What happened
Shares of The Trade Desk (TTD -6.23%) were sliding with the broad market last month, even as there was little news out on the ad tech stock. Investors ditched high-growth, high-priced names throughout April, and Trade Desk was swept up in the sell-off. According to data from S&P Global Market Intelligence, the stock closed the month down 15%.
As you can see from the Trade Desk's results, the stock basically tracked with the Nasdaq for the duration of April.
So what
The Trade Desk is the largest pure-play ad tech stock and provides a cloud-based, self-serve, demand side platform for advertisers. Most of its clients are ad agencies representing brands who use Trade Desk's platform to run and monitor digital ad campaigns effectively.
Image source: Getty Images.
Unlike many growth stocks, Trade Desk is highly profitable. In 2021, it finished with an adjusted net income of $455.6 million on $1.2 billion, or nearly a 40% profit margin. However, the stock is still priced at a premium, trading at a forward price-to-earnings ratio around 50 even after the recent sell-off.
As an advertising company, Trade Desk is subject to cyclical risk, and in April, investors backed away from stocks that are likely to get hit in a recession, instead favoring safe, defensive stocks like Coca-Cola and Procter & Gamble.
Reports from some high-profile tech stocks last month also seemed to weigh on Trade Desk. For example, its highest-volume day of the year came on April 20, the day when Netflix crashed on its own disastrous earnings report. While Trade Desk's business isn't directly related to Netflix's, Netflix's surprise decline in subscribers seemed to indicate that the market for digital content is maturing faster than expected, which would be bad news for Trade Desk. The stock lost nearly 7% the week Netflix's report, and results from Snap also may have also weighed on the stock as Snap reported a weaker bottom line than expected and said it would step up investments, showing that the path to profits for the digital advertising company won't be so easy.
Now what
Trade Desk stock has continued to dive in May as tech stocks have plunged on the news that the Federal Reserve would raise interest rates by half a point and as a number of tech stocks have fallen short of earnings estimates.
Trade Desk will report its first-quarter earnings report after hours on May 10. Analysts are expecting revenue to jump 38.6% to $304.7 million, and adjusted earnings per share to tick up from $0.14 to $0.15. Keep an eye on how the results compare to the numbers as well as management commentary on the rest of the year, as a slowdown in advertising spend is often a leading indicator of a recession.
