Please ensure Javascript is enabled for purposes of website accessibility

Why The Trade Desk Stock Fell Sharply Monday

By Daniel Sparks – Dec 2, 2019 at 1:41PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Could bearish analyst commentary on Roku be weighing on shares of The Trade Desk?

What happened

Shares of The Trade Desk (TTD -2.77%), a company that offers a platform to help advertisers buy digital ads programmatically, took a hit on Monday. The stock was down about 12% as of 12:30 p.m. EST.

Helping explain the decline, it comes amid a broader-market pullback of many growth stocks on Monday. Also driving some of the bearishness for shares is likely analyst commentary about Roku (ROKU -3.53%) stock being overvalued. Since Roku and The Trade Desk both benefit from the fast-growing advertising spending in connected TV, and since both companies have pricey valuations, a sell-off of Roku shares on Monday might have triggered some bearishness for The Trade Desk.

A chalkboard sketch of a chart showing a stock price falling.

Image source: Getty Images.

So what

Morgan Stanley analyst Benjamin Swinburne downgraded Roku stock from an equal weight rating to an underweight rating on Monday, citing the stock's massive run-up this year. Leading up to Monday, Roku shares were up 423% year to date. The company's valuation has surged past that of peers, Swinburne argues.

This negative commentary about Roku might have influenced some Trade Desk shareholders, prompting investors to take profits. Shares of The Trade Desk are up 127% year to date. Further, both stocks have climbed rapidly in the last two months; leading up to Monday's sharp decline, The Trade Desk was up 43% since Oct. 1, and Roku was up 56% over the same time frame.

Now what

While investors should always keep valuation in mind, it's important to note that The Trade Desk's underlying business is seeing significant momentum recently. Trailing-9-month revenue is up 40% year over year, and non-GAAP earnings per share has jumped from $1.60 to $2.19 over this same time frame. Further, The Trade Desk CEO Jeff Green recently said the company is seeing accelerated growth in its most important catalyst: connected-TV ad spending.

Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Roku and The Trade Desk and recommends the following options: long January 2020 $60 calls on The Trade Desk and short January 2020 $125 calls on The Trade Desk. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.