It is estimated that the online advertising market would grow in double digits over the next five years, after getting a big boost from the pandemic-driven digital transformation wave. Social networking sites and other online platforms look poised to maintain the positive momentum, in terms of traffic flow, even beyond the COVID-era.
The growing adoption of digital tools among advertisers and data-driven ad campaigns have come as a boon for companies like Pinterest, Inc. (NYSE: PINS) and The Trade Desk, Inc. (NASDAQ: TTD). They help advertisers find their target audience and convert leads into deals. The companies witnessed multi-fold increase in market value since the early days of the pandemic amid a surge in the numbers of business owners using their platforms to plan and assess marketing efforts.
Content discovery portal Pinterest is different from other social networking platforms like Twitter Inc. (NYSE: TWTR) and Facebook Inc. (NASDAQ: FB) in many ways. The unique offerings, ranging from cooking recipes to home décor tips and inspirational content to videos, give the company an edge.
Currently, the San Francisco-based company is working to fully leverage the traffic growth by incorporating additional features like tools that allow visitors to share creations, ask and answer questions, and share tips. Those efforts, focused on content quality and enhancing user experience, would require heavy investment that would in turn weigh on its bottom line.
Pinterest became profitable in the second half of fiscal 2020, ending a losing streak, and maintained the positive trend since then, all along delivering stronger-than-expected earnings. In the most recent quarter, the company posted adjusted earnings of $0.25 per share on revenues of $613.2 million, which is more than double the prior year level. It had around 454 million active users at the end of the quarter.
Pinterest’s shares experienced high volatility in recent months, after entering 2021on an upbeat note and peaking in the early weeks of the year. While the slowdown looks temporary, the price drop can be seen as a buying opportunity, especially given the bullish outlook on the stock. However, the emerging COVID scenario and volatile consumption trends dampen its short-term prospects. The stock traded higher Wednesday afternoon, maintaining slightly above the $50-mark.
Digital advertising solutions provider The Trade Desk offers a platform for marketers to plan and optimize their ad campaigns across multiple channels, with a high level of transparency compared to other portals like Google. The reliable and demand-side focused model gives it an edge over rivals and the content-free platform helps expand the client base.
Interestingly, the Ventura-headquartered company is giving stiff competition to industry leaders like Alphabet Inc. (NASDAQ: GOOG). Also, the virus-driven demand growth helped the company significantly improve its position in the market.
Market watchers are as bullish on TTD as they are on PINS, but the former is slightly expensive. Though the target price is equally impressive, implying that the stock has enough room for growth, TTD’s valuation is probably on the higher side. After making strong gains since early last year, Trade Desk’s stock pulled back and lost 13% so far this year. It was trading below $70 in the final hours of Wednesday’s session.
Trade Desk’s quarterly profit beat the estimates consistently over the past several years. In the 2021 second quarter, earnings doubled to $0.18 per share, supported by a sharp increase in revenues to $280 million.
Overall, the future looks bright for social media platforms and ad-tech companies, thanks to the steady increase in internet users and the popularity of smartphones.
Where to Invest?
From the investment perspective, Pinterest looks better positioned to grow the business, leveraging its social media background that gives the company access to important data needed to track user behavior and market trends. More importantly, continued user engagement would help in building its ability to provide insightful information to customers. Also, the effects of a potential decline in media consumption post-COVID would be moderate due to Pinterest’s social catalog model and networking features.
On the other hand, Trade Desk’s content-neutral strategy does not allow it to access such valuable information. While the company’s long-term growth prospects are impressive, there is apprehension that the business might experience a slowdown when the market reopening gathers momentum. Many of the new trends in the digital space would stay, but media consumption is likely to decline in the long term.
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