My Favorite $50 Stock Today

let's talk about digital advertising and

specifically some stocks that you might

be interested in as a potential

investment hashtag not personalized

Financial advice of course but as a

potential investment a lot of folks come

to me and say Kevin what do you think

about Disney what do you think about

Netflix and one of the concerns that I

have is both Netflix and Disney have an

extremely expensive cap X structure for

creating new content they spend a lot of

money on building Studios and producing

content and their goal is that they can

subsidize some of that content with

advertising however according to

Netflix's own earnings call they're not

seeing the kind of adoption for ad

supported Netflix streaming as they had

hoped and this in my opinion makes me

much more interested and rather than

potentially investing in the

quote-unquote gold of Digital streaming

it makes me much more interested in

actually investing in

advertising companies that might be

benefiting regardless of whether we're

heading into a recession or we're

heading into this sort of Uncertain

future for how we're going to monetize

Digital streaming after all we know a

lot of companies have told us we are

running into a lot of potential risk

when it comes to advertising American

Express and their earnings call told us

that businesses are spending less money

on Advertising Google told us that

advertising demand is flat to negative

for YouTube it's straight up and

negative for the last two years when you

look at meta you have warnings on

Advertising when you look at Amazon you

have warnings on Advertising advertising

across the board seems to be a risky

Venture right now and it makes sense I

mean we could look at some reports to

see just that add budgets here's a

report that suggests ad budgets are set

to slow even more in 2023 I believe this

was a Forbes report here

lower ad budgets in 2022 affected nearly

every ad stock including companies like

alphabet and meta and what's happening

here in this next year going forward

well look at some of the ad spending

First China according to Insider

intelligence will weigh heavily on the

2023 numbers as the second biggest

digital ad Market is expected to quote

post its lowest digital ad growth on

record due to tougher regulations and

economic headwinds U.S the U.S

advertising Market is expected to grow

by about 5.9 percent in aggregate in

2023 and that's lower than the nine

percent we saw in 2022 however look at

this

on a brighter note the article says the

connected TV Market is expected to grow

14.4 in 2023 and will grow faster than

the overall advertising Market linear TV

in exchange is expected to fall by 6.3

percent and 2023 according to uh this

individual from Pro well okay well I

mean this person it might be a little

biased he's a director of programming

CTV Supply at Xander 2023 marks the new

age of CTV yeah whatever okay that's way

too biased for me to really even have

read that but anyway the point is we

know that the ad sector is slowing

growth substantially we know that

expenses at Disney and Netflix are

through the roof for investments into

advertising so potentially where does it

make sense to invest well Arc invest is

a big fan of investing in Roku I

personally have some qualms about

investing in Roku and I'll show you

specifically why so first of all this

this is the last earning statement from

Roku and what you could see is that

first of all they're massively negative

on their device's revenue we know that

they don't actually make money from

their devices that's fine but what we do

notice is that you actually have seen

margins that Roku compress 500 basis

points year over year for the fourth

quarter and so now it's sort of like oh

dang like where you invest in the

advertising sector right it's tough

you've actually grown platform

advertising Revenue by four percent at

Roku now that's great fantastic Revenue

has grown by four percent at Roku but

for a company that's losing money that's

potentially not the greatest thing that

we want to be hearing that revenue is

only growing at four percent at Roku

it's trading like a growth stock yet

it's not really growing that much it's

growing by about four percent

not only is it growing by about four

percent uh year over year here but

you're seeing that margin compression

and an explosion in sales and marketing

if you look at the sales and marketing

line You'll see

297 million dollars spent on sales and

marketing 297 is an explosion of 82

percent they spend 82 percent more money

on sales and marketing to grow revenues

by four percent that's insane according

to Bloomberg revenues for Roku are

expected to remain negative through

2026. so you have an infinite p e ratio

for this company not only that if we

look at their current assets you're

sitting it you're decent you're sitting

decently at cash and cash equivalents of

about two billion dollars they've got

about 1.1 in current liabilities so

you've got maybe about 800 million

dollars of rough free cash but the price

problem is for the year ended 2022 this

company had negative free cash flow Roku

had negative free cash flow of 172

million dollars so yeah you've got a

little bit of a run rate right you've

got maybe three four years at this burn

rate of negative uh free cash flow

you've got the extra cash there at Roku

but you're paying a pretty high

evaluation for a company that's not

growing well at all four percent

increase in top line revenue while

spending 82 percent more on sales and

marketing kind of wild in my opinion now

that's just looking straight at the

shareholder letter you could also look

uh at some other sources uh and and see

basically the same thing being said but

a little bit differently here for

example and I know some people don't

like it but this is why I like going to

the sources myself but here for example

is Motley Fool and their opinion and

they usually are bullish it seem games

on a lot of things but not on Roku look

at what they had to say roku's audience

is still expanding but its margins are

crumbling its gross margins gross

margins that's different from the

margins that I talked about because I

specifically talked about streaming

margins where you get a 500 basis point

fall year over year this is their gross

margins combined falling about 190 to

over 40 to 42 in the fourth quarter

we're looking at again a slightly

different margins here uh the gross

margin of its platform business which

generates most of its revenues from the

integrated ads on Roku fell fell from

60.6 to 55.8 percent thanks to macro and

then of course their set-top boxes

margins also fell and so this sort of

begs the question where is Kevin liking

the advertising business well many of

you already know this and maybe you've

already said it out loud to me it's

obvious it's trade desk I've personally

been a big fan of investing in trade

desk this is their Q3 report let me grab

their Q4 report which is right here year

and take a look at why I like trade desk

so trade desk grew its sales and

marketing expenses by 28 so trade desk

grew sales and marketing by 28 year over

year and their year-over-year growth was

24 so rather than growing Revenue four

percent rev at Roku and spending 80

something percent more on marketing they

grew revenues 24 year over year while

only spending 28 percent more on sales

marketing

they also had that drop off on a stock

based comp for their GNA so you had a

larger net income this quarter but you

actually have growth now that growth is

slowing don't get me wrong it is a

slowing sector right you had growth that

slowed from 31.8 year over year to in

the last quarter just 24 growth so

growth is slowing it is that

recessionary pain that you are seeing

but you actually have a cash flowing

business not only is it cash flowing but

the company is performing substantial

BuyBacks because they've got plenty of

money to cover their payables and any of

the extra cash that they have along with

their free cash flow of 475 million

dollars for last year they are

performing stock BuyBacks which is great

so here's a company in my opinion that

if you're looking for something in the

advertising space that is basically

connected TV advertising trade desk is

the one that has all the pricing power

now think a little bit more about about

10 connect to TV for a moment connected

TV is nice because you're not facing the

Anti-Trust competition that maybe Google

or Facebook are experiencing connected

TV is actually driven by a new form of

cookie and this new form of cookie is

called uid2 now what's brilliant about

uid2 is it was actually created by trade

disk and I want to be clear okay maybe

I'm slightly biased I'm an investor in

trade desk okay but I want to explain

why people always ask me why and why

aren't you investing in Netflix or

Disney or Roku here's why uid 2 was

created by trade desk but they

purposefully made it open source in my

opinion because they're playing 4D Chess

With The Regulators they don't want the

Google problems where people you know

we've got these Anti-Trust concerns for

Google leading to a disaster with uh

with with potential Google advertising

in their basic uh advertising Monopoly

right uh and then that's because they

have like 90 percent sales side control

of the cell the the inventory for

advertising but uid too is is basically

different from third-party cookies but

it's somewhat similar in that basically

users provide consent to a publisher by

sharing their email address and then a

unique ID is created with that email

address Google has one that uses its uh

that's sort of a new cookie that uses

your phone number or your login ID when

you're logged in with Google to kind of

track you around but with uid2 it's sort

of the competitor to Google's versions

uid2 you're using email addresses to

create unique and encrypted IDs to make

sure that your data remains private but

as long as trade desk or some of these

connected TV platforms can capture about

10 to 15 percent of users they can

anonymously model data much better than

the old cookie system and the starting

to use AI to help model the data and

make sure that people are placing their

ads with the highest Roi and that's

where you're seeing declines in linear

TV advertising there's no doubt that

linear TV is going over to connect to TV

then it's just a matter of who's winning

and tradesk so far is one of the big

Winners they have something called the

KOA AI you could learn more about that

but basically it's really good at using

AI to find your best customers via

look-alike modeling and trying to take

the data that they do capture they use

uid2 to do this they learn a lot more

with uid2 the estimates are that the

trade desk framework it could basically

increase Roi or cpms by about 116

percent compared to some of the older

forms of cookies and really the fact

that ouid 2 is open source and it's

essentially a self-regulated platform

limits you from Anti-Trust complaints

you know a lot of other people like

Kevin why aren't you investing in Google

it's like well you're investing in

Google for advertising but advertising

is plummeting at Google you could try to

go for the hype of oh well it's sold off

maybe by the dip on Google because they

do have ai but you know other companies

have ai too and are actually making

money and and and are growing and this

to me is is hands down trade desk so

look yeah am I biased because I'm an

investor in it of course but I'm also

defending my position as to why why I

invest in trade desks now I'll give you

a quick uh valuation on trade desk uh

just really we'll do a quick little PEG

ratio here and then I've got to go to

the course member live stream I'm trying

to get that course member livestream

started a little bit earlier

uh regularly here but but I I keep

talking too much on this stream uh so we

are looking for at the end of 2023 to be

looking at about a one dollar EPS which

does mean that it's about a buck five

which does mean that right now at 55

bucks trade desk is trading a little

Rich at 52.3 times they are expected to

grow at about 30 to 35 percent let's go

conservative and take 52 divided by 30.

it puts you about up 1.73 times PEG

ratio for trade desk but that's my

thesis on trade desk a lot of people

have been asking about it and uh I

figured I'd uh I'd add some of my

opinion on that so uh but yeah otherwise

otherwise I'm not a big fan of the uh of

the um uh the the advertising space this

is really the only player I find

interesting and uh there you have it

thank you so much for watching

appreciate you coming to another meet

Kevin report hopping straight over to

the course member live stream now thank

you so much goodbye