The Trade Desk Stock Plummets 40% After Disappointing Guidance, Despite Strong Q2 results
BEVERLY HILLS, CA – August 9, 2023 – Shares of The Trade Desk (TTD) experienced a dramatic sell-off, falling nearly 40% in after-hours trading following the release of its second-quarter earnings report. While the company exceeded analyst expectations for both revenue and earnings, weak guidance for the third quarter and concerns about slowing growth triggered the sharp decline.
Despite the stock’s plunge, The Trade Desk reported a 19% increase in revenue to $694 million for the second quarter. Non-GAAP net income rose 5% to $0.41 per diluted share. CEO Jeff green highlighted the company’s strength in Connected TV (CTV) alongside gains in retail media, digital audio, identity solutions, measurement, and data, stating, “we are winning more business.”
However, investor sentiment shifted negatively when comparing The Trade Desk’s growth to that of its larger competitors. Meta Platforms and Amazon reported advertising revenue increases of 21% and 23%,respectively,during the same period. Historically, The Trade Desk has demonstrated faster growth than these rivals, leading to concerns about its future competitive position.
Adding to the pressure, The Trade Desk’s management forecasts third-quarter revenue to increase by 14% to $717 million, with adjusted EBITDA rising 8% to $277 million. Newly appointed CFO Laura Schenkein cautioned that these figures could be further impacted by ongoing tariff uncertainty and a potentially unfavorable economic climate.
The market reaction was swift and severe. Analysts at bank of America downgraded the stock to “hold” and significantly lowered their price target from $130 to $55 per share.MoffettNathanson followed suit, downgrading the stock to “sell” with a new target price of $45. Both firms cited a loss of momentum as the primary reason for their revisions, acknowledging continued double-digit revenue growth but questioning the justification for a premium valuation.
Looking Ahead: Growth Questions and Valuation
The second-quarter report has sparked debate among Wall Street analysts regarding The Trade Desk’s ability to sustain its historical growth rate of over 20% annually. The company underwent a sales team reorganization earlier in 2023 after missing guidance for the first time in 33 quarters, a move intended to improve operational efficiency. Analysts suggest that improvements stemming from this restructuring, coupled with a resolution to tariff-related uncertainties, could potentially reaccelerate growth.
Current Wall Street estimates project an annual increase of 14% in The Trade Desk’s adjusted earnings through 2026. At a current price-to-earnings ratio of 31 times adjusted earnings, the stock’s valuation is considered reasonable by some, leaving potential for gains should the company regain its previous growth trajectory. As a result,some analysts recommend that patient investors consider the recent dip as a potential buying opportunity.
Disclosure: Bank of America is an advertising partner of Motley Fool Money.Trevor Jennewine has positions in Amazon, Roku, and The Trade Desk. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, Netflix, Roku, Spotify Technology, Target, The Trade Desk, Walmart, and Walt Disney.The Motley Fool has a disclosure policy.
