The worldly backdrop is now shrouded in heavy uncertainty and is waiting for the next steps from President Trump’s administration regarding the tariffs. Expect a domino effect to reverberate if both China and the U.S. escalate in tandem.
U.S. consumer sentiment in April posted the largest drop since 1990, showing that fear is reigning supreme in the markets now. There are expectations floating around about dips in key numbers, especially those related to consumer spending. Adding to the woes, the International Monetary Fund has projected global economic growth to slow down to 2.8% due to the tariffs.
This is the backdrop that advertising company The Trade Desk (NASDAQ:TTD) is facing. It is especially important for this demand-side platform provider because advertising spend usually faces a setback when the broader economy slows down.
The Trade Desk also slid after its last quarterly report, so we look into the stock deeply to see if it warrants your attention now.
Over the past three months, the stock has declined by more than 55%. In spite of the share price drop, the price is sitting at 30.1x its forward non-GAAP earnings, indicating that it is significantly stretched compared to the current industry average but regardless this just might be the best ad stock to buy now.
Relentless March Higher Persists
The Trade Desk last reported its fourth quarter and fiscal year results for 2024 and managed to increase the top line by 22% from the prior year’s period to $741.01 million.
While a seasonal pattern is seen in the company’s quarterly numbers trend (its Q4 revenue comes in higher than the rest of the year), The Trade Desk does have four straight quarters of sequential revenue increase.
On an annualized basis, revenues grew by 26% from the prior year to $2.44 billion. The annual top line has been on a relentless march higher for ten years, an incredible achievement for an advertising enterprise. Management also announced a record $12 billion of spend on its platform.
What’s Working At TTD?
The Trade Desk is seeing a lot of momentum in the connected TV segment where advertisers display ads on streaming platforms or other digital media.
The company reported CTV to be its largest and fastest-growing channel. While this segment remains a small portion of the total ad spend, that might not be the case in 5-10 years.
It saw tailwinds from retail media, which also tracked higher. Last year’s Presidential Election meant The Trade Desk also experienced the largest and most successful year for political ad spending. While 88% of Trade Desk’s ad spend came from North America, international growth outpaced its North American growth.
Profitability has been spotless over the years. The company has been profitable since 2013. In Q4 of last year, The Trade Desk posted a non-GAAP net income of $0.59 per share, which was higher by 44% from the year-ago value.
Adjusted EBITDA came in at $349.98 million, up 23% year-over-year (this also made up 47% of the total top line). For the whole year, its adjusted EBITDA grew by 31% from the prior year to $1.01 billion, making up 41% of the total revenue.
Furthering the bull thesis, the Board of Directors authorized the repurchase approximately $57 million worth of its class A common stock in Q4, and about $235 million for the whole year. They also approved an additional $564 million under its share repurchase program, bringing the total amount for future repurchases to $1 billion.
Why Did The Trade Desk Slide After the Report?
Even after posting incredible growth and impressive margins, The Trade Desk’s stock slid, and that’s because its quarterly report missed its own expectations. This became meaningful for investors because this was the Trade Desk’s first miss in 33 quarters spanning over eight and a half years of the company being a public entity.
Trade Desk’s $741.01 million quarterly revenue fell short of its expected revenue of at least $756 million. The company was also expecting an adjusted EBITDA of about $363 million, while it reported $349.98 million.
Management is recalibrating the enterprise, which is leading to some short-term headwinds. Management pointed to restructuring efforts, such as focusing more on joint business plans, as evidence of faster growth rates than in other parts of the business.
The leadership team has also focused on scalability and put more resources into brands, and if that was not enough, The Trade Desk has also shifted to more agile teams for product development.
All in all The Trade Desk is letting go of short-term initiatives to recalibrate, which has resulted in some missteps and led it to miss its own guidance. However, it is still on a fast growth path and tracking well in the advertising landscape. Indeed, management still sees momentum coming into this year.
They expect the top line for Q1 to be at least $575 million, reflecting a 17% year-over-year growth. The Trade Desk expects its adjusted EBITDA to be approximately $145 million in the same quarter.
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.