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Is The Trade Desk Stock a Buy?

By Robert Izquierdo - Updated Jun 23, 2021 at 10:35AM

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The ad tech company is on a roll, and just executed a stock split. Discover if now is the time to invest.

Advertising technology firm The Trade Desk (TTD -0.95%) recently implemented a ten-for-one stock split. This dropped its stock price from hundreds of dollars per share to around $64 at the time of this writing. The stock is up about 30% since the move was announced. 

But a more attractive stock price alone isn't a reason to buy. The real question is whether the company has what it takes to be a solid long-term investment. To that end, let's dig into where the company is today, as well as its future prospects, to determine if it's worth buying.

A well-dressed person sitting indoors stares intently at their tablet device.

Image source: Getty Images.

Current success

The Trade Desk ended 2020 with a 26% rise in revenue over 2019 as a result of the coronavirus pandemic. As people spent more time online, advertisers followed. Many advertisers use The Trade Desk's software platform to simplify the buying and management of digital advertising. The company charges fees to access these capabilities.

The firm followed 2020's strong performance with a 37% year-over-year revenue increase in the first quarter of 2021 from $160.7 million last year to $219.8 million. The Trade Desk also enjoyed customer retention of over 95%, and unlike many technology companies, is profitable, with net income of $22.6 million.

The Trade Desk's Q1 success includes a healthy balance sheet. The company exited the quarter with $471.6 million in cash and equivalents, up from the prior quarter's $437.4 million. Total assets of $2.6 billion overshadow total liabilities of $1.5 billion, and the company possesses no debt.

The Trade Desk anticipates year-over-year revenue growth to extend into the second quarter, going from last year's $139.4 million to a forecasted range between $259 million and $262 million. Beating last year's Q2 revenue is expected though; The Trade Desk experienced a 13% year-over-year sales drop at the time as the entire advertising industry saw ad spend plummet with the pandemic's onset.

The Trade Desk is not taking its revenue growth for granted. It's preparing to roll out a substantial platform upgrade called Solimar on July 7. The upgrade streamlines work for advertisers by bringing additional automation features to the digital ad buying and management process, and by providing more ways to integrate and leverage data used by advertisers for decision making.

Future performance

The Trade Desk's current performance isn't a pandemic-induced fluke. The company has seen revenue consistently rise for years.

TTD Revenue (Annual) Chart

Data by YCharts.

This revenue growth is likely to continue. The Trade Desk's fortunes mirror the broader advertising industry. Global digital ad spending is expected to grow from 2020's $378.2 billion to $645.8 billion in 2024. This rise in ad dollars allocated to digital media provides The Trade Desk with years of revenue growth ahead.

Leading that growth for the company is connected TV (CTV). I worked on CTV advertising during its early days a decade ago, and back then, advertisers loved CTV's increased measurability and audience targeting over traditional, linear TV, but not enough consumer adoption existed at the time to make it a worthwhile advertising vehicle.

Today, as more consumers cut the cord from cable and shift to streaming video options, advertisers have taken note, shifting ad dollars from linear TV to CTV. This year, CTV is expected to be one of the fastest-growing areas for U.S. digital ad spend, forecasted to increase 48.6% year over year with double-digit annual growth continuing through 2024.

Consequently, it's no surprise CTV ad spend leads The Trade Desk's Q1 revenue growth. Maintaining its strength in CTV remains one of the company's top priorities alongside objectives such as the Solimar rollout and global expansion.

The bottom line

The Trade Desk has the broader ad industry's digital ad spend growth as a tailwind driving its revenue upwards. This combines with the company's many compelling attributes, such as robust customer retention, continuing evolution of its offerings, and an excellent balance sheet, to make The Trade Desk a strong business.

The company is successfully capturing its share of the $455 billion global ad spend projected for this year, as its Q1 results illustrate. These factors make The Trade Desk a worthwhile investment. 

Robert Izquierdo owns shares of The Trade Desk. The Motley Fool owns shares of and recommends The Trade Desk. The Motley Fool has a disclosure policy.

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