TTD bounces back as investors buy the dip

The Trade Desk (TTD) delivered a solid Q3 performance, exceeding analyst expectations on both earnings and revenue. Adjusted earnings per share (EPS) came in at $0.41, beating the $0.39 consensus, while revenue rose 27% year-over-year to $628 million, surpassing the expected $620 million. Adjusted EBITDA also exceeded estimates at $257 million, a 29% increase year-over-year, with a strong 41% margin, underscoring the company’s efficient cost management. However, investors were cautious, leading to profit-taking and a post-earnings pullback in the stock.

A key driver for TTD's growth continues to be Connected TV (CTV), which has shown rapid adoption across the advertising sector. CTV, which includes streaming devices and internet-connected TVs, remains TTD’s fastest-growing channel as traditional cable loses traction. Partnerships with industry giants like Disney, Roku, and Netflix have been instrumental, with streaming services embracing ad-supported models to attract broader audiences. As more companies turn to ad-supported options, TTD stands to benefit from its early and expanding footprint in CTV.

Additionally, TTD reported strong performance across multiple ad verticals, especially in health, home improvement, and pet care. The company also saw international spending outpace growth in North America for the seventh straight quarter, reflecting TTD's commitment to expanding its presence abroad, even though international revenue currently accounts for only 12% of total sales. Political ad spending provided an extra boost during Q3, though TTD signaled that political uncertainties might temper advertising enthusiasm in Q4.

Despite the upbeat results, management offered a somewhat conservative Q4 revenue forecast, projecting $756 million, translating to a 25% year-over-year growth rate. This guidance slightly trails the Q3 growth rate, which some investors perceived as a sign of caution amid potential pullbacks from brands concerned with the polarized political environment. While the forecast still points to robust growth, it also reflects management’s cautious optimism about the ad market’s dynamics in the final quarter of the year.

The stock initially rallied to all-time highs on the report but then experienced a sell-off, closing down around 6%. Valuation concerns likely contributed to the pullback, with TTD trading at a high forward earnings multiple of 72x, positioning it in “priced-to-perfection” territory. Investors may be reevaluating the premium on TTD shares, given the slight deceleration in growth and the heightened expectations surrounding its performance.

Analysts remain optimistic about TTD’s long-term prospects, particularly given its strong positioning in CTV and potential regulatory tailwinds affecting competitors like Google. Some analysts raised their price targets, citing TTD's role in the shift from traditional TV to digital and programmatic advertising as a key catalyst for sustainable growth. They also highlighted the company’s continued product innovation, with the recent Kokai platform upgrade showing promise in driving further value for advertisers.

In conclusion, TTD’s Q3 report showcased steady growth across key metrics, with CTV and international expansion as prominent growth drivers. Although the conservative Q4 guidance led to a tempered stock response, TTD’s strong market position and product development indicate potential for continued success in the digital ad landscape. Investors may view the recent pullback as a buying opportunity, but given the elevated valuation, a careful approach to entry points is advised. Shares have bounced back approximately 10% during the session. A push back above the $130 level will lead to further upside momentum.