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Highlights
The Trade Desk and Alphabet represent distinct strategies within the digital advertising landscape.
The Trade Desk has outperformed Alphabet in revenue growth, particularly in the fast-growing connected TV (CTV) market.
Alphabet faces significant regulatory challenges that may impact its future growth and valuation.
The Trade Desk (TTD) and Alphabet (NASDAQ:GOOG) exemplify two different approaches to accessing the digital advertising market. The Trade Desk operates as the largest independent demand-side platform (DSP), facilitating advertisers in purchasing ad space across various platforms. In contrast, Alphabet integrates a DSP, sell-side platform (SSP), and additional ad technology within its extensive digital advertising ecosystem, primarily driven by revenue from its search engine, advertising network, and YouTube.
The Trade Desk has gained traction as advertisers increasingly seek opportunities beyond the confines of major platforms like Google and Meta Platforms. This shift positions The Trade Desk as a potential disruptor, especially in the fragmented ad-supported streaming video sector. Over the past three years, The Trade Desk's stock has increased by more than 60%, while Alphabet's stock has advanced by less than 20%.
In terms of growth, The Trade Desk has consistently outpaced Alphabet. In recent years, The Trade Desk's revenue growth rates have ranged from 23% to 43%, while Alphabet's growth has slowed to between 9% and 13%. The pandemic notably benefitted The Trade Desk's CTV segment as consumer behavior shifted towards ad-supported streaming.
Valuation metrics reveal a contrasting picture. Analysts forecast that from 2023 to 2026, The Trade Desk will achieve a compound annual growth rate (CAGR) of 22% for revenue and 62% for earnings per share (EPS). In comparison, Alphabet's projected revenue growth is at 12%, with an EPS growth rate of 21%. Despite its higher growth potential, The Trade Desk's stock trades at substantially higher valuations, suggesting considerable optimism already reflected in its price.
Alphabet's stock, while appearing undervalued at current metrics, faces uncertainty due to ongoing regulatory scrutiny from the U.S. Department of Justice, which could impact its business structure. Balancing these factors may lead to a more favorable view of Alphabet as a potential opportunity within the digital advertising space, especially for those willing to navigate its regulatory challenges while awaiting improved market conditions for The Trade Desk.
