The ad we’ve been seeing recently from the Motley Fool for their Rule Breakers service is all about this “technology breakthrough” inside a “black box” that a Motley Fool analyst named Rex Moore found inside his son’s apartment — and this “little black box under his TV” that his son called the “heart of his living room” is, says Rex, the key to an opportunity that’s 23X bigger than Netflix. This is one of the annoying “no transcript available’ videos, so I’ll paraphrase a bit as I go through some of the points he made int he ad… then we’ll get to our answer.

In some ways this pitch is very similar to past “cord cutting” and “all media is changing” ads we’ve seen from the Fool, which have been used to pitch all manner of different tech and media stocks (from Disney and Discover to Netflix and The Trade Desk), but let’s see what they’ve got this time around.

We’re told that his son uses this “black box” to stay in touch with friends, watch sports, watch television, even create his own content and make money, and sometimes he spends six hours on it… just like everyone else he knows.

So how do we “get our cut?” How do you invest in this “little black box?”

It’s not the actual box — the one he showed in the presentation was an Xbox, and we know for sure no one is predicting that Microsoft will make you a fortune in this “first innning.” It’s a great company, and might beat the market over the next decade, but it’s surely not going to have returns like Netflix did over the past decade.

TV has been different than other technologies — cable subscriptions “defied the internet’s gravity” partly because of the lack of competition and the unreliable nature of streaming… but when the internet catches up to your business, as it has now for cable with the explosion of low-cost streaming services, it is ruthless. Moore notes that “our analysts are confident the death clock on cable is ticking away”

What’s the “major mistake” investors are making? Netflix isn’t the company that will replace cable, it’s just the beginning of the next generation of media… and 99% of that business has yet to be defined.

The ad goes on to say that Netflix has likely only scratched the surface — the real story is what Netflix doesn’t do. The little black box can stream live TV and sports, can help you upload content, and does something else that qualifies it as “next generation.”

Rex says he took this realization to David Gardner, who has quite a history of calling disruptive tech companies early on (and making returns of 10-20,000% a couple times), so apparently we’re getting a David Gardner recommendation here… what is it?

Gardner still likes Netflix and Amazon and those other stocks, he doesn’t sell often, but what always gets people excited is the next idea.

So what other clues do we get?

This company is at the center of what the next gen is about, owning it puts you in a privileged position… it does everything Netflix does, and more. And it has one incredible advantage — a great firewall. Only one of the stocks he thinks will control next gen media well into the 2020s…

So that “next gen” is clearly pretty focused on video games, and with the emphasis on gaming and communication and a few other clues that are dropped along the way, that leading stock is clearly Tencent (TCEHY)… with the “great firewall” being the fact that they’re protected by the Chinese government from having to compete with Facebook or Alphabet or any other non-Chinese companies. (That reliance on China is, of course, their greatest risk factor in addition to their protected status being arguably their greatest asset.)

And yes, the Fool in its disclosures does confirm that they both own and recommend Tencent shares… and Rule Breakers is, of course, the likely home for such a fast-growing and richly-valued stock (David Gardner frequently cites “Wall Street thinks its too expensive” as one of his counterintuitive criteria for choosing a rule-breaking stock).

Which means that yes, they must be hinting at Tencent for this “next gen media revolution” … but no, Tencent is not going to grow more quickly over the next decade than Netflix did over the past decade — Tencent is already one of the largest companies in the world, with a market cap of nearly $400 billion even after a terrible decline, and the odds are that it won’t be able to outpace global markets as dramatically in the future, if only because of its massive size.

Of course, writing off major tech stocks as “too big to grow” has been logical but wrong over the past few years — Facebook and Amazon and, indeed, Tencent, should have been “too big” to post 50%+ revenue growth or see their stocks quickly double in recent years, but they’ve all beaten those expectations. They’re all among the largest companies in the world, and they may well continue to dominate, but they are facing the law of large numbers and they won’t be doubling and tripling over and over in the coming decade.

On the other hand, maybe Tencent should be a $10 trillion company? After all, even though they’re pretty much limited to the Chinese-speaking world, that’s still a ton of people. Who knows what will happen, or whether they’ll be able to substantially grow their business outside of China, but they will face more regulatory pressure than most because of the power that the Chinese government has over the internet and economy within its own borders.

And that, I think, is the primary reason that Tencent has been week of late — Tencent gets a lot of its revenue from video games, and China is the largest video gaming market in the world… and the government this year cracked down on new game releases because they were worried about games being too addictive, or too violent, helping Tencent to report its first dip in profit in years. The South China Morning Post reported recently that this moratorium on new game licenses could persist for another 4-6 months, which could create an existential crisis for many of the smaller gaming companies and would likely pressure Tencent’s revenue pretty substantially.

Once this licensing freeze is lifted, gaming approvals will be handled by a new regulator, the Publication Bureau of the Central Propaganda Department, and it’s expected that there will be a stronger focus both on content and on creating systems to prevent addiction and to limit use of video games by minors.

(Yes, Tencent’s shares have probably also been buffeted by trade war or macro concerns, simply because they’re a large part of the Chinese economy and investors tend to buy and sell “China” en masse when they’re panicking about tariffs or debt crises or whatever else… but whatever the cause, the stock is down by about a third since the January highs).

So yes, I suppose it’s accurate to say that Tencent “does everything Netflix does, and more”… though they really only do so in China, for the most part, which is both a blessing and a curse. Gaming is not Tencent’s only business, they also do everything from video streaming to advertising and operate the most popular messaging and social network apps in China… but it is a huge division (online games generate almost 40% of Tencent’s revenue), and it has also been counted on as a major growth engine in recent years, so the uncertainty over regulation is obviously substantial, and unlike most regulatory changes in the US or Europe the future result is not as openly negotiated or even shared — so there’s some risk of an extreme outcome that really puts the brakes on the online gaming business, but I have no way of guessing what the probabilities might be of good or bad outcomes.

What other stocks does David Gardner recommend beyond Tencent? They don’t drop any other clues in the ad, but they do say there are several other “next gen” stocks they recommend. I suppose if they’re talking China still, and using stocks that I know have been recommended by Rule Breakers in the past, they could be touting iQiyi (IQ) for streaming television or NetEase (NTES) for online gaming… but those are just guesses.

They also cite Amazon’s purchase of Twitch a few years ago, the video distribution system that focuses on sharing video gaming — or eSports, if you prefer — and that has turned out to be a massively prescient buy as watching people play video games has become a core part of the entertainment landscape. So perhaps they’re hinting at other stocks like Huya (HUYA), which is essentially a Twitch clone in China that was spun out of YY.com this year… or Momo (MOMO), a slightly older peer-to-peer video sharing service. Huya does not seem to be an active recommendation of any Motley Fool service, according to their disclosures, but Momo is… so perhaps that’s one of the stocks they’re citing as well. (I do have a small call option position in HUYA, as well as a small equity stake in IQ, for full disclosure.)

And if they’re not sticking just to China, then the various Motley Fool services have also recommended all three of the big gaming content creators — which I guess you can think of as the next generation equivalent of the hollywood studios… that would be giants Electronic Arts (EA) and Activision Blizzard (ATVI), which have huge franchises that fuel mega-hits and dominate the global eSports competitions (FIFA and Madden in virtual sports, World of Warfare and Overwatch in multiplayer battle games, etc.)… and the smaller Take Two Interactive (TTWO), which produces what is arguably the single biggest hit title in console gaming (Grand Theft Auto).

Oh, and if you’re wondering about Fortnite, which I’m told every child in America (except for mine) is currently playing, that’s also connected to Tencent — Tencent is a 40% owner in Epic Games, which created Fortnite, and they’re hoping to release Fortnite in China soon, which could be, well, a game changer. Assuming the Central Propaganda Department lets them release it (they reportedly already have 10 million pre-registrations among hopeful Fortniters in China).

And you’ll notice in the headline that I also included the “Cable TV’s Ticking Time Bomb” line… that’s because this ad also cites the predicted advertising winner in the “next generation” media space… “1 Total Conviction Stock for Cable TV’s ‘Ticking Time Bomb’,”and that’s likely to be a reference to The Trade Desk (TTD), which has been teased by the Fool using that “ticking time bomb” phrase a few times.

The Trade Desk has been touted by both Gardner brothers at the Fool over the past year or so — Tom Gardner teased it as the stock that “looks like Facebook before its IPO” a few times, and more recently as the small California stock for Cable TV’s ticking time bomb, and the stock has been ludicrously successful this year as they benefit both from the trend of advertisers looking to get out of the “walled gardens” of buying ads directly on Google and Facebook, and from the rising trend of video advertising in streaming TV.

The Trade Desk is a programmatic advertising technology company, their claim is that they really work for the advertisers and provide more honest and valuable data about which placements are profitable, since they’re not conflicted by owning their own advertising network… they’re trying to bring analytics to television advertising, particularly in the burgeoning streaming world where we’re seeing more ad-supported offerings outside of Netflix, and they seem to be doing a bang-up job so far. I’ve owned this stock for a year or so and have added to it a few times, here’s what I wrote to the Irregulars that last time I bought shares (this next bit first appeared in the Friday File on September 14, the stock has fallen something like 6-8% since then):

“Based on the seasonality of The Trade Desk’s (TTD) earnings, I’m going to go out on a limb and guess that they will do a lot better in the final two quarters of this year than the analysts are expecting — the analysts have been upgrading their forecasts, of course, even though they haven’t quite gotten the average price target updated just yet, but I don’t think they’ve upgraded them enough.

Just going by the seasonal patterns in The Trade Desk’s revenue, which have so far shown a pretty consistent bump in the third and fourth quarters as the advertising budgets boom in those periods, and the likelihood that the company won’t be able to rationally spend money fast enough to bring margins down much more in short order, I think they’re still lowballing the expectations — I think the revenue number for the third quarter is probably about 5% too low, even though the analysts are just using the company’s guidance for that revenue… and for the fourth quarter, I’m guessing that they’re about 15% too low, though, of course, with a stock that has already surged by 50% in a matter of a month or so it could easily be that investors are way out ahead of analysts on this one and already expecting something better. TTD earnings per share might decline sequentially, as analysts are expecting (that did happen last year), but I don’t see any real reason why they should given the new boost from TTD’s new offerings that seem to be a hit with advertisers.

I think analyts are probably also overstating how much The Trade Desk will be spending on SG&A (selling costs and overhead) as their revenue ramps… a lot of their revenue growth is going to come from existing big advertisers dramatically increasing the allocation to The Trade Desk’s platform, I expect, but if you just step back and look at what’s expected, the estimate is that we’re in the middle of a period when the revenue will go from $308 million in 2017 to $605 million in 2019, with growth pretty even (2018 is expected to be $459 million), but that doubling in revenue is only expeted to increase the earnings per share by about 60%. Maybe they will see margins shrink that much and reinvest that heavily, maybe not, but I think they’re in enough of a sweet spot, with the rapid rise in programmatic advertising and the value proposition they offer, combined with the meteoric rise in mobile and streaming video, a place where advertisers seem to be climbing all over themselves to crash more cash into the system, that they could, despite their huge gains recently, still be primed for surprisingly rapid future growth.

Probabilities here have to be guessed at by any one who wants to risk money, of course, and The Trade Desk has disappointed before — not long after I bought shares the first time, back in October, the stock took a beating and dropped from the mid-$60s to the mid-$40s because they issued disappointing fourth quarter guidance, and I bought more in the $40s… so as we close in on that next quarterly report (it will probably come on November 9 this year), I wouldn’t blame you for being cautious and waiting for a dip.

What compels me to pile a little bit more onto the table here is really that The Trade Desk, despite a huge surge over the past month, remains a wee minnow — revenue was only $380 million over the past twelve months, versus Alphabet’s $124 billion or Facebook’s $48 billion (or even WPP’s $21 billion), and the ceiling is wide open. They are gaining share in a sub-sector of the ad market that is also growing faster than advertising overall, and quickly, which means there are a lot of levers that could fuel almost exponential growth if things work out well.

What do I mean by that? Well, advertising in general is a $700 billion busines globally (as TTD calculates it, at least), probably heading to a trillion in a few years. The Trade Desk, as a platform-agnostic technology provider to ad buyers, touches about $1.5 billion of that today, which generates $308 million for them in revenue. That’s an almost infinitesimally small portion of the business, and The Trade Desk’s segment of global advertising spending is also growing much faster than the market — they estimate that a given large multinational advertiser might now spend $8 billion on media for advertising, with $2 billion of that on digital ads… and that the portion of that which is driven by programmatic ad buying, TTD’s business, has quadrupled over the past few years but is still only about 6% of the digital media spend. Big advertisers are growing increasingly comfortable with programmatic buying, and The Trade Desk is bringing programmatic buying to more and more media, particularly mobile and streaming video but also all other forms of digital media. Growth is absolutely everywhere.

So I think there’s a good enough chance of them really surprising over the next year that I put a little more money into TTD shares this week, something I almost never do with stocks that have just had a crazy leap up in value and that trade at nosebleed current valuations… but sometimes the real underlying growth is strong enough to justify more purchases, particularly if the company is small enough to still surprise even itself.

They could also have a “Facebook moment” when they announce that they’re going to dramatically reinvest in the business and cut into profits, of course, and companies often find it easier to “talk down” expectations after the stock has soared like TTD’s has… but I don’t expect that. They have been compressing the operating margin as they reinvest in future growth in recent years, but it has been stable for the past year or so… and a lot will be riding on the fourth quarter, which is understandably their largest quarter and their highest-margin quarter, since advertising picks up pretty dramatically around the holidays.

So summing up, their new services and ad buying platform, launched just in the past few months, should help to increase ad spend by their customers, they’re retaining more than 95% of their customers, and people seem almost desperate for an ad buying solution that doesn’t constrain them to the ‘walled gardens’ of Alphabet or Facebook (or even Amazon)… and the company has such a long possible runway that I’m willing to add on at what is obviously a very rich price — I increased my TTD position by about 20% at $145 a share, bringing my cost basis up to about $70.

I’ll still watch the stop loss closely on this one, because they face existential risk (someone could come up with a better technology and convince more ad buyers to use it, or major ad platforms could presumably block their access, though wouldn’t have much to gain from that), but that stop loss is a long way away (now around $92), so it has plenty of room to breathe as the business tries to grow. There is competition in programmatic ad buying, but I don’t see anyone threatening The Trade Desk’s position right now — I judge the competition to be less worrisome than it is for other high-growth darlings like, say, Square (SQ) and Shopify (SHOP) right now (I still like those crazy growers just fine and still hold the shares, but am not adding to them at these prices).

Shopify, for what it’s worth, got another upgrade today (target $177, from Wedbush), though that target is really just the high price the stock saw a couple months ago so it’s not overwhelmingly bullish… and Square’s target was just raised from $78 to $98 by Deutsche Bank after they had a meeting with management, so they’re doing just fine. If you’re wondering what The Trade Desk’s sell-side analysts are thinking, they don’t seem to know what to do — they all raised their targets after the last blowout earnings report, but despite the fact that the consensus is still that TTD will “outperform,” the highest target prices are still, from what I’ve seen, in the $125-130 range… so with the shares in the mid-$140s, there will indeed be a lot riding on the next quarterly report in November.”

So there you have it… the Fool is teasing Tencent and The Trade Desk partly as plays on this “next generation” of media and the death of cable TV, and may also be touting some other Chinese video companies or the major video game publishers. It’s hard to argue with the theme or the big trend that is clearly in place, from the rise of cord-cutting and the rise of video streaming to the incredible success of eSports, but, alas, those themes are clear to everyone… so the stocks are expensive. Whether or not they’re too expensive for you, well, only you can make that call. Let us know what you think with a comment below.

P.S. That “like buying Netflix at $1.87” pitch that is used in some of the ads I’ve seen has been a reference to The Trade Desk… and no, it’s not at $1.87, it’s just a reference to what they see as the relative size and potential of the stock (Netflix is a $164 billion goliath, TTD a relatively small $5 billion company — until very recently TTD was indeed, as teased, 50X smaller, though it’s now only about 30X smaller).

Disclosure: Of the stocks covered above, I own shares of The Trade Desk and iQiyi, call options on Huya and, indirectly through Naspers, a meaningful equity exposure to Tencent. I also own Alphabet, Facebook, Amazon and Apple shares. I will not trade in any covered stock for at least three days, per Stock Gumshoe’s trading rules.