Where Will The Trade Desk Stock Be in 1 Year?

The Trade Desk (NASDAQ:TTD), an innovative digital marketing company, has recently soared on strong Q4 and FY2023 results. The stock has advanced by over 45% in the last year, and the outlook for continued earnings growth remains quite strong.

So, where will TTD shares be over the next year or so, and will the company continue to deliver the kind of performance that has attracted so much investor attention?

Solid Business With Growth Potential

The Trade Desk is a cloud-based platform for digital advertisers. Using this platform, agencies, brands and other advertisers can create, manage and track campaigns. The majority of the company’s customers are small businesses with 100 or fewer employees.

As an advertising company, The Trade Desk also operates in one of the few industries where the benefits of AI are demonstrable and quantifiable as opposed to largely speculative. The company offers users an AI assistant called Koa which leverages data to optimize bid costs, improve reach and enhance overall campaign performance.

Because of both the ongoing rise of digital commerce and the tailwinds provided by AI over the last year, The Trade Desk has been turning in very respectable performances.

The company’s full-year results for 2023 detailed a 23% increase in revenue to $1.95 billion. This growth represented a continuation of a long-term increase in revenues for The Trade Desk. Since the company went public in 2016, its annual revenues have increased nearly tenfold.

It also boasts a good level of existing profitability and a solid financial footing. In 2023, the company’s net income totaled $179 million, up from just $53 million in 2022. The net margin for 2023 was 9.2%, and the company carries no appreciable debt.

Here, it’s worth noting that net margin has contracted over time, as the company once was able to achieve margins of over 20%. Although rapidly rising revenues have somewhat offset this deterioration of net margins, the company’s net income is still below the peak it achieved in 2021.

Taking all of this into account, The Trade Desk appears to be a basically sound business with strong fundamentals and a good financial position. The company also likely has a considerable amount of room left for growth. In the coming five years, analysts expect to see further earnings growth of 20.7% on a compounded annual basis.

Overwhelming Analyst Support 

On the plus side for TTD, the stock is overwhelmingly favored by Wall Street analysts. More than three-quarters of the analysts covering The Trade Desk rate it as a Buy, and only two of the 34 who have issued ratings on the stock rate it as a Sell.

Based on analyst forecasts alone, it would seem that The Trade Desk is in for another year of strong performance. That view might, however, be undermined by the stock’s extreme valuation.

At 20.7x sales, 55.3x forward earnings, 18.6x book value and a staggering 154.9x cash flow, TTD trades at very high multiples to all of its key financial metrics.

The price-to-earnings-growth ratio is 2.4, suggesting that the stock may be overvalued even once the high rate of projected forward growth is factored in.

TTD’s valuation could make it susceptible to high levels of volatility and sharp corrections in the event of weaker-than-expected performance. Such shifts in price have already been a part of the stock’s history, and it’s entirely possible that more could occur in the future.

In August of 2023, for instance, shares of The Trade Desk topped $90, well above even today’s level. By the beginning of February, TTD was back to trading under $70 per share.

One slight balancing factor in TTD’s valuation is its ongoing share buyback program. In 2023, management repurchased $647 million in shares. Though younger companies are generally better off investing in growth initiatives than buying back shares, the average repurchase price of $63.87 suggests that management got a good value for its money and likely made sound use of its cash.

Will Customers Favor Competitors?

Sharp competition from other advertising platforms continue to pose a serious threat to TDD. Platforms like Google Campaign Manager, Adform and Amobee, to name just a few, present customers with a plethora of alternatives to The Trade Desk.

In spite of recent growth, the company lacks a discernible moat that fundamentally sets it apart from its competitors over the long run.

The Trade Desk’s customer base could also present risks. While a large group of small business customers diversifies the company’s revenue base, these businesses are also more sensitive to economic conditions than their larger counterparts.

Enterprise customers also contribute far more in revenue. Going forward, TTD would do well to cultivate a more evenly mixed client base that combines the diversity of small businesses with larger customers capable of providing stability and higher annual spending rates.

Where Will The Trade Desk Be In 1 Year?

The Trade Desk share price is likely to rise by 19.9% according to the consensus of 19 analysts. 

Foreseeing TTD’s price action over the coming year is somewhat difficult. On one hand, the company’s revenue and earnings growth seems likely to continue in the upcoming 12 months.

On the other, the very high valuation makes it more sensitive to volatility and could cause prices to plateau if investors aren’t willing to continue bidding up what already looks like an overpriced stock.

Overall, it seems that the most likely scenario is that TTD shares will advance over the coming year, though perhaps by less than the median target price set by analysts would suggest.

With earnings likely to keep growing, it’s quite plausible that TTD could retake the $90-95 range. Potential investors should, however, consider the risk that the stock’s pricing presents. If the company cannot keep up its current performance, it’s also possible that shares could stagnate or even lose a bit of ground.

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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.