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The Trade Desk is Headed for Strong Growth
Stock Analysis & Ideas

The Trade Desk is Headed for Strong Growth

The Trade Desk (TTD) is down more than 25% this year as traders favor energy companies due to the rapid rise in commodity prices.

Since the stock has excellent fundamentals and the outlook for the industry is promising, its shares are sure to bounce back once the aforementioned headwinds clear. Thus, I am bullish on this stock.

The company owns and operates a cloud-based platform that allows buyers to create and manage their own digital advertising campaigns.

These can be launched in multiple formats and shared across multiple communication channels, including social media. The company’s customers include advertising agencies and other companies that serve advertisers in the United States, and internationally.

FY and Q4 2021 Results

The launch of a new platform helped the company gain more space in the data-driven advertising market, thereby improving its revenues and profits.

This essentially led to the following improvements.

For the most recent quarter of 2021, The Trade Desk reported that pro forma earnings were $0.42 per diluted share, up 13.5% from $0.37 in the year-ago quarter. The Trade Desk outperformed the average analyst on pro forma earnings per diluted share by $0.14.

Revenue came in at $396 million, up 24% year-over-year, and beating analysts’ median forecast by nearly $6 million.

For full-year 2021, pro forma earnings were $0.91 per diluted share, a 32% increase over 2020 on total revenue of nearly $1.2 billion. Total revenue increased 43.5% from $836 million in 2020.

Other relevant numbers showed a 47% increase in gross spend by companies on the platform to leverage The Trade Desk’s technology solutions and services. For the ninth year in a row, customer retention also exceeded 95% in Fiscal 2021.

Geared Towards Strong Growth

While specific partnerships support the technology to ensure a high level of user control and privacy, the most reputable ones with Walmart, Samsung, and Xiaomi increase the value of the entire business on the platform through the production of quality advertising.

Balance Sheet

The Trade Desk’s balance sheet appears solid, as total cash on hand of $960 million far exceeds the total debt of $285 million.

The interest coverage ratio of 121.2 suggests that this debt is not a problem as the company can easily bear the costs represented by the payment of the interest expense. 

For Q1 2022, the company guides for a 38% year-over-year revenue growth to $303 million and for 29.1% year-over-year adjusted EBITDA growth to approximately $91 million.

Outlook

The outlook is positive as the catalyst that will help The Trade Desk’s platform grow in value and scale through partnerships with relevant companies is represented by the exponential adoption of smartphones and wearable devices among the global population.

In terms of ad spending, the digital advertising market is expected to grow from $203.2 billion in 2022 to $272.5 billion through 2026, increasing by about 8.5% annually, according to Statista.

Wall Street’s Take

Eleven Wall Street analysts have issued a 12-month price target for TTD. The company has a Strong Buy consensus rating based on nine Buys, two Holds, and zero Sell ratings.

The average Trade Desk price target is $104.50, implying 63.4% upside potential.

Stock Statistics

The company has a market cap of $30.9 billion, a P/E ratio of 238, and a 52-week range of $46.71 to $114.09.

The stock has a price-to-book ratio of 21.5, and a price-to-sales ratio of 28.3.

Conclusion

The stock has underperformed so far this year, but shareholders shouldn’t worry as the company’s fundamentals are resilient.

In addition, the company’s prospects look promising, leaving the stock price on track for a strong comeback.

First, the current market sentiment needs to shift towards a more balanced and slightly stronger preference for ad platform stocks.

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