The Trade Desk stock analysis: Buying opportunity after 33% fall?

Table of Contents

1. Company profile – cloud-based advertising platform

2. A market with great potential
3. Competitive situation
4. The moat of The Trade Desk
5. The latest quarterly figures for The Trade Desk, from December 2024
6. New COO at The Trade Desk aims to fix operational weaknesses
7. The Trade Desk Forecast 2025
8. Key figures for The Trade Desk stocks from the HGI analysis
9. Valuation & conclusion
   

Online advertising is booming, and The Trade Desk (ISIN: US88339J1051) has positioned itself as a leading provider in the programmatic advertising space, benefiting from long-term megatrends such as connected TV, retail media and data-driven advertising. As an independent platform provider, the company offers advertisers a transparent alternative to closed platforms such as Google or Amazon – and this is being well received, as the strong growth and the sharp rise in the stock price show. Since the IPO in 2016, the stock price has increased more than twentyfold.

Source:The Trade Desk stock  

The journey could go on for a long time yet, given the potential market potential. However, a lot of this fantasy is already priced into the high valuation. A stock price decline of over 30 percent in the current year shows how nervous investors are. For the first time in 33 quarters, the company failed to meet its internal targets. The following equity research report by The Trade Desk examines the reasons behind these developments, the strengths and weaknesses of the stock, and whether it might be a good time to buy.

Company profile – cloud-based advertising platform

The Trade Desk operates a cloud-based demand-side platform (DSP) that allows advertisers to purchase digital advertising space automatically and in real time. The company earns money by charging a fee for the use of its platform, which is based on the volume of advertising budgets processed through the platform. In contrast to walled gardens, such as those operated by Google (a subsidiary of Alphabet) or Meta – walled gardens are closed digital ecosystems in which one company retains control over content, data and services – The Trade Desk offers an open and transparent solution. Customers can use their data flexibly and advertise through a variety of channels. This includes display, video, audio, connected TV and mobile advertising. The central component of the business model is the use of data and artificial intelligence to optimize advertising campaigns. Advertisers can precisely target audiences by combining first-party and third-party data and bidding for advertising space in real time through the platform.

Source:how the The Trade Desk business model works

The Trade Desk relies on a partnership strategy and works with a variety of publishers, data providers and technology partners. In addition, the company has developed Unified ID 2.0, an open-source user identification solution designed to serve as an alternative to third-party cookies. It is used to counter regulatory risks.

A market with great potential

The Trade Desk's business model benefits from the increasing shift of advertising budgets into programmatic advertising, especially in high-growth segments such as connected TV. The market for digital programmatic advertising is therefore growing rapidly and is characterized by several key factors. A central feature of this market is the increasing automation and data-based optimization of advertising placements. Instead of booking advertising space manually, companies are using real-time bidding (RTB) to purchase advertising space in a targeted and efficient manner. This leads to greater relevance for the target group and better utilization of advertising budgets.

However, another important growth driver is the shift in advertising budgets towards digital channels. Traditional media such as print or linear television are rapidly losing importance. In contrast, digital advertising formats such as streaming (connected TV), mobile advertising and digital out-of-home advertising are logically gaining more and more market stock. In particular, connected TV is the focus of advertisers, as more and more consumers consume content via streaming platforms and traditional TV advertising is increasingly being replaced by digital, personalized advertising. Another megatrend is the increasing importance of data protection and the shift towards advertising-friendly but user-centric identification. With the elimination of third-party cookies in browsers like Chrome, alternative solutions for user identification are becoming more relevant. Technologies from The Trade Desk – such as Unified ID 2.0 – or first-party data strategies enable advertisers to continue to deliver targeted advertising without violating user privacy. Last but not least, artificial intelligence and machine learning are also playing an increasingly important role in the further development of the market. Modern algorithms improve the efficiency of advertising campaigns by predicting user behavior and making real-time decisions about the optimal placement of ads. The greater effectiveness of digital advertising is likely to increase the incentive for advertisers to invest in programmatic advertising systems. And there are several providers in this area, as the following chapter shows.

Competitive situation

The programmatic advertising market is dominated by a few major competitors, including companies such as Google (with Google DV360), Amazon (Amazon DSP), Meta, Xandr (a subsidiary of Microsoft) and smaller independent DSPs such as MediaMath or Basis Technologies. These companies also offer programmatic advertising solutions. Not to be forgotten are Netflix and Roku. Netflix has long been ad-free, but it has set foot in the digital advertising market with its ad-supported Basic with Advertising subscription plan. Netflix is currently working with Microsoft's Xandr, which acts as a DSP. If Netflix develops its own advertising technology in the future and keeps its advertising inventory exclusive, this could mean additional competition for independent DSPs like The Trade Desk. However, Netflix is currently more of a potential partner than a direct competitor if it decides to monetize more broadly through external advertisers. Roku, on the other hand, is one of the most important players in the streaming and CTV advertising space and thus represents a more significant competitor for The Trade Desk. With its advertising platform “Roku OneView”, Roku offers its own DSP that gives advertisers access to Roku's extensive streaming ecosystem. Since Roku operates both hardware (streaming sticks, smart TVs) and its own operating system, the company has direct access to valuable user data and can deliver highly targeted advertising. However, The Trade Desk has several strategic advantages over its competitors that make it unique and highly competitive.

The moat of The Trade Desk

One of The Trade Desk's key competitive advantages is its independence from proprietary media platforms. While Google, Amazon and Meta operate so-called walled gardens and often offer advertisers limited access to data and reach outside their ecosystems, The Trade Desk relies on an open and transparent platform. Advertisers have the opportunity to advertise through various channels – from connected TV and mobile to audio and digital out-of-home – without being subject to the restrictions of the large technology platforms.

Another advantage, or moat, is the strong partner strategy. The Trade Desk works with a variety of publishers, data providers and technology companies to ensure broad and high-quality reach. In particular, The Trade Desk has established itself as the leading independent platform in the connected TV sector. While Google and Amazon are increasingly investing in their own advertising inventory, The Trade Desk offers its customers access to a wide range of streaming services and premium content providers.

The Trade Desk is also very well positioned technologically. Its proprietary platform relies heavily on artificial intelligence and data-driven optimization to efficiently manage advertising campaigns and deliver the best possible results for advertisers. For example, the proprietary AI framework Kokai helps advertisers precisely analyze target audiences and submit the optimal bids for ad spaces in real time. Another strategic advantage is the development of Unified ID 2.0 as an alternative to third-party cookies. While many competitors are still struggling with the challenges of the elimination of cookie tracking, The Trade Desk developed an open, privacy-friendly solution early on that is already supported by many market participants.

All these factors give the California-based company a clear competitive advantage over large platform operators such as Google and Amazon, as well as smaller DSPs that do not have the same reach and technological depth. And this is particularly evident from the long-term high growth rates. They also remained high in the most recent quarter, with one small blemish.

The latest quarterly figures for The Trade Desk, from December 2024

Although The Trade Desk was able to continue its growth course in the fourth quarter of 2024 and again gain market stock, it did not meet internal expectations. Specifically, revenue rose 22 percent to $741 million and EBITDA rose by a third to $219 million. Revenue planning was for $756 million.

Source: The Trade Desk financial data ; StocksGuide

This hit investors particularly hard because they had expected more. But also because for the first time in 33 consecutive quarters, growth could not be sustained. However, a series of minor operational mishaps are likely to be responsible for this, rather than fundamental problems or market and competitive difficulties. To avoid such mishaps in the future, an internal reorganization has already been initiated – a clearer allocation of roles and optimized reporting structures.

The company also delivered strong results for the full year 2024. With an advertising volume of 12 billion and a 26 percent increase in revenue to 2.5 billion US dollars, the pace of growth remains high, even though the fourth quarter fell short of expectations. At the same time, profitability and cash flow continued to increase.

Source: The Trade Desk financial data ; StocksGuide

The company continues to enjoy a high level of customer confidence, as evidenced by a consistently high customer retention rate of over 95 percent throughout the year – a figure the company has maintained for 11 years now. To avoid repeating the disaster of the fourth quarter and to better capitalize on future growth opportunities, The Trade Desk repositioned itself in December 2024. It is now focusing more on connected TV, retail media, identity solutions, supply chain optimization and audio. Innovation projects such as the AI-based platform Kokai and the new streaming TV operating system Ventura are designed to further strengthen its market position. Also worth mentioning is the acquisition of Sincera. Sincera is a leading provider of digital advertising data analysis, offering deep insights into the quality and performance of advertising inventory. Integrating Sincera into The Trade Desk's platform gives advertisers better analytics to understand exactly what ad spaces they are buying and what data is most valuable for their campaigns. At the same time, publishers benefit because they can see which signals advertisers prefer and how they can optimize their inventory. The acquisition is part of The Trade Desk's strategy to optimize the supply chain in the digital advertising ecosystem. The market for programmatic advertising is complex, with many intermediaries and little transparency. With Sincera, The Trade Desk can bring more clarity and efficiency to this process, which in the long term can lead to better advertising impact and higher margins for all market participants. We will see the successes of this strategy at the earliest when the next quarterly figures are published. In essence, however, things are likely to continue to improve, as the forecasts show.

New COO at The Trade Desk aims to fix operational weaknesses

The Trade Desk has appointed Vivek Kundra as its new COO to improve the operational efficiency of the rapidly growing company. Despite strong revenue growth, The Trade Desk has recently faced operational challenges. Kundra has experience in scaling software companies like Salesforce, where he quadrupled sales to $8.4 billion as executive vice president. He was also the first CIO of the US government, where he led major digitization projects. CEO Jeff Green sees Kundra as the right man to streamline processes and sustain growth.

The Trade Desk stock forecast 2025

For the first quarter of 2025, The Trade Desk expects revenues of at least $575 million and adjusted EBITDA of around $145 million. The Trade Desk sees particular potential in the areas of connected TV, retail media and identity solutions. The increasing shift of advertising budgets to data-driven, scalable platforms also opens up new opportunities, especially as advertisers are increasingly turning to premium content rather than user-generated content. In addition, the company is strengthening its technological base and market position with the introduction of the Ventura operating system for streaming TV, the further development of Unified ID 2.0 and the integration of Sincera into the platform. These innovations are designed to offer advertisers even more precise, transparent and efficient advertising options. In addition, the strategic realignment in the fourth quarter is intended to accelerate growth in key business areas. By focusing on AI-powered optimization, better data analysis and more efficient advertising processes, The Trade Desk aims to further expand its market leadership in the open internet.

In the long term, the company sees great potential in the increasing automation of digital advertising and the increased use of first-party data. With these trends in mind, The Trade Desk is well positioned to continue benefiting from the transformation of the advertising market in 2025 and beyond.

Source: Sales and Margin forecast until 2029

And according to analysts, this should lead to significantly higher sales and profits in the medium term. At the end of the 2029 financial year, the six billion US dollar sales mark could be exceeded. The pace of growth is likely to slow only gradually. But even after 2029, it could remain in double digits.

Source: Expected earnings development and P/E ratio of The Trade Desk until 2029

Here, too, the high scalability of the platform is expected to lead to disproportionate earnings growth. Accordingly, significantly higher growth rates are expected for EPS, or earnings per stock. They are still expected to be 25 percent in 2019, around 10 percentage points higher than revenue growth. The current extreme P/E ratio of over 100 would quickly fall to a value of under 30.

Key figures for The Trade Desk stocks from the HGI analysis

The Trade Desk's high-growth investing (HGI) score shows an overall solid picture with many strengths, but also areas for improvement. Particularly positive is the gross margin of 81 percent. The Rule of 40 value of 52 percent also underscores the healthy balance between growth and profitability, which is not a given for technology companies in the digital advertising market. A good debt situation, on the other hand, is more common. In the case of The Trade Desk, it can be explained by the strong free cash flow. The debt-equity ratio of 0.11 is correspondingly low – a clear advantage in a dynamic market environment that offers the company flexibility for investments and innovations. The PEG ratio of 0.7 also shows that the company's current growth appears attractive in relation to its valuation. The highest score of three points was achieved in all four categories.

However, the EV/Sales multiple of 12.5 is somewhat high and can be very dangerous for a potential high-growth investment. Here, it would only give a maximum of up to 12 points. The comparatively high valuation reflects high market expectations, which is not unusual for a high-growth company like The Trade Desk. At the same time, however, it also increases the pressure to continue the strong performance in the coming quarters. Revenue growth of 25 percent in fiscal year 2024, on the other hand, shows a slight acceleration from 23 percent in 2023, but remains below the 32 percent growth in 2022. The trend reflects the maturity of the business, but possibly also the intensification of competition in the programmatic advertising market.

Source: HGI-Score of The Trade Desk 

With an HGI score of 13 points, The Trade Desk scores well, although the premium applied to the valuation means that continued high growth and operational excellence are expected.

However, its days as a high-growth investment could soon be numbered, because once growth falls below 20 percent, the stock is no longer likely to score points for revenue growth and thus formally cease to be a high-growth investment. Overall, however, the company is likely to remain an attractive growth stock due to its innovative strength, strong customer loyalty and leading role in the open advertising ecosystem.

Valuation of The Trade Desk stock

The valuation of The Trade Desk reflects the market's growth expectations to a high degree, because with an EV/Sales multiple of 12.5, the company is valued very ambitiously on the basis of its sales. That much we already know. However, a look at the past shows that the company has been valued twice as high on average in recent years.

Source: Historical development of the EV/Sales ratio of The Trade Desk stocks;

An interesting factor in this context is the PEG ratio of 0.7. A value below one usually indicates that growth can justify the current valuation. And here it is clear that the high EBIT growth of 113 percent over the last twelve months is responsible for this low value.

If we look at the EV/FCF multiple of 48, it is also evident here that high valuations are being called for despite the profitable growth. Although the free cash flow of USD 641 million is solid, The Trade Desk would need many years to grow into the capitalization of USD 32 billion that has already been achieved – a valuation risk.

Source: Key metrics The Trade Desk

Overall, The Trade Desk is still trading at a significant premium even after the recent price decline. However, the valuation could be justified as long as the company continues to gain market stock, margins remain high and it expands into promising segments such as connected TV and retail media. However, it also means that a lot of positive things are already priced in, so that future quarterly figures will be viewed particularly critically by the market. Even small disappointments could lead to major price drops. This is exactly what we saw in February 2025.

Conclusion on The Trade Desk

The Trade Desk remains one of the most exciting growth stories in the digital advertising market. The company is benefiting from long-term megatrends such as connected TV, retail media and the increasing automation of advertising, while at the same time the shift away from third-party cookies towards privacy-friendly identity solutions is progressing. With Unified ID 2.0 and the AI-based Kokai platform, The Trade Desk is also strategically well positioned to offer advertisers an independent and transparent alternative to the closed advertising ecosystems of Google, Meta and Amazon.

The financials underscore the company's strength: strong revenue growth of over 25 percent, a high gross margin of around 80 percent and a consistently high customer retention rate of over 95 percent show that The Trade Desk is firmly embedded in its customers' marketing strategies. And it should remain so in the future. After all, there are hardly any good alternatives. At the same time, a low leverage ratio ensures financial stability, while continuous investments are made in innovations such as the Ventura operating system. The acquisition of Sincera also shows that the company's own ecosystem is being further expanded.

However, the strong market positioning is also reflected in the high valuation. An EV/Sales multiple of 12.5 and an EV/FCF multiple of 48 make it clear that the market has already priced in a lot of future potential – even the sharp drop in the stock price in February 2025 has done little to change that. The only bright spot remains the PEG ratio, which currently stands at 0.7 and indicates that expected growth can justify the valuation. Nevertheless, the pressure remains high to deliver strong performance in the coming quarters as well.

In the short term, it will therefore be crucial how well The Trade Desk can perform in a highly competitive environment. In the long term, the company has a lot going for it: the digitalization of the advertising market continues to advance and The Trade Desk has established itself as a central player in the open internet. As long as growth continues and innovations take hold, The Trade Desk is well positioned to benefit from the structural changes in the digital advertising market.

Source: Analysts' views on The Trade Desk stocks

Analysts are also mostly optimistic. 71 percent recommend buying the stock, and almost a quarter recommend holding it. The average price target of 111 US dollars is almost 72 percent higher than the current price.