Should Investing in The Trade Desk's Shares be Considered Prior to 2025?
This has been an outstanding year for The Trade Desk (TTD) as the stock increased by 77% year to date, maintaining its market- beating performance since 2023.
But for those who have missed out on the past two years, is this the right time to invest in the tech company's stock?
The Trade Desk is thriving
The Trade Desk is one of the few companies that has consistently delivered remarkable growth for about a decade. It has reported double-digit growth rates every year since 2015, resulting in its revenue increasing from $114 million to $1.9 billion by 2023. It has also been profitable since 2013.
The tech company's impressive financial performance can be attributed to the significant value it provides to its customers. Its proprietary data-driven platform helps advertisers maximize the results from their advertising budgets by placing ads across various channels, such as connected TV, online video, mobile, audio, and display.
Advertisers can also make use of other tools, including monitoring and automation, to help plan and execute their marketing campaigns without leaving The Trade Desk's platform. The increased effectiveness, efficiency, and lower cost make The Trade Desk an appealing alternative to tech giants like Alphabet and Meta Platforms.
Unsurprisingly, The Trade Desk maintained its strong financial performance in 2024, with revenue growing by 27% in the first nine months of 2024 to $1.7 billion. Its net income also more than doubled to $211 million during that period.
There's no slowing down
After years of rapid growth, The Trade Desk has become a force to be reckoned with, aiming to surpass $2 billion in revenue in 2024. However, the company has only just scratched the surface of its market opportunity.
For example, it accounted for less than 2% of global ad spending, estimated at $830 billion, in 2023. It could grow five times its size and still own less than 10% of the market opportunity. Furthermore, it is benefiting from several favorable trends that could sustain its growth for many years.
Firstly, advertisers are recognizing the numerous benefits of programmatic advertising, such as transparency, accountability, and cost-effectiveness. As a result, the switch from traditional advertising is a trend that is expected to continue. With its years of experience and vast proprietary data, The Trade Desk has become a preferred partner for both existing and new advertisers.
Secondly, the shift towards connected TV is another significant trend that is driving growth for the tech company. In particular, while many users are willing to pay monthly subscription fees for premium content on platforms like Netflix or Walt Disney, most consumers still prefer ad-supported content. This trend will keep The Trade Desk's connected TV segment active for a long time.
Lastly, the increased use of artificial intelligence (AI) in its Kokai platform and throughout the company is creating new opportunities for The Trade Desk. By leveraging its data and the latest AI technology, The Trade Desk can enhance its decision-making tools to help advertisers become even more successful.
In summary, The Trade Desk has enormous potential.
The potential risk
However, there is one major concern with the stock: its high valuation. As of now, The Trade Desk has a price-to-earnings (P/E) ratio of 217 times. Compared to Alphabet's P/E ratio of 26 times, this is significantly higher.
On the one hand, investing in a growth company like The Trade Desk at a low valuation is challenging. For instance, the stock has consistently traded at a P/E above 100 in the past three years, and value investors have generally avoided the stock during this period. Despite this, the high valuation didn't prevent the stock price from rising.
However, on the other hand, a sharp decline in the stock price is possible if the company fails to meet its expectations for just one to two quarters.
The bottom line for investors
The Trade Desk has several appealing characteristics for investors, such as a profitable business model and a promising growth trajectory.
However, investors must be willing to pay a premium for the stock, leaving them with little room for error.
In conclusion, while a few risk-takers may consider investing in the stock, conservative investors may be better off avoiding it at this price.
Following the text, here are two sentences that contain the words 'finance', 'investing', and 'money':
Given The Trade Desk's impressive financial performance and promising growth trajectory, some investors might consider investing money into its stock, despite its high valuation. However, the high price-to-earnings ratio could pose a financial risk if the company fails to meet expectations.
