One factor that sets programmatic advertising platform The Trade Desk (NASDAQ:TTD) apart from many advertising platforms is the fact that The Trade Desk works on a demand-side model and gives advertisers direct access to premium online advertising space, and so bypasses the need for costly middlemen in the ad supply chain.
Unlike many AI-driven tech platforms, The Trade Desk is already actively profitable and has delivered six consecutive quarters of earnings growth.
Due to some missteps in its execution and a generally worsening economic environment, though, TTD shares are down nearly 60% in the last 90 days. Is TTD a screaming buy at today’s prices, or has the market repriced the stock accurately during this selloff?
TTD Top Line Up 26% But There’s a But…
2024 was a strong year for The Trade Desk, with revenue climbing 26% to $2.45 billion. But despite the impressive full-year growth, the stock took a hit after Q4 numbers came in a bit lighter than expected.
Revenue for the final quarter rose 22% to $741 million, still solid, but it marked the slowest year-over-year growth rate since early 2023 and fell short of what management had guided.
Even so, the company showed signs of strength, notably maintaining a customer retention rate north of 95%, which speaks volumes about client loyalty.
One of the standout developments from the year was the launch of Ventura, The Trade Desk’s new streaming TV operating system. The goal? To overhaul the streaming ad experience for both advertisers and viewers. Ventura is designed to streamline the ad supply chain and make personalization smarter, ultimately delivering more relevant ads to audiences and better results for brands.
The Trade Desk also agreed to acquire Sincera, a company that provides advertising data analytics. Management hopes to integrate Sincera’s tools into its own platform to provide advertisers with more actionable insights. Though the acquisition hasn’t closed yet, Sincera’s tools could add significant synergistic value to The Trade Desk.
One change that didn’t prove to be so positive, however, was the rollout of Kokai, an AI-enhanced advertising platform.
Kokai has existed for some time, but the company hopes to transition its entire client base onto it this year. Despite a great deal of optimism from both the company and its investors around Kokai, the platform is known to have a less-than-ideal user interface and has faced what management has admitted are a series of execution mistakes during its rollout.
The leadership team attributed the lower-than-expected Q4 performance to these mistakes and began a reorganization in December to help get the company back on track.
What Does TTD’s Growth Opportunity Look Like?
Despite a bit of a stumble in Q4, The Trade Desk likely still has a great deal of growth runway left in front of it.
Through 2030, the programmatic advertising market is expected to grow at a compounded annual growth rate of nearly 23%.
The Trade Desk is already a leading platform in this area, and its use of AI tools to help advertisers optimize campaigns could keep it out in front as artificial intelligence becomes a progressively more important advertising tool.
In total, TTD’s earnings per share are expected to keep rising at a rate of more than 50% annually for the next few years. While this is likely too optimistic a growth rate given the economic challenges that could be ahead, The Trade Desk still appears to be on quite a strong growth footing.
Organic earnings growth could also be supported by share buybacks, something that TTD prioritizes to an unusual degree for such a young company.
In 2024, the company repurchased $235 million worth of its own stock. Management raised the repurchase authorization in Q1, giving the company a total authorization of $1 billion for share buybacks.
Is TTD Undervalued Now?
With shares at 64.4x earnings and 10.3x sales, it may seem odd to ask whether The Trade Desk could be undervalued at the moment but there are a couple of important factors to keep in mind.
To begin with, TTD has been trading at far higher P/E ratios for many years, often breaking well into the triple digits. Secondly, the growth tailwinds behind The Trade Desk could keep its earnings growing quickly enough to justify this rather high price point.
These points are fairly well reflected by the set of price forecasts currently available for TTD.
How a Weaker Economy Will Affect The Trade Desk
With the possibility that global trade turmoil could cause a recession in the US this year, it’s important to consider how a weaker economy could hit advertising in general and The Trade Desk in particular. All in all, slower economic growth and tighter consumer spending could spell trouble for ad platforms like The Trade Desk, since advertisers may start cutting back on their own budgets.
With that said, there’s also at least a possibility that The Trade Desk’s use of data and AI to optimize ad campaigns could prove popular in a weaker economic climate. If spending slows down, advertisers will likely want to find more efficient ways to use the advertising dollars they’re still spending. If The Trade Desk can get the bugs worked out of Kokai, it could attract advertisers looking to run optimized campaigns in premium online spaces.
Is TTD a Screaming Buy?
The average target for the stock over the next 12 months is $92.16, more than 83% higher than the latest closing price.
While there’s no getting around the fact that The Trade Desk faces some roadblocks up ahead, there’s also a great deal to like about the advertiser. Even the lower-than-expected Q4 results that sent the stock into a tailspin were relatively positive, and it looks like the market may have overcorrected as it sold off TTD shares.
Overall, The Trade Desk appears to be staking out a leading spot for itself in a high-growth industry. Alongside current profitability, a lack of long-term debt and a surprisingly aggressive share buyback program, TTD looks like a stock that is slated to reward investors who are willing to buy at today’s lower prices.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.
