Hypergrowth tech stocks can prove to be fickle investments. Consider the litany of “pandemic darlings” that have yet to fully recover from their sales growth rates dropping from high double-digit percentages at their peaks to barely positive today.
However, The Trade Desk (NASDAQ: TTD) and Global-e Online (NASDAQ: GLBE) have proven that their hypergrowth statuses are more than single-year anomalies. As market leaders in their niche industries, these businesses are positioned to deliver double-digit percentage growth rates far into the future.
So, while they may command premium valuations, dollar-cost averaging into positions with these two stocks in 2023 could deliver a windfall to investors over the long haul.
With global advertising spending expected to hit $1 trillion in 2024, The Trade Desk and its omnichannel demand-side platform operate in an almost unfathomably massive industry. Facilitating nearly $8 billion in gross ad spending as of the end of 2022, The Trade Desk has less than a 1% share of the global ad market, though its revenues have grown at a 39% annualized rate since 2018.
However, its market share is growing by leaps and bounds. Increasing revenue by 23% in the second quarter, the company far outpaced the global advertising industry’s expected 2023 growth rate of 6%.
Better yet, connected TV ad spending — The Trade Desk’s largest channel at around 45% of revenue — was the fastest growing segment of the company’s business — implying growth of at least 25%. With media company GroupM estimating that connected TV ad spending will increase by 10% annually through 2028, The Trade Desk is showing significant market share gains in its most important channel.
In addition to these market share gains, the company’s Unified ID 2.0 (UID2) identifier was implemented by Warner Bros. Discovery‘s digital platforms and on Peacock’s streaming service during Q2. UID2 is The Trade Desk’s replacement for traditional third-party cookies, taking customer’s phone numbers or email addresses and anonymizing them before they’re made available to the advertising industry.
In addition, Walmart announced it was testing UID2 with the demand-side platform it created alongside The Trade Desk. Should UID2 be implemented by the United States’ largest retailer, it would go a long way toward making it the industry standard, making The Trade Desk’s platform all the more valuable to advertisers.
While the company trades at a bloated price-to-sales ratio of 25, it is expected to grow revenue by 26% in the upcoming year, and its marathon-like growth story is still in its first few miles. This combination makes it a perfect candidate for dollar-cost averaging buys through the rest of 2023, which will allow investors to build a position at various price points.
Operating at the intersection of cross-border and direct-to-consumer sales, Global-e Online helps businesses of all sizes sell internationally while delivering a localized experience for shoppers. Once Global-e’s platform is “plugged into” a merchant’s website or storefront, that seller can offer localization to its customers by language, currency, payment type, and shipping options. In addition to letting its merchants “be local” for its customers, the company takes care of regional taxes, duties, regulations, and delivery solutions for its merchants — all while promising fraud protection on its platform.
To make a long story short, Global-e deals with all the mundane (but overwhelming) tasks of selling products internationally in exchange for nominal service and fulfillment fees.
Growing sales by 53% in its latest quarter, the company continues to fire on all cylinders, demonstrating an immense appetite for its solutions. Better yet, even though the company’s revenues are in full hypergrowth mode, Global-e’s gross profit margin has steadily marched higher.
GLBE Gross Profit Margin data by YCharts.
Since the company is not yet optimized for generating free cash flow or net income, its rising gross profit margin signifies that operations are streamlining and becoming more efficient. This is an incredible feat considering its 2021 acquisition of Flow, its 2022 acquisition of Borderfree, and its upcoming launch of Markets Pro in late 2023 through its partnership with Shopify.
With Global-e’s platform soon to be fully integrated with Shopify — giving it access to a multitude of merchants looking to sell globally — this partnership could become a multibillion-dollar business, according to co-founder and CEO Amir Schlachet.
With the stock price up by more than 80% year to date, its price-to-sales ratio has risen to 12. However, given that Global-e’s gross profit margin is improving despite three ongoing integrations, and with analysts expecting sales growth of 49% in the upcoming year, the company looks like a brilliant dollar-cost averaging purchase for investors looking decades ahead.
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Josh Kohn-Lindquist has positions in Global-e Online, Shopify, and The Trade Desk. The Motley Fool has positions in and recommends Global-e Online, Shopify, The Trade Desk, and Walmart. The Motley Fool recommends Warner Bros. Discovery. The Motley Fool has a disclosure policy.
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