Generating 5x returns over a decade is no simple feat. However, $200,000 invested evenly across a basket of The Trade Desk (TTD 0.48%), Pubmatic (PUBM -0.22%), and Global-e Online (GLBE -0.82%) shares could get you started on your journey to becoming a millionaire.
Requiring a 17.5% annualized return over the next 10 years to reach the $1 million mark, these three companies offer investors high growth and best-in-class operations in their industry niches. These qualities give the companies outsized multibagger potential — meaning that an investment in each could double, triple, or more compared to its original investment cost.
Focusing on this multibagger potential — after all, our basket of stocks will need to 5x to reach $1 million — let’s explore what makes these companies unique and such excellent candidates for helping investors reach $1 million.
1. The Trade Desk
Up roughly 880% in the last five years — despite dropping nearly 50% from its all-time highs — The Trade Desk and its adtech platform for ad buyers is a great starting point for our growth stock basket.
Allowing brands and their ad agencies to “buy the whole internet” in advertising speak, The Trade Desk quickly became a force in the digital advertising industry. Posting sales growth of 959% since its 2016 initial public offering (IPO), the company looks to extend its incredible growth with four massive tailwinds supporting its long-term vision.
First, The Trade Desk’s connected TV (CTV) reach in the U.S. is over 90 million users on more than 120 million devices. With CTV ad spending projected to more than double from 2022 to 2026, the company’s largest and fastest-growing channel looks poised to continue its outsized growth.
Second, the company’s Unified ID 2.0 (UID2) — which converts customer email addresses to anonymized IDs — continues gaining traction, with powerhouses such as Amazon, Adobe, Snowflake, and Salesforce adopting the technology. As of the fourth quarter of 2021, roughly 15% of the third-party data industry used UID2. However, management expects this figure to grow to over 75% by the first half of 2023, highlighting an incredible desire to use UID2 over traditional cookies or other identifiers.
Next, The Trade Desk looks to continue building out its shopper marketing operations, where it already works with roughly 80% of major U.S. retailers. Considering that retail ads accounted for approximately 20% of overall digital spending in the U.S. and grew by 26% in 2021, this additional growth runway looks promising as well.
Finally, the company only generates 10% of its revenue outside North America. Since the international market accounts for two-thirds of total ad buying, a long growth runway remains for The Trade Desk globally.
The Trade Desk commands a premium valuation by trading at a price-to-free cash flow multiple of 61, especially considering much of this is offset by stock-based compensation. However, looking 10 years out and taking into account the company’s 24% sales growth in its most recent quarter (when many of its peers struggled), The Trade Desk looks like a potential multibagger opportunity.
Whereas The Trade Desk operates as a demand-side platform, Pubmatic’s cloud-based ad platform allows publishers and app developers to maximize their monetization from ads. After going public at $20 per share in December 2020, Pubmatic rocketed above $70 per share before dropping to its current single-digit price in the last two years.
Seeing this drop, investors might assume the company is struggling mightily — but its net income and cash from operations have been positive for seven and nine straight years, respectively.
While revenue dipped roughly 2% year over year in the company’s most recent quarter, Pubmatic maintained a 17% net income margin amid a turbulent advertising industry that roughed up many of its peers recently.
Furthermore, if we zoom out, sales in 2022 grew 13%, on top of a 53% spike in 2021. Generating $38 million of free cash flow in 2022, Pubmatic’s cash balance now sits at $174 million.
Armed with this excess cash, management announced a $75 million stock repurchase program, which looks like a wise move considering Pubmatic only trades at 9 times its cash from operations.
As Pubmatic continues transitioning from a primarily display-focused business to omnichannel video (including CTV), its humble valuation makes it an outstanding multibagger prospect. After adding Roku, TiVo, and Kroger as customers in Q4, look for Pubmatic to rebound over the next decade.
3. Global-e Online
Boosting its customers’ international sales conversion rates, Global-e Online’s cross-border, direct-to-consumer commerce platform enables companies of all sizes to go global profitably. Adjusting to local languages, payment types, currencies, shipping options, and tax requirements, Global-e simplifies what would likely be an impossible task for most companies considering international sales.
Look no further than the company’s 67% revenue growth year over year in 2022 to highlight how valuable its customers find its offerings. Further highlighting how integral Global-e is to many merchants’ new global sales, the company recorded a dollar-based net retention rate (DBNR) of 130% in the fourth quarter of 2022.
DBNR measures how much more a company’s existing customer base spent from one year to the next, showing that Global-e’s merchants paid 30% more last year despite it being a tough year in general for e-commerce stocks. Along with this incredible growth, the company has maintained positive cash from operations each quarter since its IPO in May 2021.
Counting Disney as one of its merchants and Shopify as a partner, it is abundantly clear that Global-e’s services are very difficult to create in-house. In Q4 2022, Disney launched its European operations using the company’s services, while Shopify made Global-e the default integration for its new merchants eyeing international sales.
While Global-e is valued at a premium price-to-sales ratio of 11, management is guiding for a minimum of 36% revenue growth in 2023. With cross-border e-commerce projected to grow by 26% annually through 2031, according to Allied Market Research, Global-e Online could quickly outgrow this valuation and propel this basket of growth stocks to $1 million.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Josh Kohn-Lindquist has positions in Adobe, Amazon.com, Global-e Online, PubMatic, Roku, Shopify, Snowflake, and Trade Desk. The Motley Fool has positions in and recommends Adobe, Amazon.com, Global-e Online, PubMatic, Roku, Salesforce, Shopify, Snowflake, Trade Desk, and Walt Disney. The Motley Fool recommends the following options: long January 2024 $145 calls on Walt Disney, long January 2024 $420 calls on Adobe, short January 2024 $155 calls on Walt Disney, and short January 2024 $430 calls on Adobe. The Motley Fool has a disclosure policy.