2 Growth Stocks Billionaire Investors Are Buying in a Bear Market
The Nasdaq Compound has been in freefall for most of the past year, and macroeconomic concerns pushed the index into bearish territory during the first quarter. But some of the wealthiest investors treated the slowdown as a buying opportunity.
For example, billionaire Israel Englander of Millennium Management added to his position in The trading post (TTD -4.52%) in the first quarter, while billionaires John Overdeck and Ron Baron increased their stakes in Datadog (DOG 6.57%).
Since then, both stocks have continued to decline. Some investors wonder why these billionaires are buying these growth stocks.
1. The Trading Post
The Trade Desk specializes in digital advertising. Its artificial intelligence-powered platform helps advertisers plan, measure and optimize targeted campaigns across digital channels, including desktop, mobile and connected television (CTV).
Last year, the research company Gartner once again recognized The Trade Desk as an industry leader, alongside Alphabetis Google and Amazon. But as an independent company – meaning it doesn’t own any media properties – The Trade Desk benefits from a less biased business model. For example, Alphabet has reason to direct ad buyers to its own inventory on Google Search and YouTube, and Amazon has reason to direct ad buyers to its inventory on Amazon Marketplace and Fire TV. The Trade Desk is not subject to these conflicts of interest.
This advantage has contributed to rapid growth. Over the past year, The Trade Desk has seen its revenue soar 44% to $1.3 billion, and its free cash flow (FCF) jumped 12% to $394 million. Better still, investors have good reason to believe that growth will continue. Digital advertising is fast approaching a $1 trillion addressable market, and The Trade Desk is gaining momentum in customer marketing and CTV advertising.
The world’s largest retailer, walmart, recently chose The Trade Desk to power its ad technology platform. The partnership will combine shopping data from Walmart with technology from The Trade Desk, allowing marketers to target campaigns and measure results against online and in-store sales. The move could propel The Trade Desk to the forefront of the $200 billion client marketing industry.
More recently, disney entered into a similar agreement with The Trade Desk. The media giant will make its data available through The Trade Desk’s ad technology platform, allowing marketers to launch personalized campaigns across Disney’s linear and digital video channels. This development is particularly noteworthy as Disney plans to launch an ad-supported tier of Disney+ by the end of the year, and The Trade Desk is now well positioned to benefit.
In light of this momentum, this growth stock does indeed appear to be a smart investment.
2. Data dog
Datadog specializes in monitoring and observability. Its cloud platform ingests, indexes and analyzes billions of data points every day, and its artificial intelligence Watchdog engine uses these signals to identify security threats and performance issues in real time on applications, networks and infrastructure. This allows companies to quickly identify and resolve technical issues, ensuring a good user experience for employees and customers.
In June, Gartner recognized Datadog as a market leader in application performance monitoring and observability, citing better execution capability than any other vendor. Gartner specifically mentioned Watchdog’s ability to predict events and automate root cause analysis as a key differentiator.
Datadog offers over 500 built-in integrations that ease adoption, and its broad portfolio of performance monitoring and security software has become the foundation for a successful implementation and expansion strategy. In fact, net revenue retention has exceeded 130% over the past 19 quarters, meaning the average customer is increasing their spend by more than 30% every year.
At the same time, Datadog has seen its customer base grow 30% to 19,800 over the past year, and that cumulative momentum — more customers and increased spend per customer — has fueled strong financial results. Revenue soared 78% to $1.2 billion over the past year, and FCF jumped 210% to $336 million.
Looking ahead, shareholders have good reason to be optimistic about this company. Digital transformation projects will generate even more data in the future, and companies will need to monitor this data for performance and security issues. Datadog believes it will create a $53 billion addressable market by 2025, and the company’s strong presence in the market should help it capitalize on this opportunity.
Currently, the shares are trading at 23 times the sell – much cheaper than the three-year average of 39 times the sell – making it a good time to buy some stocks.
Suzanne Frey, an executive at Alphabet, is a board member of The Motley Fool. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Trevor Jennewine has positions at Amazon, The Trade Desk and Walt Disney. The Motley Fool owns and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Datadog, The Trade Desk, Walmart Inc. and Walt Disney. The Motley Fool recommends Gartner and recommends the following options: January 2024 long calls at $145 on Walt Disney and January 2024 short calls at $155 on Walt Disney. The Motley Fool has a disclosure policy.