The Trade Desk (TTD) is a multinational advertising technology company that offers a software platform for online advertisers to buy data-driven ad campaigns across various devices and formats. It has offices worldwide, including North America, Europe, and the Asia Pacific.
I am neutral on The Trade Desk because its robust growth momentum and lengthy growth runway are offset by its rich valuation. (See Insiders’ Hot Stocks on TipRanks)
Strengths
Globally leading brands and agencies use the Trade Desk platform to increase value and precision across ad campaigns. The company reported record revenue of $301.1 million and is witnessing growth across all channels, most notably in the Connected TV division, as consumers shift to newer digital streaming services and advertisers apply data to advertising campaigns in TV.
The company saw strong customer retention of over 95% during the third quarter of 2021, as it has for the past seven years. In July, it also launched the new trading platform Solimar with features like an upgraded UI and is also building support for Unified ID 2.0.
The Trade Desk was ranked 6th on Fortune’s “100 Fastest Growing Companies for 2021” list and was included in the 2021 Forbes Global 2000 list.
Recent Results
The Trade Desk reported revenue of $301.1 million for the third quarter of 2021 ended September 30. This is a 39% year-over-year improvement compared to the $216.1 million revenue generated in the third quarter of 2020. TTD also showed quarterly adjusted earnings per share of $0.18, beating consensus estimates of $0.16 per share.
The Trade Desk reported a net income of $59.4 million, a significant increase from the $41.2 million it generated in the same quarter of the Fiscal Year 2020. Adjusted EBITDA was $122.7 million, the non-GAAP net income was $89.2 million, and the diluted EPS was $0.12.
The company reported that the global pandemic significantly impacted its advertiser demand. It expects its performance to be impacted by factors beyond its control in the coming quarters; however, assuming there are no significant setbacks, the company expects revenue of at least $388 million for the fourth quarter of 2021 and an adjusted EBITDA of an estimated $175 million.
Valuation Metrics
The Trade Desk’s stock looks very pricey at the moment as its next twelve months’ enterprise-value-to-EBITDA ratio is a sky-high 87.3x compared to its historical average of 49.8x. Furthermore, its price-to-forward normalized earnings ratio is 124.2x compared to its historical average of 80.3x.
Wall Street’s Take
Turning to Wall Street, The Trade Desk earns a Strong Buy consensus rating based on 11 Buys and three Hold ratings assigned in the past three months. Additionally, the average Trade Desk price target of $97.92 implies 7% downside potential.
Summary and Conclusion
The Trade Desk is an exciting advertising technology company benefiting from the explosion of data analytics and its ramifications for analyzing, understanding, and predicting consumer behavior.
The company also has a strong network advantage due to its global presence and existing relationships with large companies. As a result, it should continue to enjoy a strong growth rate for years to come.
This rosy outlook for the company is reflected in the overwhelming bullishness of Wall Street analysts.
That said, the stock price looks quite pricey at the moment as it is trading far above its historical valuation multiple averages. As a result, investors might be prudent to wait for a pullback in the share price before adding shares.
Disclosure: At the time of publication, Samuel Smith did not have a position in any of the securities mentioned in this article.
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