Investors in The Trade Desk (NASDAQ:TTD) have had much to celebrate this year, as shares have soared nearly 170% -- even though the stock lost 21% of its value during the recent tech rout.
What's driving these massive gains? The company's platform, which automates the buying, placement, and optimization of available advertising, has carved out a successful and lucrative niche for itself, particularly in key channels like connected TVs and in-app, video, and web spaces.
With the market being less forgiving lately, investors will be watching closely when the company reports its third-quarter financial results after the market close on Thursday, Nov. 8. As we prepare for this report, let's take a look at The Trade Desk's Q2 results and what the company is estimating for Q3.
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Skyrocketing growth (no, really!)
The Trade Desk has been growing like crazy so far this year, and the second quarter was no different. The company produced record revenue of $112.3 million, an increase of 54% year over year, and adjusted earnings per share of $0.60 were up 15% compared to the prior-year quarter. Both significantly exceeded analysts' consensus estimates, which were calling for revenue of $104 million and adjusted earnings per share of $0.44. They also sailed past management's forecast.
Some of the underlying numbers were even more eye-popping. Sales of mobile ads, which include in-app, video, and web, grew 89% year over year, and accounted for 45% of gross ad spend -- the highest ever. Ad revenue from connected TVs more than doubled sequentially, having soared more than 2,100% year over year in the first quarter. Audio ads climbed 191%, while mobile video and mobile in-app grew 156% and 104%, respectively. Revenue from the company's international markets grew 85% year over year.
The company reported that over the past 12 months, the top 50 worldwide advertisers had increased their spending with The Trade Desk by nearly 100% compared to the prior-year period. In one of the more telling quotes from the second-quarter conference call, The Trade Desk founder and CEO Jeff Green pointed out: "We continue to see marketers allocate budgets beyond a few search and social sites that historically got the most incremental advertising dollars."
What's to come
In light of the company's stellar performance, The Trade Desk's management bumped its full-year guidance for the second time in as many quarters. The company is now expecting revenue of at least $456 million and adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) of $140 million for 2018. Both figures have been increased more than 13% from management's initial guidance during the fourth quarter of 2017.
For the third quarter, The Trade Desk is forecasting revenue of $116 million and adjusted EBITDA of $33 million, for year-over-year growth of 46% and 35%, respectively.
Wall Street analysts' consensus expectations are for $117.37 million in revenue, and adjusted earnings per share of $0.50.
It's important to note that the market has become less forgiving in recent weeks, and the recent uncertainty is ongoing. The Trade Desk has carved out a niche for itself, as many companies are making the transition to digital advertising. That said, with a forward price-to-earnings (P/E) ratio of 55, any slowing of its soaring growth -- real or imagined -- could cause a commensurate correction of the stock price.
I'm less concerned with short-term stock price moves, however, and more interested in the significant runway the company has ahead of it. I think other investors should be as well.
Danny Vena owns shares of The Trade Desk. The Motley Fool owns shares of and recommends The Trade Desk. The Motley Fool has a disclosure policy.
