The Trade Desk (TTD -1.65%) reported its fiscal year 2022 second-quarter earnings on Aug. 9, which pleased shareholders. The stock is up by 17% since then, with the initial news pushing up share prices by as much as 33%. Investors were concerned revenue would slow considerably due to macroeconomic headwinds affecting businesses worldwide. Despite those challenges, The Trade Desk generated impressive growth.
For those unaware, The Trade Desk is a cloud-based digital demand-side ad buying platform. It helps advertisers optimize ad campaigns and help garner the most return on investment. Traditional marketing verticals, such as print newspapers, billboards, and cable TV, have always proved challenging for advertisers to measure actual results. For example, how do you count the number of people who saw your billboard? Who made a purchase resulting from seeing your advertisement in the newspaper?
In the digital space, this sort of measurement can be quantified. And thanks to the explosion of digital media, ad spending on digital platforms has promising long-term growth. That growing demand for digital advertisements is precisely what the California-based company has been successfully capturing.
The Trade Desk bucks the trend
In the quarter that ended on June 30, The Trade Desk generated a revenue of $377 million, a 35% increase from the corresponding quarter last year. It's important to note that in addition to macroeconomic headwinds rising from Russia's invasion of Ukraine, supply shortages, and soaring inflation, The Trade Desk's revenue growth was pressured by a difficult comparison with the prior year when revenue jumped by over 100%.
The results assuaged the market's fears after advertising giant Meta Platforms reported a revenue decrease of 1% in its most recent quarter.
The war in Ukraine has increased uncertainty about consumer spending habits throughout Europe. With businesses struggling to meet existing customer demand, there is little reason to spend money on advertising. Moreover, soaring inflation is pinching consumer budgets, leaving less room for discretionary purchases that usually command a significant portion of advertisers' budgets. As a result, macroeconomic headwinds are spooking investors away from advertising stocks.
The Trade Desk reported a GAAP net loss of $19 million in the quarter ended in June, compared to a net profit of $47.7 million in the same quarter last year. However, GAAP results do not always paint an accurate picture of the business performance. For example, if we back out the total share-based compensation expense, a non-cash expense not tied to actual operations but used for rewarding management and other employees through the issuance of new shares at pre-determined vesting prices, net income comes in at a solid $98.6 million. That's a 12% increase versus last year's similarly adjusted bottom line. I'd say that's impressive growth considering the challenging macroeconomic environment this year.
The rise in stock price is justified
It's no surprise that the share of spending on digital advertising, the type that The Trade Desk specializes in, increased to 64.4% in 2021, up from 52.1% in 2019. That's a massive shift, considering advertisers spent $763 billion globally in 2021, excluding political spending. Because of the advantages mentioned, this trend is unlikely to reverse.
Overall, The Trade Desk had an excellent quarter considering the challenging macroeconomic conditions. Of course, it's not an apples-to-apples comparison, but delivering revenue growth of 35% and adjusted net income of 12% in a quarter when advertising giant Meta Platforms achieved negative growth is impressive, to be sure. A quarterly performance like the one The Trade Desk reported deserves an increase in its stock price.
