The Trade Desk (TTD 1.73%) is scheduled to report fiscal 2021 fourth-quarter earnings on Feb. 16. The company has grown revenue rapidly as it capitalizes on an increasing share of advertising moving to digital.
Focusing on its near-term prospects, The Trade Desk grapples with two challenges as the pandemic evolves. Let's look closer at its recent performance and the trends investors should watch.
The Trade Desk is facing headwinds from the pandemic in Q4
In the nine months ended Sept. 30, 2021, The Trade Desk's revenue increased by 55% from the same period in 2020. At the pandemic onset, marketers pulled back spending to conserve cash. The path the virus would take was highly uncertain, so many businesses took the safest route and held onto their money. Then, as vaccination against COVID-19 gained momentum and economies reopened, companies ramped up ad spending.
Most recently, the coronavirus pandemic is creating supply chain bottlenecks worldwide. An outbreak at a manufacturing plant could send a group of workers home to quarantine for more than a week. These labor shortages are resulting in decreasing output. Meanwhile, customer demand has remained robust and skewed toward spending on goods over services. Why does all that matter for The Trade Desk? Because if businesses barely meet organic customer demand, there could be little reason to advertise.
That can partly explain why management is forecasting revenue growth to decelerate in Q4 to 21%. Another factor contributing to slower growth is that folks are spending less time at home. The Trade Desk derives a meaningful total of its revenue from connected TV viewers. If people are spending more time away from home, they are watching their home TVs less often, which could be a headwind for The Trade Desk.
Still, The Trade Desk continues creating innovative products that are attracting marketers. Here is what management said about one of its most recent innovations:
With the launch of [media trading platform] Solimar, we are working with the industry to pioneer even greater data-driven precision, whether it's the application of shopper data in a measurement marketplace, surfacing the right data for every advertising impression, or new approaches to identity that help advertisers make the most of their own valuable data. As a result, we're seeing growth across all channels, and none more so than Connected TV, as viewers shift to new digital, streaming services and advertisers apply data to TV ad campaigns for the first time.
What this could mean for The Trade Desk investors
Analysts on Wall Street expect The Trade Desk to report revenue of $389.2 million and earnings per share (EPS) of $0.27. If it meets those projections, it would be an increase of 21.7% and a decrease of 27.0%, respectively, from year-ago period.
The Trade Desk stock has had a rough start to 2022, falling 24% to start the year. The fall can partly be attributed to the near-term headwinds noted above. If The Trade Desk can demonstrate resilience through the rough patch in Q4 and deliver robust guidance for the fiscal year 2022, it could turn the stock around.