2024-08-06 00:03:00 ET
The Trade Desk (NASDAQ: TTD)stock price will be in the spotlight this week as the advertising giant publishes its financial results. After peaking at $102 in July, the stock has dropped by almost 20%, moving into a deep correction. It was trading at $83.22 on Monday’s close, up from the intraday low of $77.28.
Trade Desk has been growing
The advertising industry has had a difficult period in the past few years as companies have slashed their budgets, especially on television.
Most television networks like those owned by Warner Bros. Discovery and Paramount have reported weak financial results in the past few years. This trend has resulted to painful job cuts in the ad and media industries.
The industry has also struggled because of the internet, where most people are now using to get content. Some of the most popular platforms in the industry are YouTube and TikTok.
There are signs that the industry is starting to stabilize, with analysts expecting that the global ad market to grow by 5.3% this year after growing by 5.3% a year earlier. Excluding political advertising, the North American advertising industry is expected to grow by 4.2%.
The Trade Desk is a company involved in the advertising industry since it provides a platform that enables clients to execute campaigns across ad channels and formats, including video, display, and social.
The Trade Desk is not a brand name in the US because it does not provide its solutions to retail customers. Instead, its customers are the likes ad agencies, advertisers, and other service providers. These companies pay it for using the services and it also takes a cut on the client’s ad spending. It has over 1,100 customers globally and has a strong retention rate of over 95%.
The Trade Desk has been in a steady growth in the past few years as its annual revenue has grown from $661 million in 2019 to over $1.94 billion and $2.05 billion in the trailing twelve months.
The company has had profitable growth in this period as its net profit jumped from $108 million in 2019 to over $178 million in 2023. Its peak profit came in at $242 million in 2020.
TTD earnings ahead
The next important Trade Desk news will be its financial results, which will come out on Thursday. These numbers will show whether the company’s business was still growing as it did in the first quarter.
The most recent results showed that The Trade Desk’s revenue rose by 28% in Q1 to over $491 million. It made $383 million in the same quarter in 2023 while its net income rose from $9 million to $32 million.
The Trade Desk had several important updates during the first quarter, including its expanded partnership with Disney, NBCUniversal, and Roku. The gross spend in its platform rose from $552 million in 2015 to over $9.6 billion in 2023.
Analysts expect that The Trade Desk’s revenue for the second quarter rose to $577.8 million, a 24.5% increase from the same quarter in 2023. They expect the company’s guidance to show that its revenue will be $604 million in the third quarter and $2.42 billion in 2024.
Valuation concerns remain
The main concern about The Trade Desk is that it is a highly overvalued company with its $40 billion valuation.
Its price-to-earnings ratio stands at a whopping 207 while the forward multiple was 114.4. Its non-GAAP PE multiples are 64 and 53, respectively. These are huge numbers even for a company that is having double-digit growth rate.
For example, Nvidia, with its triple-digit growth rate has a forward P/E ratio of 41 and trailing multiples of 62. Similarly, Celsius Holdings, a fast-growing beverage company , has a forward multiple of 40.
Bulls argue that the Trade Desk’s business is growing, has a sticky product, and has room to grow its profit margins. It has gross margins of 81.30% and a net profit margin of. 9.80%, meaning that it could expand them.
The average TTD stock price target by analysts is $104.50, which is higher than the current $83.
The Trade Desk stock price forecast
The daily chart shows that the TTD share price peaked at $102 in July and then crashed to the current $83.2. It has retreated below the 23.6% Fibonacci Retracement point at $87.60.
The stock has remained below the 50-day and 200-day Exponential Moving Averages (EMA) and $81.85, its highest swing in July last year.
Also, the Relative Strength Index (RSI) and the MACD indicators have pointed downwards. Therefore, the stock will likely continue falling in the coming days as sellers target the key support at $70.95, which is the 50% retracement point. This means that the stock could drop by 14.7% from the current level.
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