The Trade Desk is 39% down from its peak: is it a buy now?


Ofor several years, advertising platform The Trade Desk (NASDAQ: TTD) was on fire. The company has experienced and instilled hyper-growth – thanks to the disruption of traditional advertising and the switch to digital media. As a result, The Trade Desk delivered three-digit percentage earnings worthy of any tech superstar title. In December 2020, The Trade Desk hit a record per share of $ 972, up 5,300% from its IPO price.

But since then, this high-flying stock came back crashing down to earth. The Trade Desk is now trading at $ 592 a share, down about 39%. Is this drop a buying opportunity – or a sign of darker days ahead? Let’s find out.

Image source: Getty Images.

The bull case

With COVID-19 cutting wind from most businesses around the world, there simply was no escape for The Trade Desk. In the second quarter of 2020, The Trade Desk’s revenue was down 13% year-over-year. This was a drastic drop, given that revenue grew 42% over the same period in 2019. But The Trade Desk rebounded in the second half of 2020, as more and more advertisers realized it. how valuable programmatic advertising can be. It ended the year with 26% revenue growth, while net profit more than doubled year over year.

The performance of the Trade Desk speaks volumes about the strength of its business model, even for one of the worst years never for the advertising industry. For example, the Trade Desk operates on multiple digital advertising channels such as Connected TV (CTV), Mobile, Video, Audio, and Display. This broad reach gives it exposure to growth across the digital landscape. While traditional advertising channels suffered throughout 2020, new digital advertising channels like CTV were quickly adopted as people moved from cable to streaming services. This, in turn, benefited the Trade Desk.

The Trade Desk performed well in 2020 and continued to do so in 2021. In the first quarter of 2021, revenue grew 37% year-over-year to $ 219.8 million. And despite its recent performance, the company is just getting started. Over the next few years, it can easily generate double-digit percentage growth by increasing its market share. Although the company is already the largest programmatic advertising platform, its share of global ad spend – a market of $ 725 billion – is still less than 1%.

Additionally, The Trade Desk has CEO Jeff Green, a visionary who founded the company and is responsible for much of its success. Green also has serious skin in the game, holding a $ 2.5 billion stake in the company. With Green firmly in the driver’s seat, The Trade Desk has what it needs to continue to grow rapidly for years to come.

The case of the bear

There is no doubt that The Trade Desk has been incredibly resilient in the face of the pandemic. But go ahead, in the short term headwinds could derail its growth and affect its financial performance. Chief among them is the Trade Desk’s plan to increase investment, with a focus on CTV platforms and international growth. While this bet may pay off in the long run, it could impact The Trade Desk’s profits in 2021.

For its part, The Trade Desk also pointed out two risks that could hold back revenue growth. The first is Appleof coming change to his identifier for advertisers (IDFA), which will make it easier for iOS users to turn off advertiser tracking. On top of that, AlphabetGoogle is prohibit third-party cookies used to deliver and target ads. These two developments could have an impact on advertising spending, which could hurt platform operators like The Trade Desk.

Slower growth is bad news for The Trade Desk, which investors see as a high-octane growth stock. In fact, the recent drop in its stock price partly reflects this concern.

Is the Trade Desk a buy now?

In the years to come, The Trade Desk has what it takes to support growth at high rates. Its business model has proven to be strong in the face of COVID-19, and the company has a proven leader at the helm.

Still, the way forward is not clear for The Trade Desk, given its short-term challenges. But the real deciding factor for me is the absurdly high valuation of the stock. Even after losing almost 40% of its value, The Trade Desk is trading at 30 times its sales and over 100 times its profit. At these price points, shareholders are walking a tightrope. Any bad news related to the Trade Desk – or a additional correction of technological values – could lower the share price.

All in all, The Trade Desk is a classic case of a wonderful company this could turn out to be a terrible investment. Until its share price becomes much more attractive, I will leave this one out.

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Suzanne Frey, executive at Alphabet, is a member of the board of directors of The Motley Fool. Lawrence nga has no position in any of the listed securities. The Motley Fool owns stocks and recommends Alphabet (A-shares), Alphabet (C-shares), Apple, and The Trade Desk. The Motley Fool recommends the following options: March 2023 long calls at $ 120 on Apple and March 2023 short calls at $ 130 on Apple. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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