to amplify their marketing endeavors through advanced data-driven techniques.
Shares of Trade Desk have surged 44% over the past 52 weeks, surpassing the broader S&P 500 Index’s ($SPX) gain of 25.4% over the same time frame.
The stock is trading at 22.26 times sales, which is lower than its own five-year average of 25.74x.
On Feb. 15, Trade Desk captured investors’ attention after revealing its strong Q4 earnings results, which sent its shares 22.4% higher. The company’s revenue rose 23.5% annually to $605.8 million, surpassing analysts’ forecasts by 4.1%. On the other hand, despite falling short of Wall Street projections, the company’s non-GAAP EPS of $0.41 rose 7.9% year over year. Adjusted EBITDA improved 15.8% year over year to $283.7 million.
The company's CEO, Jeff Green, highlighted their ability to maintain profitability and generate significant cash flow while continuously innovating, such as with the introduction of Kokai, a cutting-edge digital advertising innovation that integrates breakthroughs in distributed AI and introduces the programmatic table. Trade Desk describes Kokai as “the industry's most advanced and intuitive media buying platform.”
In fiscal Q1, management anticipates revenue to reach a minimum of $478 million, while adjusted EBITDA is expected to be approximately $130 million.
Analysts tracking Trade Desk expect the company’s profit to reach $0.79 per share in fiscal 2024, up 119.4% year over year, and grow another 31.7% to $1.04 per share in fiscal 2025.
Investors should note that the company is expected to report its Q1 earnings results this Wednesday, May 8, after the market closes, which is likely to create some short-term volatility in the share price.
Trade Desk stock has a consensus “Strong Buy” rating. Out of the 26 analysts covering the stock, 20 recommend a “Strong Buy,” two suggest a “Moderate Buy,” three advise “Hold,” and the remaining one analyst gives a “Strong Sell” rating.
The average analyst price target of $94.47 indicates a potential upside of just 5% from current price levels. However, the Street-high price target of $110, reiterated by Susquehanna in March, suggests that the stock could rally as much as 22.2%.
As for Jefferies, the brokerage firm last week upgraded TTD to “Buy” from “Hold,” and raised its price target to $105 from $95 - implying an expected premium of about 17%.
Growth Stock #2: AppLovin
Headquartered in Palo Alto, California, AppLovin Corporation (APP) develops a software-centric platform designed to elevate the marketing and monetization efforts of advertisers both domestically and internationally. Valued at a market cap of approximately $25.3 billion, the company operates across two key segments: Software Platform and Apps.
Shares of AppLovin have rallied 352.2% over the past 52 weeks, clearly outshining the SPX’s gain during the same period.
In terms of valuation, the stock is trading at 28.74 times forward earnings, which aligns with its five-year average.
On Feb. 14, AppLovin reported its Q4 earnings results, which surpassed Wall Street’s expectations on both the top and bottom lines - and propelled its shares to a gain of 24.8% in the subsequent trading session. The company’s quarterly revenue of $953.3 million rose 35.7% annually, surpassing Wall Street’s forecasts by 2.7%, while its EPS of $0.49 also topped estimates by an impressive 40%.
In 2023, the company introduced advanced AXON 2.0 technology, optimized its gaming studios, and made strategic investments in new initiatives to drive future market expansion and long-term growth. Moreover, the company remains steadfast in its commitment to returning value to its shareholders, as evidenced by its decision to expand its share repurchase program by $1.3 billion.
For Q1, management expects revenue to range between $955 million and $975 million, while adjusted EBITDA is expected to arrive between $475 million and $495 million. Plus, adjusted EBITDA margin is projected to be between 50% and 51%.
Analysts tracking AppLovin expect the company’s profit to reach $2.54 per share in fiscal 2024, up 159.2% year over year, and grow another 23.6% to $3.14 per share in fiscal 2025.
Like Trade Desk, investors should be aware that the company is expected to report its Q1 earnings results this Wednesday, May 8, after the market closes.
AppLovin stock has a consensus “Moderate Buy” rating. Out of the 16 analysts offering recommendations for the stock, 10 recommend a “Strong Buy,” one suggests a “Moderate Buy,” four advise “Hold,” and the remaining analyst gives a “Strong Sell” rating.
While the stock is already trading at a premium to the average analyst price target of $70.08, the Street-high price target of $93 - assigned by Jefferies in its May 2 note - suggests 20.5% upside potential from current price levels.
Jefferies also initiated coverage on APP with a “Buy” rating, with the analysts writing, “our sample of mobile gaming advertisers expect APP to yet again gain share of advertiser budgets in 2024."
On the date of publication, Sristi Suman Jayaswal did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
