Billionaires Buy 1 Brilliant Stock That Competes With Amazon and Google -- It Could Soar 150%, According to a Wall Street Analyst

The Trade Desk (NASDAQ: TTD) stock has declined 55% this year due to growing concerns about competitive pressure, particularly with respect to Amazon, though Alphabet's Google and Meta Platforms are also formidable rivals.

Most Wall Street analysts see the drawdown as a buying opportunity. The average target price of $70 per share implies 32% upside from its current share price of $53. And the highest target price of $135 per share (set by Shyam Patil at Susquehanna) implies 155% upside.

A few successful hedge fund managers opened positions in The Trade Desk during the second quarter, as detailed below:

• Steven Cohen of Point72 Asset Management bought 533,200 shares.
• Andreas Halvorsen of Viking Global bought 2.6 million shares.
• Philippe Laffont of Coatue Management purchased 998,900 shares.

Importantly, while none of the hedge funds above started particularly large positions in The Trade Desk, their purchases are still noteworthy. Additionally, all three fund managers beat the S&P 500 (SNPINDEX: ^GSPC) during the last three years, which makes them good role models for retail investors.

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The Trade Desk has a key advantage in its independent business model

The Trade Desk is the leading independent demand-side platform (DSP) in the adtech industry. Its software lets brands and agencies plan, measure, and optimize data-driven campaigns across digital channels. Its platform features cutting-edge omnichannel capabilities and artificial intelligence (AI) tools that help media buyers manage budgets, evaluate inventory, and target campaigns, according to Frost & Sullivan analysts.

The digital advertising industry is dominated by walled gardens, ecosystems where a single company controls most of the ad supply chain. Alphabet's Google and Meta Platforms are perfect examples. They control ad inventory and data across web properties like Google Search, YouTube, Facebook, and Instagram; they also own the adtech software required to run campaigns on those websites and applications.

The Trade Desk avoids those conflicts of interest with its independent business model, meaning it does not own web properties or advertising inventory. In turn, the company has earned a reputation for objectivity and transparency that has made it the most popular DSP for the open web. The Trade Desk is especially dominant in connected TV (CTV) advertising due to partnerships with Netflix, Roku, and Walt Disney.

However, the company also has a strong presence in offsite retail advertising, meaning ads that use first-party retail data to target consumers through third-party websites and applications. The Trade Desk sources data from Walmart, Target, Albertsons, and many other large retailers, to help customers grade and fine-tune campaign performance.

Retailers may hesitate to share data with competitors like Google, simply because Google could use the data to sell its own advertising inventory. "Objectivity is a major factor here," The Trade Desk CEO Jeff Green told analysts on the second-quarter earnings call. "We do not compete with retailers and only an independent, objective partner like us can truly help advertisers unlock this opportunity."

The Trade Desk stock crashed after its second-quarter earnings report

The Trade Desk reported somewhat disappointing financial results in the second quarter, despite beating estimates on the top and bottom lines. Revenue rose 19% to $694 million and non-GAAP (adjusted) earnings jumped 5% to $0.41 per diluted share. Green said, "With our leadership in CTV as well as other areas such as retail media, digital audio, identity, measurement, and data, we are winning more business."

Nevertheless, the stock fell nearly 40% following the report due to intensifying concerns about competition. Meta Platforms and Amazon reported faster advertising sales growth, marking the reversal of a long-standing trend where The Trade Desk regularly outpaced its largest rivals. Additionally, Amazon recently struck deals with Netflix and Roku that could erode The Trade Desk's dominance in CTV advertising.

However, investors should consider the big picture: While The Trade Desk stock has declined 55% year to date due to concerns about competition, shares now trade at 30 times adjusted earnings. That is not cheap, but the valuation is reasonable for a company whose adjusted earnings are forecast to increase by 16% annually through 2027.

Additionally, Wall Street may be underestimating future earnings. The Trade Desk has a competitive moat in its independent business model and its status as the leading demand-side platform for the open internet, which may lead to an acceleration in top- and bottom-line growth beyond what analysts anticipate. In that light, now is a good time to buy a small position.

Trevor Jennewine has positions in Amazon, Roku, and The Trade Desk. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, Netflix, Roku, Target, The Trade Desk, Walmart, and Walt Disney. The Motley Fool has a disclosure policy.