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Is The Trade Desk Stock a Buy?

By Nicholas Rossolillo – Aug 16, 2021 at 11:21AM

Key Points

  • The Trade Desk's revenue through the first half of 2021 is 78% higher than in the same period in 2019, prior to the pandemic.
  • Streaming TV advertising is the software platform's fastest-growing segment.
  • The company has $705 million in cash and equivalents, with no debt to speak of.

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This top-performing cloud stock is still riding an unstoppable wave of internet-based ads.

After a rough start to 2021, shares of The Trade Desk (TTD -0.41%) are making a comeback with a vengeance and are homing back in on all-time highs. The business had never gone sour -- shares had perhaps just gotten ahead of themselves late last year after an epic 208% run in 2020. But this top advertising technologist is piecing together another great year as marketing and ads get updated for the times. This cloud software stock is still a buy.

What's happening in 2021

The Trade Desk just provided its mid-year update for 2021, and business is firing on all cylinders. Q2 revenue was $280 million, just over double from a year ago during the start of the pandemic when marketing activity pumped the brakes. Compared to Q2 2019, revenue was up 75%.

Two pairs of feet in socks in front of a TV.

Image source: Getty Images.

Profitability is also continuing to rise. Adjusted EBITDA profit margin was at 42% in Q2, a big jump even over the pre-pandemic Q2 2019 rate of 36%. The Trade Desk's leading demand-side software platform for marketers purchasing ads from digital content "suppliers" is clearly benefiting as the world rapidly migrates marketing activity to the internet and other network-connected cloud-based digital formats.

Metric

First Half 2021

First Half 2020

First Half 2019

Revenue

$500 million

$300 million

$281 million

Adjusted EBITDA

$188 million

$53.6 million

$82.6 million

Free Cash Flow

$64.2 million

$109 million

$1.4 million

Data source: The Trade Desk.

And management expects the company's run higher to continue. The Q3 2021 outlook for revenue and adjusted EBITDA implies respective growth of at least 31% and 30% year-over-year, and revenue and adjusted EBITDA growth of at least 72% and 109% over Q3 2019. Shares currently value the company at 38 times trailing 12-month sales and 141 times trailing 12-month free cash flow. It's a steep premium, but not totally absurd considering the secular growth trend The Trade Desk is riding.

More than just a "pandemic" stock

During the spring months, The Trade Desk unveiled Solimar, a cloud software platform that puts marketers' goals front and center, complete with user data privacy tools and integration with analytics and other software partners to better address the fast-evolving needs of the advertising industry. The company is confident that Solimar will help it continue deepening its lead in the ad tech industry. 

As the last couple of years have highlighted, streaming TV platforms embody the changes taking place in the world of marketing, and they show how those changes are propelling this software outfit higher. Unprecedented demand is being created as at-home entertainment quickly migrates from traditional cable to internet-based offerings. And it's proving to be a really good change for advertisers: Digital ads are more efficient, as they can be more closely curated to address specific audience segments. Thus, digital ad slots are more valuable for content producers. This, in turn, is proving to be a boon for The Trade Desk as it helps its partners find the best-fit ad placements for their campaigns. And with the rapid migration to digital marketing set to continue for at least the next decade, the power of video-based marketing will be a strong tailwind for The Trade Desk for some time. 

Digital advertising is already a robust market here in the States, but there's a lot more work to be done internationally. The Trade Desk's top team said it sees rapid adoption of internet-based ads elsewhere around the globe. And with consumer data privacy and security bigger concerns than ever, the company is extending its leadership in this space as more brands turn to its platform to fulfill their marketing goals. $705 million in cash and equivalents in the bank and zero debt certainly don't hurt the cause either. 

This is an "expensive" stock for good reason. The cloud computing marketing platform is still growing at a torrid pace, and it looks as if the growth will continue even as effects from the pandemic ease. If you plan to own it for the next decade and beyond, The Trade Desk stock is still a buy right now.

Nicholas Rossolillo and his clients own 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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The Trade Desk Stock Quote
The Trade Desk
TTD
$49.19 (-0.41%) $0.20

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