Transcript
John Quast (0:00)
Foreign what does it mean for investors now that the Trade Desk is set to be the newest member of the s and P500? This is motley Fulmin. Welcome to Motley Fool Money. I'm your host today, John Quast. And joining me today is long term Motley fool contributor Matt Frankel, as well as Motley fool co founder and Tom Gardner. Both of you guys, thank you so much for being here today. We've got a lot of things to look at today, whether it is bitcoin, investing trends, but let's start with our first story here. So semiconductor company Synopsys just received all the approvals it needs to buy out S&P 500 constituents ANSYS in a $35 billion deal. That leaves a spot open in the index and it's getting filled by advertising technology company the Trade Desk. Matt? Tom, the Trade Desk was down by 68% earlier in 2025 after the company missed its own guidance for the first time as a publicly traded company. Now, just a little while after the scare, joining the s and P500 officially tomorrow, July 18th. Matt, let's start with you. What does this mean for the Trade Desk shareholders?
Matt Frankel (1:18)
Yeah, I mean, if anything, it's time to take a victory lap. The biggest impact in the immediate sense is just that the s and P500 index funds are all going to be required to buy shares, which is why you saw the the average S&P 500 component is something like 25 to 30% owned by just like three or four big S& P index funds. So that is a lot of upward pressure on the stock. Now, having said that, being in the S and P doesn't affect the business itself, but it is very impressive how far the Trade Desk has come. And it really is just an example of the hidden gems process at work. And it does get the stock on the radar of some institutional investors. But it's not a big victory business wise, but it kind of is, right?
John Quast (2:00)
Yeah. When you look at what happened to the Trade Desk, really just a blow to the confidence there when it missed its own guidance, but that was just one quarter. It's not the long term trend. Speaking of the long term trend, Tom, I know this is a stock that you've followed for many years, up 2,600% since going public in 2016. What did you initially like about the Trade Desk? And do things still look bright to you for its future?
Tom Gardner (2:24)
Well, first thing I'll say is just to affirm what Matt said, which is I think the move into The S&P 500 is exciting in the moment, but relatively short lived because it ultimately comes down to how well the businesses perform. But it does raise the profile for the Trade Desk, which is now a market cap about $40 billion. We began recommending the Trade Desk across a number of services, rule breakers, hidden gems and others. The Motley fool, you know, back in 2017 in that area, a year or so after they came public, we did an interview with Jeff Green. That's always a validating thing. I would say anyone who's investing in stocks, if you can find an interview with the CEO, YouTube, wherever you can find it. Obviously earnings call transcripts can give you some of their personality as well. But I took away from that interview in 2017 that, that we did with Jeff Green. Very, very positive things about the business and the leadership, I would say, in terms of looking at companies, what would we look for to find that pattern that we found in the Trade Desk early on? Because as you said, it's now, you know, a 25 bagger in, you know, less than a decade since coming public. So that's just an outstanding return. In the case of the trade Desk, I would say you have a company with its focus on programmatic advertising. So first in programmatic advertising, that is a higher margin portion of digital advertising. You know, historically the digital advertising was you'd call on the phone, we talked to. I remember our first deal with a discount broker that we had way back in the 1990s of the motley Fool. And you know, we actually called it the handshake. We wrote a written contract, we said, hey, we don't know what's going to happen here. Let's see. But it's become so much more sophisticated over the last couple decades. And now what you have is, you know, essentially AI powered programmatic advertising. So you put your dollar amount in and, you know, it just spreads across the Internet to find the best locations for that ad. That is so much more sophisticated than traditional media. So the money was coming from traditional media into digital, but then from digital towards programmatic and then programmatic toward connected tv. That's, that's the business pattern. But let's just talk about two or three things you see in a company's financial performance that can help you find them. Number one, they're taking market share in the higher margin developing area in a business. Their gross margins are rising. Okay. And their returns on invested capital are rising. Those were all happening with the Trade Desk. And you asked John, you know, what do we think of it now? I would say again around a $40 billion market cap. The stock's around $84 today. I would say Trade Desk is looking more fully valued now, more fully appreciated in the marketplace. I still think it can beat the market from here, but you're not going to get anything like what we've gotten over the last decade. But, but again, it's well positioned well in a growing trend. It's just that there's more competitive threats now in its marketplace than when it really emerged as the true leader in programmatic and connected TV advertising.