Leading advertising technology company, The Trade Desk, Inc. (TTD - Get Rating), which is based in Ventura, Calif., operates through its self-service, cloud-based platform, and ad buyers can create, manage, and optimize data-driven digital advertising campaigns across ad formats and channels. The fast-growing global digital ad market and the shift away from traditional media have boosted the company’s performance. Moreover, the advertising industry is gaining traction as companies shift their ad budgets to digital advertising because people are spending time online as a byproduct of the COVID-19 pandemic. Furthermore, the company’s better-than-expected third-quarter earnings report and its Unified ID 2.0 solution’s success helped it hit its 52-week high of $114.09 on Nov.17, 2021.

However, the stock has slumped 14.6% in price over the past month and is already down 17.7% year-to-date, closing its last trading session at $75.47. 

Last month, CFO of TTD, Blake Jeffrey Grayson, sold 22,540 shares of TTD at an average price of $87.49 per share, totaling $2 million. The move added to the bearish sentiments. In addition, Google’s updated privacy plans promise not to track users around the internet after the company ends support for cookies in Chrome by early 2022. This could impact some areas of the marketing and advertising space, hampering TTD’s operating performance.

Here is what could shape TTD’s performance in the near term:

Stretched Valuation

In terms of forward EV/Sales, TTD is currently trading at 30.03x, which is 640.4% higher than the 4.06x industry average. Also, its 198.26 forward P/E multiple is 565.5% higher than the 29.79 industry average. Also, TTD’s 30.46x forward Price/Sales is 671.2% higher than the 3.95x industry average.

Mixed Sentiments

Analysts expect a 21.7% year-over-year increase in the company’s revenues in the about to be reported quarter, ended December 2021, 30.9% in the current quarter, and 42.5% in its fiscal 2021. However, TTD’s EPS is expected to decline 27% in the quarter ended December 2021, 21.4% in the current quarter. But the Street expects a 14.5% year-over-year increase in TTD’s EPS in fiscal 2021.

Impressive Profit Margins

TTD’s 81.59% gross profit margin is 64.9% higher than the 49.47% industry average, while its net income margin of 25.13% is 291.4% higher than the 6.42% industry average.

TTD’s 6.38%, 9.42%, and 11.70% respective ROE, ROA, and ROTC compare with the 8.29%, 3.61%, and 4.93% industry averages.

Solid Third-Quarter Earnings Report

TTD’s revenues increased 39.3% year-over-year to $301.09 million in its fiscal third quarter, ended September 30, versus analysts’ expectation of $283.93 million. Its income from operations stood at $80.45 million, up 88% from the same period last year. Its non-GAAP net income grew 42.4% from the year-ago value to $89.23 million. And the company’s non-GAAP EPS increased 38.5% year-over-year to $0.18, topping the consensus estimate by 20%.

POWR Ratings Reflect Uncertainty

TTD has an overall C rating, which translates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

The stock has a grade of F for Value, which is consistent with its lofty valuation.

TTD has a C grade for Sentiment. Mixed analyst sentiment about the stock justifies this grade.

Of the 166 stocks in the Software – Application industry, TTD is ranked #94.

Beyond what I have stated above, one can also view TTD’s grades for Quality, Growth, Momentum, and Stability here.

View the top-rated stocks in the Software – Application industry here.

Bottom Line

Although the company’s profit margins and its growth trajectory position it among the leading companies in the ad tech space, its lofty valuation could be a concern and could make it vulnerable to market headwinds and planned interest rate hikes this year. Also, its 2.26 beta indicates volatility. Furthermore, the company’s business performance in the fourth quarter could have been impacted by changing economic conditions, or additional shelter-in-place orders. In addition, Street expects a decline in TTD’s EPS in the quarter. Thus, we think it could be wise to wait for a better entry point in the stock.

How Does the Trade Desk, Inc. (TTD) Stack Up Against its Peers?

While TTD has an overall POWR Rating of C, one might want to consider looking at its industry peers Open Text Corporation (OTEX - Get Rating), Progress Software Corporation (PRGS - Get Rating), and Commvault Systems, Inc. (CVLT - Get Rating), which have an A (Strong Buy) rating

.

TTD shares fell $1.52 (-2.01%) in premarket trading Tuesday. Year-to-date, TTD has declined -17.65%, versus a -2.16% rise in the benchmark S&P 500 index during the same period.

About the Author: Subhasree Kar

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics. More...

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