Is Trade Desk (TTD) strong enough to resist the market turmoil?

Ad tech platform Trade Desk, Inc. (NASDAQ: TTD) should be happy for being a part of the rapidly expanding digital advertising market. The company, which is currently going through a crucial phase, faces mixed prospects after the COVID attack brought a paradigm shift in the way the digital world functions.    

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In a surprise rally, Trade Desk’s stock climbed to a record high last week after slipping to a one-year low in March, at a time when most Wall Street companies are struggling to stay afloat. But the consensus target price indicates that the current momentum might not be sustained in the near term, and the majority of analysts recommend holding the stock. Since the shares look overvalued at the current price, it makes sense to adopt a wait-and-watch strategy.

Bullish View

Meanwhile, there are multiple factors that can bring cheer to investors, such as the company’s improving profitability, healthy cash balance, and return on investment. That, combined with strategic partnerships with the likes of Amazon (AMZN) and overseas expansion — currently, Trade Desk is the main gateway for international brands to advertise in Chinese internet firms like Alibaba (BABA) and Baidu (BIDU) — is something founder/CEO Jeff Green can be proud of.

“While these are very challenging times for everyone, I think there is a shift in media that started about nine weeks ago that is accelerating the move to data-driven advertising. Nowhere is this more apparent than in connected TV. And even though it is too early to predict exactly when the economy will start firing on all cylinders again, we do have a sense of the role advertising will play in that,” said Green in his opening statement at the first-quarter earnings conference call.

The Online Shift

The upsurge in the demand for online services during the pandemic bodes well for Trade Desk, though many customers would be taking a cautious stance with regard to ad spending. Overall, digital transformation is gathering steam across industries and advertisers will be keen to adopt a data-driven strategy to measure value even as the business world emerges from the grip of COVID.

Statistics show that spending on digital infrastructure surged to a record high since the onset of the pandemic and the trend is expected to continue in the coming months. That would make the programmatic, data-driven services offered by Trade Desk highly relevant. It is an area of significant growth potential, thanks to the uptick in digital ad spending and the popularity of connected TV.  

Q1 Results Beat

In the March-quarter, earnings nearly doubled to $0.90 per share as revenues gained 33% annually to $161 million. The results came in above analysts’ forecast. Encouraged by the positive results and cash flow, the management reaffirmed its capital investment program but withheld financial guidance for the second quarter. So far, the high level of financial discipline has helped the company ensure a decent return on capital.

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When the coronavirus outbreak sent the market into a tailspin a few months ago, it did not spare Trade Desk. What makes the company’s stock stand out is its quick recovery. Last week, the stock climbed to a record high, crossing the $400-mark for the first time. It has gained 48% since the beginning of 2020 and 76% in the past twelve months.