Trade Desk Stock Slumps Post Q1, As Roku, Facebook Set The Bar Too High. Will It Recover?

TTD: The Trade Desk logo
TTD
The Trade Desk

The Trade Desk (NASDAQ:TTD), a company that sells advertising technology that helps marketers reach targeted audiences across publishers and devices, saw its stock plummet by about -25% in Monday’s trading following its Q1 2021 earnings report, which wasn’t as strong as investors expected. The company’s announcement of a 10-for-1 stock split – which is typically viewed as positive by shareholders – didn’t help stem the decline. Although revenues came in at about $220 million, up 37% year-over-year and ahead of consensus estimates of about $217 million, investors were apparently looking for a larger beat considering the blowout results posted by other digital ad businesses such as Roku, Facebook, and Alphabet. For perspective, Facebook, a company that is about 100x as large as The Trade Desk in terms of revenue, grew revenue by 48% last quarter. So is The Trade Desk stock poised to recover or is a further decline looking likely? Based on our machine learning model, which analyzes multiple years of historical stock price data, The Trade Desk stock has a strong chance of a rise over the next month (21 trading days) after declining by about 30% over the last five trading days.  See our analysis TTD Stock Chances Of Rise for more details.

So what’s the longer-term outlook for The Trade Desk? TTD stock has already been under pressure over the last few months (it remains down 40% year-to-date), as Google’s recent decision to not use technologies that track people individually across the Internet has been weighing on the ad tech sector to an extent (see our updates below). However, the fundamental picture for the company hasn’t changed too much, with eMarketer estimating that total digital ad spending will rise to about $526 billion by 2024, from levels of around $333 billion in 2020. The Trade Desk should stand to benefit considerably given its position as a demand-side-only platform, with no potential for conflicts of interest unlike larger rivals such as Google and Facebook, its ability to target users across various devices and formats, and its strength in the connected TV space. Although the stock still trades at a relatively lofty 85x forward earnings, with revenue growth projected at around 30% or more over the next two years, the company should grow into its valuation.

[3/30/2021]

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The stock price for The Trade Desk (NASDAQ:TTD), an ad technology player that helps companies buy digital ads across publishers, has declined by close to 24% over the last month and is down by about 17% over the last week (five trading days). In comparison, the S&P 500 was up by about 1% over the same period. While there haven’t been too many developments relating to the company recently, high-growth tech stocks, in general, have had a mixed week and this is likely impacting the company, as well. So is The Trade Desk stock likely to decline further or are gains in the cards? According to the Trefis Machine Learning Engine, which analyzes several years of price data, TTD Stock has a strong chance of a rise over the next month after declining by about 17% in the last five days. See our dashboard TTD Stock Chances Of Rise For More Details.

So what’s the longer-term outlook for The Trade Desk stock? The company’s addressable market is growing fast, with eMarketer estimating that total digital ad spending will rise to about $526 billion by 2024, from levels of around $333 billion in 2020. The Trade Desk should stand to benefit given its position as a demand-side-only platform, with no potential for conflicts of interest unlike larger rivals such as Google and Facebook, and its ability to target users across various devices and formats. That said, there are risks. Google’s recent decision to not use technologies that track people individually across the Internet is weighing on the ad tech sector to a certain extent (see our update below). Moreover, the Trade Desk’s stock trades at a relatively high 110x projected earnings, which makes it look somewhat expensive, compared to the 56x multiples seen in 2018.

[3/9/2021] Is Trade Desk Stock A Buy?

The stock price of The Trade Desk (NASDAQ:TTD), an ad technology player that helps companies buy digital ads across publishers, has rallied by over 3.5x from the lows of March 2020 when the broader markets made a bottom due to the spread of Covid-19. This compares with a roughly  70% rise for the S&P 500 over the same period. The Trade Desk stock outperformed significantly as it gained share in the digital advertising market, particularly in areas such as streaming TV which grew significantly through the pandemic. However, we think that the stock, which is also up by about 14x since the end of 2017, looks somewhat overvalued at current levels as we discuss below.

Let’s take a look at the company’s performance over the last few years for a sense of how the company has been faring and what has driven its stock price gains. Revenues rose at an annual rate of about 32% between 2018 and 2020, rising from around $477 million in 2018 to about $836 billion in 2020, driven by higher spending on the company’s platform by its existing clients and the addition of new clients, as marketers continued to shift their ad budgets to digital advertising. The company’s net margins also improved from 18.5% to 29%, driven by a higher revenue base and the recognition of benefits associated with stock-based compensation. The company’s reported EPS grew from about $2.08 per share in 2018 to about $5.24 per share in 2020. However, The Tade Desk’s P/E multiple has jumped from levels of about 56x in 2018 to about 122x currently, as investors doubled down on asset-light Internet companies that saw growing revenues through Covid-19. Our dashboard What Has Driven The Trade Desk Stock Over The Last 3 Years?, has the underlying numbers.

The Trade Desk’s Outlook Is Solid, But Valuation Looks Rich

The global digital ad market is growing fast as ad dollars shift away from traditional media with eMarketer estimating that total digital ad spending will rise to about $526 billion by 2024, from levels of around $333 billion in 2020. The Trade Desk, being a demand-side ad platform that enables businesses and ad agencies to buy advertising and target audiences across various devices and formats, should stand to benefit as the market expands. Moreover, unlike rivals such as Google and Facebook, the company does not own its own content platforms or ad inventory and it works only with ad buyers. This reduces the potential for conflicts of interest and has given the company a reputation for transparency in the relatively complex ad market. The Trade Desk has been gaining market share, with its business growing faster than larger rival Google, driven in particular by gains in areas such as streaming video and connected TVs. Over Q4 2020, the company’s connected TV business doubled year-over-year.

However, despite the solid growth, there are a couple of reasons to remain cautious on the stock. Firstly, Google recently updated its privacy plans promising to not use technologies that track people individually across the Internet. While Google previously said that it would do away with third-party cookies – which are used to track users across websites – on its market-leading Chrome Browser, it now says that it does not plan to replace this with new technology. Although The Trade Desk has developed an alternative solution that creates identifiers for users based on their email addresses, Google’s decision could have broad repercussions for companies that track people individually. Trade Desk stock actually declined by over 20% following this news, implying that investors do see this as a meaningful threat.

Secondly, The Trade Desk’s stock also looks pricey versus historical levels. At the current stock price of $650 per share, the stock is valued at about 122x trailing earnings and at about 118x based on the forward consensus earnings estimate of $5.50 per share. This is considerably higher than the multiple of  56x in 2018 and 107x seen in 2019. Although the company’s growth is set to pick up this year, the high valuation, coupled with the current changes in ad tracking space makes the stock appear vulnerable to further downside risk.

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