Should Investing in The Trade Desk's Shares be Considered at This Point?
The Trade Desk's shares took a hit following the release of its Q4 earnings, plummeting an impressive 33% in the aftermath. The cause? The company missed its own revenue guidance and left investors unimpressed with its Q1 projections. But is The Trade Desk's steep descent an opportunity for savvy investors?
Let's delve into the factors behind The Trade Desk's underperformance and assess whether it's worth buying now.
Execution issues: The root of the issue
Admitting its first quarterly revenue miss since its public debut, CEO Jeff Green attributed the shortfall to a series of execution missteps. In a post-earnings call, Green explained the company needed recalibration to seize new opportunities, having made significant changes in the past few months, including a structural overhaul and adjustments to its sales approach.
While these changes were necessary, they contributed to The Trade Desk's Q4 revenue falling short of previous guidance, coming in at $741 million, leaving investors less than thrilled.
Valuation and guidance
With sky-high valuations prior to its Q4 earnings, The Trade Desk needed to impress to justify its price tag. However, its Q4 performance left something to be desired. While revenue growth was hearty at 22%, earnings increased by 44% to $0.59 per share, it wasn't enough to meet investor expectations.
Considering management's Q1 guidance projects revenue growth to slow to 17%, it was no surprise when investors bailed, leading to the stock's dramatic sell-off. The company is also anticipating a 10% decline in adjusted EBITDA in Q1. Is the stock now cheap enough to be a bargain for smart investors?
Long-term potential
Although The Trade Desk may need to navigate rough waters in the short term, its long-term prospects remain strong. The programmatic advertising market is poised to skyrocket by over tenfold within the next decade, potentially generating $117 billion in revenue by 2034, according to market analysis.
The Trade Desk controls a significant chunk of this market, capturing more than 22% in 2024. If the company can maintain this share over the next decade, the future looks bright for substantial revenue and earnings growth.
The company is also leveraging artificial intelligence to drive better returns on ad spend, potentially unlocking another growth opportunity. If you're seeking a growth stock for the long haul, adding some shares of The Trade Desk to your portfolio might be an attractive notion.
However, the stock's valuation remains elevated, so some investors may prefer to keep a watchful eye and wait for the stock price to dip further before making a move.
In conclusion, while The Trade Desk's recent performance may have left some investors disillusioned, its long-term growth potential remains compelling. Smart investors may find buying at these lower levels presents an attractive long-term growth opportunity.
- Given the company's execution issues, investors might be interested in recalibrating their investing strategy with regards to The Trade Desk's shares, considering the changes in sales approach and structural overhaul announced by CEO Jeff Green.
- The unexpected exits of key employees and the recalibration process required for seizing new opportunities led to The Trade Desk missing its revenue guidance for Q1, which was a surprising turn of events for investors.
- Programmatic advertising, a market with significant growth potential, presents a promising opportunity for investors who are looking to allocate money in stocks with long-term prospects. The Trade Desk, with its dominant share in this market, could be a viable option for investors seeking such growth stocks.
- Smart investors who are focused on exits might want to keep a close eye on the stock price of The Trade Desk, as it could offer a surprising bargain opportunity as the company navigates its current challenges, potentially leading to significant returns in the long run.
