By any measure, The Trade Desk (NASDAQ:TTD) has been among the best performers over the past year. The stock price has nearly tripled during the preceding 12 months on the back of steadily improving business metrics, and it has more than doubled so far in 2019. I'm not surprised, since I named The Trade Desk my highest-conviction stock for 2019.
Investors will have high expectations when the company reports the results of its second quarter after the market closes on Thursday, Aug. 8. Let's look at several areas investors will be watching closely when The Trade Desk reports earnings.
Strong revenue growth
The Trade Desk has generated growth that is nothing short of incredible. Last year, revenue increased by 55% year over year -- an acceleration from its 52% growth in 2017. In the first quarter, its impressive growth continued, though the pace moderated somewhat. Revenue climbed to $121 million, up 41% year over year, on top of 61% gains in the prior-year quarter.
In the wake of its better-than-expected performance, The Trade Desk raised its full-year guidance and is now expecting revenue of at least $645 million, an increase of 35% compared to 2018. Analysts' consensus estimates are looking for revenue to come in at $649.54 million.
For the second quarter, The Trade Desk is guiding for revenue of $154 million, which would represent an increase of 37% year over year, compared with $155.64 million from those who follow the stock. Management is potentially being conservative in its forecast as a way to rein in expectations.
Investors will be watching for any change in the trajectory of The Trade Desk's rapid revenue growth.
The Trade Desk has only been public for about three years, and unlike many young companies, the programmatic ad specialist is already profitable. In 2018, earnings per share (EPS) grew 67% year over year -- increasing even faster than the rate of revenue growth -- a testament to its increasing leverage.
For the first quarter, adjusted EPS grew to $0.49, up 44% compared to the prior-year quarter.
While management doesn't provide per-share guidance, it is forecasting earnings before interest, taxes, depreciation, and amortization (EBITDA) of $46 million, up 25% year over year. To put that into the context of Wall Street's expectations, analysts are calling for adjusted EPS of $0.69, up 15% year over year.
While the company continues to invest heavily in its growth, investors will be looking for its profit increases to continue.
Omnichannel growth has skyrocketed
One of the most closely watched areas of The Trade Desk's business is its foray into emerging areas of digital ad placement -- which have been huge contributors to the company's impressive growth. Two of The Trade Desk's newest and most promising channels are connected TV and audio, which have been growing an order of magnitude faster than the rest of its business.
In 2018, revenue from connected-TV ads grew ninefold compared to 2017, while audio increased by 230%. The hectic pace of growth continued into 2019: Ads from connected TVs more than tripled, while audio grew more than 270%.
Investors will be hoping to see these high-growth areas continue to increase at torrid rates.
A word of caution
For all The Trade Desk's impressive results in recent years and months, the prevailing sentiment in Wall Street is "What have you done for me lately?" The Trade Desk has a high multiple, as investors are expecting the company's frantic pace of growth to continue. The stock currently trades at a nosebleed 136 times trailing-12-month earnings. Its forward valuation is only slightly lower at 90 times.
I am an unapologetic bull regarding The Trade Desk, but the majority of investors may not be so forgiving. If the company fails to live up to the market's somewhat lofty expectations, the stock could be in for a fall.
While the long-term opportunity remains massive, investors in The Trade Desk should be prepared for volatility along the way.