The streaming company Year (WKN: A2DW4X) and the software developer The Trade Desk (WKN: A2ARCV) are two of the latest additions to my personal portfolio. I bought a few shares in both of them in mid-March. The aim was to take advantage of low prices and buy stocks that had been on my list for quite some time.
Those investments have paid off so far and I see bright futures for both The Trade Desk and Roku. But I would recommend giving preference to one stock after all.
What’s going on at The Trade Desk?
The Trade Desk helps advertisers post their messages on a variety of platforms and track the results. The company takes care of audio and video ads on all digital media platforms and produces highly effective marketing campaigns.
The company has quadrupled its annual sales in four years. That’s strong. The Trade Desk proves its value as a simplifying and unifying force in the fragmented advertising market. However, the investors have already been amply rewarded for this success. The share gained 1,450% over the same four-year period, 79% of which in 2020 alone.
My personal position at The Trade Desk has increased 168% since March 17th. I have no intention of selling this investment anytime soon. At the same time, I’m not tempted to continue buying at these high prices. I could certainly add to my investment in The Trade Desk over time, but I would buy on the downside. They’ll surely show up at some point – we’re talking about a volatile stock with lots of short sellers. So I’ll just have to wait and see for another opportunity, like in March.
How about Roku?
Roku has made a name for itself as a manufacturer of tiny set-top boxes that enable smart TVs with streaming services like Netflix (NASDAQ: CCN) and Hulu connect. The Netflix connection was incredibly important. Because Roku had the first media streaming hardware on the market when Netflix launched digital streaming. Netflix made an early investment in Roku and even hired founder Anthony Wood in 2007 to run its “Internet TV” division.
The business model has evolved over the years. Roku still sells its own streaming boxes, but that’s no longer the company’s concern. Instead, Roku’s venerable media platform has developed into a leading software solution for manufacturers of Internet-enabled smart TVs. The customer list includes household names such as Sharp, Hitachi, and Philips, and the list of TV brands operated by Roku is growing all the time.
Roku’s diverse media platform has also made the company a major player in digital advertising. Consumers use Roku as a starting point for many streaming media services. And the company can do marketing in a number of ways. The recently acquired ad buying platform dataxu has been renamed Roku OneView. This strengthens the company’s ability to manage ads; a competition for The Trade Desk arose.
The corona crisis has obviously helped Roku reach more people who are staying at home. Hardware sales increased 35% year over year in the second quarter, and platform revenue (advertising plus software license sales) increased 46%. Roku now has 43 million active user accounts, equivalent to 14.6 billion streaming hours for the April-June quarter.
Roku shocked Wall Street in the second quarter. Sales exceeded analyst consensus by 13% and the loss was less than expected.
This is where things get interesting.
via YCharts
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Roku is in the middle of an important phase here. Streaming media is fast becoming the norm in mass market entertainment. Roku is an established company in the industry and its reputation continues to grow. Meanwhile, the streaming media market itself is growing rapidly around the world.
All of these positive factors should be obvious to Roku investors, but the stock charts say otherwise. Share prices plummeted in March, despite the fact that the coronavirus pandemic was clearly a benefit for Roku. The stocks I bought in mid-March gained 73% from the rebound, but the total return is only 10% year-to-date.
So this stock has actually only just returned to its January prices. To put it bluntly, Roku is the best buy I see on the market today.
Buy Roku, hold The Trade Desk
I don’t mean to say anything bad about The Trade Desk. It’s a solid investment and a valuable part of my own portfolio. Yet Roku is a much better buy at today’s prices.
You really can’t go wrong choosing solid winners in booming industries like digital media and online marketing. The Trade Desk is fairly valued these days, but Roku should trade much higher. If I had to buy one stock and sell the other, I would add to my Roku position. I would not like to cash my winnings at The Trade Desk.
Realistically, you will probably find that I will increase my Roku position a little faster for the foreseeable future. The real secret to building long-term profitable investments is to stay flexible. One has to rush to find great long-term opportunities when they are cheap for a short time.
The post Roku vs. The Trade Desk – Which is the Better Stock? appeared first on The Motley Fool Deutschland.
The Motley Fool owns shares of and recommends Netflix and Roku. Keith Speights owns shares of Netflix and Roku. This article appeared on 8/16/2020 on Fool.com and has been translated for our German readers.
Motley Fool Deutschland 2020
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