Investors, in general, is skeptical about advertising stocks these days as enterprises cut back on ad spending in response to the economic slump. But, ad tech company Trade Desk, Inc. (NASDAQ: TTD) continues to gain market share at a time when the broad market is going through a difficult phase.
Interestingly, the current environment allows the company to leverage its structural advantage over competitors – marketers tend to shun traditional ad firms and shift their spending to data-driven ad-buying platforms like Trade Desk. The Ventura-headquartered company helps customers effectively manage digital advertising campaigns through its cloud-based self-service platform. After becoming a public entity in 2016, it has constantly expanded market share with an increasing focus on the rapidly-evolving connected TV segment.
Trade Desk has outperformed others in the segment this year, even though the advertising industry is being hit hard by unfavorable market conditions and inflation pressures. Over the years, the company has maintained stable revenue and earnings growth, with the numbers either beating or matching estimates consistently. In the October quarter, adjusted profit grew in double digits to $0.26 per share on revenue of $394.77 million, which is up 31%. Continuing the long-term trend, the latest numbers also topped expectations.
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The stock made strong gains soon after the earnings announcement in early November and has maintained the momentum since then. But it is still trading down 50% from last year’s peak. For a growth company like Trade Desk, the current valuation is attractive and the stock has become more affordable. It is estimated that the stock is headed for a strong rebound next year, thereby reversing most of the losses it suffered in 2022.
In Recovery Mode
TTD is not going to stay where it is now forever, rather it looks poised to make a strong entry into 2023 and stay on the growth path. It would be fair to assume that Trade Desk will continue to impress shareholders with solid results going forward, while generating healthy cash flows. That, combined with the company’s strong fundaments, makes the stock an irresistible buy. Those looking to own TTD might regret it later if they miss the present opportunity.
“There is a tremendous amount of transformation happening in our industry and on our platform. The adoption of UID2 by the infrastructure of the internet is transforming the open internet and where marketers put their very first dollar. In the coming quarters, we will talk more about all the amazing changes happening in identity, often driven by CTV. 2023 will likely have more market changes that create secular shifts in our direction with more data, more decisioning, better results, and the best CTV experience consumers could ever have,” said Trade Desk’s CEO Jeff Green during his post-earnings interaction with analysts last month.
While there is uncertainty as to how the macroeconomic challenges would play out in the coming months, Trade Desk is likely to remain unaffected and would hit the fast lane once the situation improves. The company’s quick recovery from a short-lived slowdown in the early days of the pandemic, when many large advertisers pulled back, is a testament to its underlying strength.
TTD has been quite stable after being pushed up by the earnings report early last month, and mostly traded sideways since then. This week, it traded around 20% below the long-term average.
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