Two Risks to Consider Before Buying The Trade Desk Stock: Operational Challenges and Valuation Concerns

The Trade Desk's growth may be impacted by operational challenges such as the adoption of its UID2 identity solution and increasing competition in the connected TV market. Additionally, the company is undergoing significant changes in its senior management team, which may cause disruption as it scales its business. Despite its strong momentum, investors should consider these risks before investing.

The Trade Desk, Inc. (TTD) continues to make waves in the digital advertising space, but recent developments highlight potential obstacles that could impact its growth trajectory. The company's stock has faced scrutiny due to operational challenges, intense competition, and valuation concerns.

Operational Challenges

One of the primary concerns is the adoption of The Trade Desk's UID2 identity solution. With Google's phase-out of third-party cookies by 2025, UID2 was positioned as a replacement to enable targeted advertising while preserving user privacy. However, its success is not guaranteed. Google has its own Privacy Sandbox framework, and major players like Apple are unlikely to adopt UID2, which could weaken The Trade Desk's targeting capabilities [1].

Moreover, the company is facing increased competition in the connected TV (CTV) market. While CTV is a significant revenue driver, the market is becoming more competitive with major streamers like Netflix, Amazon, and Disney building their own ad tech and under pressure to maximize revenue per user. This could limit the scale of inventory available through third-party demand-side platforms like The Trade Desk [1].

Internally, The Trade Desk is undergoing significant changes in its senior management team, which may cause disruption as the company scales its business. For instance, it has seen the hiring of a new CFO and a new board member with expertise in data, AI, and advertising [1].

Valuation Risks

Despite these challenges, The Trade Desk's stock remains pricey, trading at approximately 63 times earnings and nearly 10 times sales. While the company has earned its premium multiple due to consistent revenue growth and profitability, sustaining this valuation requires near-flawless execution. Any stumble in UID2 adoption, increased competition in CTV, or a cyclical ad slowdown could trigger a sharp contraction in multiple [1].

Recent Performance

In the second quarter of 2025, The Trade Desk reported revenues of $694 million, reflecting an 18.6% year-over-year increase. The company's leadership in CTV, along with strengths in retail media, digital audio, identity, measurement, and data, helped it expand business with both new and existing clients. The company's Kokai platform, powered by advanced AI, continues to gain traction, with more than 70% of clients now on the platform [2].

However, the company's revenue growth is decelerating. The Trade Desk projects revenues of at least $717 million for the third quarter of 2025, implying a 14% year-over-year growth rate. This marks a slowdown from the second quarter’s pace and represents the second consecutive quarter of decelerating growth. Macroeconomic uncertainty is likely to weigh on advertising budgets, which could further pressure revenue growth [2].

Conclusion

While The Trade Desk has undeniable strengths and a promising growth trajectory, investors should carefully weigh the risks before investing. Operational challenges around identity and CTV competition could complicate execution, and the stock's steep valuation leaves little room for error. If you're considering buying The Trade Desk stock today, it may be prudent to wait for a better entry point or clearer signs of UID2's industry dominance before committing your capital.

References

[1] The Globe and Mail. "Thinking of buying the Trade Desk stock? Here are 2 risks to consider." Retrieved from https://www.theglobeandmail.com/investing/markets/markets-news/Motley%20Fool/34396165/thinking-of-buying-the-trade-desk-stock-here-are-2-risks-to-consider/

[2] Yahoo Finance. "Headwinds Derail Trade Desk's Double-Digit Growth." Retrieved from https://finance.yahoo.com/news/headwinds-derail-trade-desks-double-151900087.html