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Motley Fool’s “Rare” (or not so much) “All In” Buy Alert — what’s it about?

"Tiny Internet Company" ... "ticking time-bomb" ... sound familiar?

We see extremely similar ads from the Motley Fool about “all in” buy alerts, sometimes also called “double down” or “five star” buys, and they’re generally just the steady teaser pitch that they can send out all year, over and over with no updates, to recruit subscribers for their flagship Motley Fool Stock Advisor newsletter (almost always discounted to something in the $40-50/yr neighborhood for the first year).

But we do keep getting questions about these pitches, pretty much every week, so I think it’s worth updating my thinking — and, of course, revealing the stock for you, so you can think for yourself a bit before you pull out your credit card. Sometimes they toss in a different company as the focus of this pitch, too, with similar language, so perhaps we’ll find a surprise this time.

So what do they mean by this “All In” buy signal? Basically, it just means a stock that they like so much, they’ve recommended it more than once. Not necessarily that this second (or third, or fourth) recommendation has been made today, or this week, but, you know, sometime. After you’ve seen essentially the same promo text in these ads for three or four years, you realize that they’re not sending these ads because the stock is at a particular price or valuation, they’re sending them because they work to bring in subscribers. Presumably they still like the stock, and the Fool’s newsletters are not particularly valuation-sensitive anyway, they tend to find companies they like and buy and hold and re-buy, almost no matter what… but no, this is not a “our favorite stock is finally at the buy price” alert.

Here’s how they put it:

“You see, twice every month, the analyst team at The Motley Fool researches a brand-new stock and recommends it to members.

“And as you’ve already seen, these picks could lead to life-changing returns.

“However, every so often, we come across a stock so good…that we just have to double down on it.

“Many of us around the office have come to call this re-recommendation an “All In” buy sign.

“And one stock in particular is simply begging for another recommendation.”

Note the specific language… if they could say, “one stock was just re-recommended,” they would say that. “Begging for another recommendation” means it’s just something that somebody over there still likes, and that language lets them re-use the text over and over.

And they claim that these “all in” re-recommendations are hugely successful, of course:

“‘Selling your winners and holding your losers is like cutting the flowers and watering the weeds,’ – Peter Lynch

“Here at The Motley Fool, we take that same approach – add to your winners. And this isn’t some everyday occurrence.

“But the 99 times it has happened, the results have been spectacular:

“Netflix is up 6,193% since The Motley Fool went “All In” in June 2007

“Tesla, which received the “All In” buy sign in November 2012, is up 11,047% since.

“In fact, across the 99 stocks with this total conviction … the average return is an astounding 378% … crushing the S&P 500 by nearly 4x!”

So yes, the Motley Fool has been around for a long time, and they’ve re-recommended a lot of stocks at this point. Lots of them are no doubt doing a lot worse than they were a few months ago, but they still report that their portfolio of what must now be a few hundred stocks at Stock Advisor has beaten the market handily over time.

What’s the “under the radar” stock this time? Here are our clues:

“… the details behind this tiny little internet company are impressive:

“It’s 1/50th the size of Google.

“Each one of our previous recommendation is crushing the market.

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“Its young CEO has already banked $2.3 billion on this stock since its IPO.

“This company stands to profit as more and more people ditch cable for streaming TV. And in fact, we believe this company’s crucial technology could represent the final nail in the coffin for traditional cable.”

Ah, OK, so now we can confirm that yes, this is the same stock they’ve mostly focused on with this kind of “all in” language over the past couple years. Here are a couple more clues for you, though, if you’re playing along at home:

“In an interview with Tom Gardner and his team, this company’s CEO called the current moment “the most exciting in the history of advertising.”

“Of course, any CEO could say that simply to build up hype and push the company’s stock price higher … but this CEO is putting his money where his mouth is.

“He’s betting his fortune – over $2.3 billion – on what he’s calling cable TV’s ‘ticking time bomb.'”

So yes, we don’t even have to pull the Thinkolator out of the garage to confirm that Motley Fool Stock Advisor is still teasing The Trade Desk (TTD)>

And to be clear, that “most exciting time in the history of advertising” bit is not about today, specifically, not after Snap (SNAP) scared the pants off of all the advertising-related companies when they talked down their potential revenue growth next quarter because of lower advertiser demand, possible recession, inflation, war, Apple private changes, etc. That’s a quote from an interview Trade Desk CEO Jeff Green did with the Fool’s Tom Gardner back in December of 2017 (it’s an interesting read, you can still find it here online, but it’s a bit dated).

And I bought into The Trade Desk around the time I first saw the Fool pitching it earlier that year, so it has become one of my larger holdings as well — so I wrote up some updated thoughts about it for our Stock Gumshoe Irregulars in a Friday File a couple weeks ago, after they reported their latest quarter. I’ll share that with you now, as a taste of the kinds of things I write about in the Friday File (yes, please join us, if you haven’t already! You can start as an Irregular with only $7 if you like, and Stock Gumshoe needs more members).

Excerpted From the 5/13/22 Friday File:

It was undoubtedly a fantastic quarter for TTD, revenue growth of 43% was a whisker better than anticipated, their earnings were again much higher than analyst expectations, coming in at 21 cents in adjusted earnings versus the 14 cents forecast, so that’s a “surprise” of almost 50%, similar to last quarter, and it was actually TTD’s strongest first quarter growth in several years. That caused analysts to bump up their forecast for next quarter to 22 cents, though they also reduced their estimates for the full year to $1.00 in earnings per share (pre-earnings, that was at $1.08 — analysts are probably getting more conservative because they’re a little worried about privacy changes and the cost of TTD’s growth initiatives, and TTD reinforces that by typically offering very conservative guidance that they then beat handily).

Connected TV, which is what they call ads placed on streaming TV services, is still the fastest growing segment for The Trade Desk, as it has been for several years… but now it has finally ticked over to also being the largest segment, eclipsing mobile for the first time as the inventory has skyrocketed from deals with big streaming platforms like Peacock and Discovery+ — and that CTV segment was the focus of most of CEO Jeff Green’s comments on the conference call. Green can barely contain his glee at being right all those years ago when he predicted the advertising would become a meaningful revenue source for streaming TV, including Netflix, and he sees huge implications for bigger shifts in the business as Netflix begins to bring their massive 100+ million subscribers into the advertising world (that’s not a definite, but the big news this year is that Netflix is finally considering ads… with most people thinking they’ll dip their toe into offering an ad-supported version of their service by the end of the year).

There are big uncertainties coming in the ad business, as companies continue to figure out how to deal with Apple’s privacy changes and with Google’s move to drop support for cookies at the end of this year, but The Trade Desk is now the largest independent demand-side ad platform in the world, and they are using the weight of their huge customer base to help develop new identity solutions for both connected TV and for the open internet in general, led by their UID2 platform/standard which is attracting a lot of publishers.

There’s also still a huge amount of growth in ad spending generally, with the recovery in some categories this year providing a real bump, particularly travel, even as some widget-makers cut back on advertising because they can’t make enough widgets (which is likely to be a temporary phenomenon) — estimates are that digital ad spending is increasing anywhere from 8-14% or so this year, and The Trade Desk is still taking share in that business, and remains, despite their dominance, a pretty small player relative to the massive spend on platforms like Google and Facebook. I still see no obvious ceiling on potential growth from here — there is competition, TTD is far from being the only buy-side ad platform in the world… but platform companies like this experience strong network effects, they become better as they get bigger, and that typically leads to rising market share.

The stock is a little weak because they don’t really provide full-year guidance, and everyone is scared right now — and the little guidance they do provide, for the current quarter, was a hair below what analysts were guessing (TTD guided for “only” 30% revenue growth in the second quarter), so analysts have remained fairly cautious about 2022… despite the fact that we’re probably also going to have a meaningful boost from political ad spending again as the midterm elections heat up later this year. There’s also a little worry about margins getting a little bit worse as The Trade Desk ramps up some spending on other growth initiatives, but a fair amount of that is also coming just from the reopening of the world and the resumption of business travel — TTD is still bringing back some of those costs that had been slashed in 2020, and they still very much consider themselves to be in “growth” mode as they see opportunities to build a much larger business, but they see that scale helping the free cash flow generation over time, too.

So the basic backdrop is a management team that has built a huge and fast-growing ad business, particularly in CTV, that is continuing to accelerate, and they continue to say hugely positive things about the massive future potential of streaming video ads… but they are also likely to have margins that drop a little bit as they spend heavily this year, and analysts are being pretty cautious with earnings forecasts as a result. The current expectation is for earnings per share of $1 this year, which would be growth of only about 10%, much slower than the top-line revenue growth of 32%, and those same analysts also see revenue growing by 26% in 2023, but see only about 18% earnings growth from that. I think that’s far too pessimistic, given the huge growth they’ve shown in Connected TV advertising and the likelihood that they’re being too cautious on the “rising costs” side, but that is a risk — they could be hurt more by the privacy changes at Apple and Google than I think, which could be causing analysts to be even more conservative with their TTD forecasts than they usually are, and, to state the obvious, they can be hurt by slowing economic growth as well. Advertising is surprisingly recession-resistant, since companies always need to look for new customers, but that doesn’t mean it will keep growing fast if the economy slows.

We don’t know what Netflix will do, but in the Q&A you can practically hear Jeff Green squirming in his seat a little as he gets excited about adding Netflix as a partner to dramatically increase the ad inventory available to TTD ad buyers — they do have a good relationship with Netflix (including a personal one, as longtime TTD board member David Wells retired as the CFO of Netflix in 2019), and Green thinks it would make more sense for Netflix to partner with TTD or with their UID2 platform to help make sure that users are seeing better, more targeted and less repetitive ads as they cycle from HBOMax to Netflix to Peacock to whatever else, but that remains to be seen.

I’ll stick with a PEG ratio of about 2.0 to as my “preferred buy” level for The Trade Desk. I’ve been watching Jeff Green and this team for long enough to have some faith that they are not blowing smoke about their ability to work through the privacy challenges from Apple and Google… and their excitement about building UID2 and about continuing to build massive scale in Connected TV advertising is infectious. And I’m going to stick with my 20% long-term earnings growth expectation, which is way more aggressive than analysts are being with their current forecasts — I don’t know if they’ll hit that every year, but I’m sure that revenue growth will be above 20% for the next few years, and I bet that they can average out to at least 20% annual profit growth over the next five years. That means I’m willing to pay about 40X earnings, twice what I think is their likely growth rate, even though margins are — temporarily, I think — getting a little worse.

Being a bit cautious and using a trailing earnings number for that multiple would get you to $39-40, using the 2023 estimates would get you to $47. With multiples coming down across the board, I’ll reset to those lower prices as I think about buying more shares, partly because this is already a large position for me so I can afford to be pretty conservative with my buying, but I have very high confidence in this company’s prospects over the next decade.

My opinion on The Trade Desk hasn’t changed since I wrote those words, though the price is dropping of late as the SNAP-driven fears of a slowdown in ad spending hurt every stock in the sector yesterday. In the near term, much depends on sentiment about the future, and that changes every second, but The Trade Desk’s business is humming along well, I’m still holding and would be happy to buy a bit more if the price hits my levels, and I think it still has a lot of growth potential for patient investors.

With your money, though, you get to be the one to make the call — is TTD still too pricey at 40X earnings? See better investments that are getting similarly beaten-down? Think advertising will collapse as inflation and recession ravage the land? Let us know with a comment below… thanks for reading!

P.S. Are you a Stock Advisor subscriber? If so, please click here for our Motley Fool Stock Advisor Reviews page to let fellow readers know if you think it’s worth following. It only takes a moment, and our readers always want to hear from other subscribers. Thank you!

Disclosure: Of the companies mentioned above, I own shares of The Trade Desk and Google parent Alphabet. I will not trade in any covered stock for at least three days after publication, per Stock Gumshoe’s trading rules.

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wmoore006
May 25, 2022 10:41 am

Has the M. Fool ever been investigated for fraudulent claims? It seems they do a lot and dump messaging to me. One day you have to buy this stock, it will fund your retirement. Within the same week, they publish another article on why the stock is crashing. I wish I had a way to block anything that MF published.

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floridahouse
May 25, 2022 10:54 am
Reply to  wmoore006

Not sure if they have been investigated. MF is way too time consuming. Hours spent reading thru sales pitch after sales pitch. I had several of thier services it’s insane once you filter it all out, the useful guidance is minimal. Lke you said, they continually keep recommending the same buys over and over when they have nothing new to pitch. Not worth the effort. I’ve cancelled my subscriptions. Been using GS and TR. Just unsubscribe from the MF emails they send and you will be free from the harrassment.

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Joshua Sherk
Member
Joshua Sherk
May 25, 2022 3:33 pm
Reply to  floridahouse

What do you mean by GS and TR?

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les
May 25, 2022 11:39 am
Reply to  wmoore006

If you are not a long term buy and hold investor, they are not for you. Their record speaks for itself.

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floridahouse
May 25, 2022 10:43 am

Tip Ranks has TTD as a strong buy with a 70% upside. Might have to take a nibble.

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les
May 25, 2022 11:36 am

The train is about to leave the station here…………………………great company.

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dnottenkamper
Member
dnottenkamper
May 25, 2022 12:06 pm

I have been using the MF for over 10 years. I have done very well investing in their recommendations over the years. Yes, right now is a very trying time for the markets and the world in general. But, I am willing to wait out these difficult times and continue to buy into great companies like TTD at these current levels,
I know it will pay off in the long run. Also, for those of us who have followed Travis on the Gumshoe for any amount of time know, he rarely gives high praise for a company like he has just doe for TTD. So, regardless of the FOOL says, you might want to reread Travis’ article here again.

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Walter Pisary
Member
Walter Pisary
May 25, 2022 12:11 pm

TTD had been one of the outstanding stocks in my portfolio. I am still up 375% since I bought it in 2019, even though it lost 60% off its high of last December. I was looking for an opportunity to add to it, and now seems like a good time.

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bravobill
May 25, 2022 1:57 pm

Thanks for reviewing any of these claims, anytime, as there is always something to consider, as you show.
They are ALL CARNIVAL BARKERS and should be regarded as such.

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dinjax
Member
dinjax
May 25, 2022 3:29 pm

Thanks as always for the informed write-up Travis.

I have the Fool to thank for alerting me to the CTV advertising space a couple years ago when I had their Rule Breakers service and they were pushing TTD. I did some digging to find competitors since TTD looked way overbought. I found and bought Rubicon (which is now Magnite), rode it until it took a dump and then discovered PERI, which I have now.

After reading this post I checked out TTD’s numbers. They’re much better than when I initially researched them and actually look interesting due to improving profits, cash flow and strong margin, although the 16 p/s is concerning. I may establish an initial TTD position, but am also looking at other options in the space including PUBM, APPS, MGNI.

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Gordon Long
Member
Gordon Long
May 25, 2022 6:04 pm

Thank you Travis, for another very insightful analysis.

But I have a question (somewhat related, I think) about an ad I just ran across regarding SynBio.
It’s Whitney Tilson’s pitch at https://secure.empirefinancialresearch.com/?cid=MKT635974&eid=MKT637035&step=start&assetId=AST241992&page=2. Kind of slick, IMHO . . .

I’ve developed a growing interest in the field of genetic tailoring (not for altering life-forms, of course — much too dangerous and ethically uber-risky), but instead precisely repurposing natural biological materials that nature has developed to possess attractive physical properties — and, of course, advertising the ability to do so . . .

So if you’d kindly put this idea of Whitney’s somewhere in the “future meals for Thinkolator” compartment of your fridge, I’d really appreciate it !!

Very respectfully,

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Valerie Hiscoe
Valerie Hiscoe
May 25, 2022 7:54 pm

Travis ,you are just as organized as you are tireless. You must have a really good system of keeping track of your Thinkolater because, as you say, all these ‘hidden gems’ are so often pitched repeatedly and it surprises me how often you can refer back to earlier coverage. I have to tell you how awed and grateful I am for the amount of analysis you do and the frequency that you pass it on to us. I became one of your Irregulars just this year and have found it invaluable. I had a subscription to the Motley Fool but cancelled because I trust that anything they (or any other service) would say of value, you would cover it.

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Valerie Hiscoe
Valerie Hiscoe
May 26, 2022 4:46 pm
Reply to  Valerie Hiscoe

Despite this fact, I have to add that the analysts at Motley Fool are just as continuously writing about the ups and downs of stocks and the marketplace in articles that are available for the public. True, they always try to sell one of their services at the end of the article, but I find their articles , themselves, enlightening and trustworthy. Their contribution in this regard is very much appreciated.

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Gordon Long
Member
Gordon Long
May 25, 2022 6:28 pm

Thank you Travis !!

mercury
Member
mercury
May 28, 2022 10:22 pm

Always look at whos writing the article on the fool.. or any site, . their portfolios and the disclosures if the fool recommends it or not.. I’d also look at share shorted outstanding shares, PE/ratio, intrinsic values, cash flow debt, sales, changes in hedge funds increases decreases buybacks, insider trading, acquisitions, institutional investors so much to it good luck beginners and advanced investors. Also the fool is def for long term investor they even say it…

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Last edited 1 year ago by mercury

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