The Trade Desk, Inc. – Time to buy shares amid a 30%+ sell-off?
Here's my quick take on the Trade Desk Q4 earnings and outlook!
Looking to do your own stock analysis? Consider using StocksGuide, my go-to stock and business analysis tool. Check it out! Most of its features are free.
The Trade Desk released its Q4 earnings report yesterday, and a rough share price reaction followed. At the time of writing this today, TTD shares are down by a whopping 32% in response to mixed results, losing $16 billion in market value and falling to their lowest level since August 2024.
Interestingly, the results themselves weren’t all that bad, but when shares are trading at over 60x earnings, a lot of optimism is already priced in, and there is no margin for error. Yet, TTD reported Q4 results and issued guidance that both fell short of expectations, showing a slowdown in growth, spooking investors.
Notably, this was the first time in its 33 quarters as a public company that TTD fell short of the consensus and its own estimates. And suddenly, that high premium this founder-led digital advertising business traded on didn’t seem justified anymore.
Overreaction or justified? Let’s find out!
This is The Trade Desk
Since I know TTD might not be on everyone's radar, here is a quick explanation of the business!
The Trade Desk is a leading technology company specializing in programmatic advertising. It provides a cloud-based platform that enables advertisers to purchase and manage digital ad campaigns across various channels, including display, video, audio, and connected TV (like streaming services).
For reference, programmatic advertising automates ad buying across the open web, using real-time bidding to place ads on various websites, apps, and connected TV platforms. It relies on demand-side platforms (DSPs) to access diverse inventory beyond a single ecosystem. In contrast, Google and Meta operate as walled gardens, where ads run exclusively within their networks using first-party data. Unlike programmatic, which offers broader reach and flexibility, walled gardens keep advertisers within their closed ecosystems, limiting external data access and cross-platform targeting.
Founded in 2009, the Trade Desk has established itself as a key player in the digital advertising ecosystem. It offers advanced, data-driven solutions that help brands and agencies optimize their ad spend and maximize reach.
With a strong focus on artificial intelligence and machine learning, The Trade Desk's platform allows users to enhance campaign performance through real-time analytics, precise audience targeting, and automated bidding strategies. Unlike traditional ad-buying methods, its programmatic approach enables advertisers to make more efficient, transparent, and data-informed decisions.
Furthermore, the open internet approach by TTD allows advertisers to target their ads to specific audiences based on, for example, location, demographics, and browsing behavior. The Trade Desk charges a fee for using its platform and earns a commission from the media companies where the ads are placed.
In other words, the Trade Desk offers a platform on which advertisers can choose where their ads appear and who they target to achieve the highest ROI (return on investment) and gain insight into the performance of their campaigns. This gives the Trade Desk an edge over the Walled Gardens—Meta and Google—which control most of the digital ads market.
Furthermore, TTD has independence on its side. The Trade Desk is an independent platform, which means that it is not affiliated with any particular media company or platform. This allows advertisers to access a wider range of media inventory and to have greater control over where their ads are placed, giving them much more freedom, opportunities, and personalization capabilities.
Through this unique, much more open, flexible, and targeted approach, TTD has seen great success over the last decade. Yes, this programmatic advertising approach is more expensive for the companies placing the ads, but the ROI is far higher.
Here is what CEO Jeff Green said during the most recent earnings call:
“In my view, we have to obsess about making the open Internet better than walled gardens. Walled gardens have cheap inventory. And I think there is a lot of people that are chasing cheap even if it doesn't help them in the long-term.”
A pretty interesting business, right? And thanks to its success and favorable positioning within a promising market, TTD is looking good for the decade ahead, poised for significant growth.
Q4 and FY24 results + highlights
Q4 revenue was $741 million, a 22% year-over-year increase but missing the consensus by $18.5 million or roughly 2.5%
FY24 revenue totaled $2.44 billion, up 26% YoY.
Total spending on the TTD platform reached $12 billion in 2024.
Retention rate of 95% (in line with recent years).
Growth of 22% YoY does represent a clear slowdown from what we have seen in recent quarters and the slowest YoY growth since early 2023, which, at the time, was mainly due to the company lapping a stronger 2022 advertising market.
So, 22% growth is a bit of a disappointment, though still far from bad. The miss is what really hurt against high expectations.
Remarkably, this Q4 revenue miss marks the first time TTD misses the consensus and its own estimates in its 8 years trading as a public company (excluding Q1 2020 due to Covid). Crucially, the reason for the miss was execution flaws by management itself, although it did not elaborate on these flaws in greater detail.
However, management clarified that TTD's growth story remains unchanged, and any concerns are unwarranted. The opportunity for TTD is still massive, and competition isn’t an issue at the moment. In fact, TTD continues to outpace the broader digital advertising market, thanks to continued market share gains and exposure to faster-growing verticals like CTV or streaming.
This Q4 miss was purely the result of execution missteps and a focus on future growth and market share optimization. CEO and founder Jeff Green described it beautifully during the earnings call:
“If this were a sporting event, we’d still have a championship-caliber team, but in this particular game, we turned over the ball too many times.”
In fact, TTD is seeing a larger and faster growing addressable market than originally expected, so management is only getting more optimistic, even as the second half of 2024 wasn’t as hoped.
While I tend to be cautious buying management’s excuses for a miss in most instances, I have no trouble taking Jeff Green’s word on this. It does look like a temporary dip.
On a positive note, the 2024 take rate remained stable and within a very consistent historical range, showing solid pricing power. Furthermore, the rise of advertisements on streaming platforms is driving rapid growth for TTD, even as the adoption is still very early (CTV accounts for a high 40s percentage of revenue for TTD).
In other words, while this Q4 miss wasn’t great, I see no reason for TTD’s long-term thesis to be hurt here. I remain bullish on the company’s prospects.
Moving to the bottom line, the Q4 results didn’t give much more reason for optimism.
The Q4 EBITDA margin was flat YoY at 47%.
This resulted in a Q4 EBITDA of $350 million.
Q4 OpEx was up 23% YoY.
FY24 EBITDA was just over $1 billion at a 41% margin.
FY24 FCF was $630 million (26% FCF margin, making TTD a Rule of 50 business still).
These results reflect TTD’s focus on continued investment in areas like sales & marketing and technology & development to position itself for long-term growth. Nevertheless, a 47% EBITDA margin, or 41% for the full year, is still quite strong.
Also, with an FY24 FCF margin of 26% and 26% top-line growth, TTD still is a Rule of 50 business, putting it in a pristine basket.
Q4 net income was $297 million or $0.59 per share, beating estimates by $0.02.
These solid cash flows allowed TTD to maintain a very healthy balance sheet with $1.9 billion in cash and no debt. This allows management to keep buying back its own shares, primarily to offset dilution (management authorized a new $1 billion buyback program and plans to buy back shares opportunistically).
On the note of SBC, this amounted to a still very high 17.4% of revenue in Q4, which is a bit too elevated for my taste. However, there are two side notes to be made here.
First of all, SBC has been trending down quite strongly over the last 2 years, down 260 bps in Q4 and down from 30%+ in 2022. Also, a lot of this SBC is actually going to management due to reached share price incentives. This means management is very much aligned with shareholders, which is a positive.
Considering these two factors, this level of SBC doesn’t worry me too much.
Before we move on, just a quick word…
Rijnberk InvestInsights is a reader-supported publication. I try to keep most of my content free for everyone, but I can’t do this without your support!
So please subscribe if you like our content! Want to receive even more of our investment insights and show even more appreciation? Please consider upgrading to our paid tier (only $7.50 monthly or just $70 annually).
In addition to all the free stuff, this also gets you access to even more premium analyses (a total of 3 per month), full access to my own (outperforming) portfolio, immediate trade alerts in the subscriber chat, and a full overview of all my price targets and rating, and even more!
Outlook & Valuation
Management’s guidance:
Q1 revenue to be at least $575 million, short of a $583 million consensus, and reflecting YoY growth of only 17% YoY. (This includes the lapping of an extra day in 2024 and a drop in political spending.)
Q1 Adj. EBITDA of $145 million
FY25 operating expense growth to accelerate YoY.
No more 2025 guidance provided.
Q1 guidance also fell short of expectations, showing a further growth slowdown into the high teens. This is quite a disappointment on top of an already far from clean Q4 earnings report. Meanwhile, management also guided for accelerating cost growth, which, together with a top-line growth slowdown, seems to point to a year of lower margins, which doesn’t positively add to the already poor sentiment.
On a positive note, the long-term growth drivers for TTD remain in place, and while 2025 might not be as strong as hoped for and anticipated, long-term room for growth remains significant, with most growth drivers still in their early phases. Here is how management summarized them:
“CTV advertising remains a small fraction of total TV ad spend relative to linear. Retail media is scaling rapidly, evolving from an emerging trend into a core digital advertising channel as brands are recognizing its ability to drive both performance and measurement. And in most global markets, decisioned programmatic is still in early stages of adoption, with tremendous long term growth potential.”
Long-term, I remain optimistic.
Here is what management now projects for medium-term growth. I can only say it still looks promising, with potentially some room for upside, especially from 2027 onward.
In terms of valuation, today’s 30%+ sell-off has at least made shares somewhat less expensive, especially since financial projections have not changed much.
At a current share price of roughly $84 per share, TTD shares now trade at roughly 45x this year’s earnings, which is down from a 60x multiple prior to the Q4 earnings and a 5-year average multiple of 86x.
Now, we are seeing a slowdown in growth, so a multiple reset seems justified. However, today’s reset might have been overdone. For reference, we are now seeing a growth-adjusted PEG of 1.9x, which is a 35% discount to the 5-year average. This isn’t all that bad.
In my view, last week’s sell-off, while somewhat justified, has been overdone by now, and at a current share price of $84, I do think TTD shares are rather interesting for growth-oriented investors. Ultimately, TTD still has a massive runway of growth ahead of it and is one of the most interesting growth opportunities for the decade ahead, thanks to its extremely favorable positioning.
For reference, using a long-term 40x multiple—I can’t see TTD trading below—and the current FY27 consensus, we end up with an end-of-2027 price target of $118 per share. This translates into potential annual returns (CAGR) of roughly 12%, which should be market-beating.
Now, I won’t say TTD shares are a bargain right now or a no-brainer. The risk-reward balance is still not too attractive, even after today’s sell-off, but considering the significant growth TTD has ahead of it and the room to outperform, I am willing to be a bit flexible here.
While I would prefer buying below $80 per share, I think TTD shares could already be a good buy right now.
I haven’t pulled the trigger yet, but I might soon pick up some shares, possibly later today!
Great post! I think 12% CAGR is not enough when taking the risk of multiple compression or another bad quarter. I will need more downside protection for my personal taste. Still a great company and the clear leader in its field. Thanks!
It's a very interesting business but as you said "Valuation matters". It would be good to have it in the radar for future possible corrections.
Thanks.