Shares of The Trade Desk (TTD 3.09%) have shot up 42% so far in 2023 as the ad technology provider has been rewarded handsomely for its terrific growth despite the challenging conditions in the digital ad space.
The Trade Desk has outpaced the digital ad market significantly over the past year. And that's continuing in 2023 based on its first-quarter results, which were released on May 10.
Here's a look at those quarterly numbers and why it could continue delivering outstanding performance over the next decade.
Outperforming the digital ad industry
First-quarter revenue of $383 million was up 21% from the year-ago period. The company posted adjusted earnings per share (EPS) of $0.23, up slightly from the prior year's $0.21. Wall Street was expecting a much slower pace, with $364 million in revenue and adjusted EPS of only $0.13.
But the company blew past those expectations as the demand for its programmatic advertising services remains solid. For some perspective, digital ad giant Meta Platforms' advertising revenue was up just 4% year over year in its first quarter. And Alphabet's revenue from Google advertising segment was flat last quarter.
The Trade Desk significantly outperformed these established ad giants with its data-driven platform that uses artificial intelligence (AI) to allow advertisers to automate their ad purchases, improve audience targeting, and boost the return on the dollars they spend.
On the company's latest earnings call, CEO Jeff Green said:
"We are gaining market share as advertisers embrace the precision and relevance of data-driven advertising on the open internet via our platform. Even as most brands and advertisers continue to deal with some level of uncertainty, they are increasingly shifting more of their campaign dollars to decision, data-driven opportunities, where they can have more confidence that those dollars are working as hard as possible."
Management said that leading advertising agencies and brands are signing multiyear business plans, some projected to exceed $1 billion in value. Macy's, for instance, is using The Trade Desk's self-serve, demand-side platform to target audiences.
All this is why the company is guiding for a strong second quarter as well: $452 million in revenue, a 20% increase year over year. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) are forecast to increase to $160 million from $139 million a year ago.
Analysts expect a 20% jump in full-year revenue to $1.9 billion, heading higher over the next couple of years.
TTD revenue estimates data by YCharts.
Earnings growth is also expected to accelerate.
TTD EPS estimates data by YCharts.
A decade of terrific growth ahead
Digital ad spending overall is expected to increase 10.5% in 2023 to $627 billion, according to eMarketer, with the same continuing through 2026, when the global digital ad market is expected to be worth $836 billion.
With The Trade Desk already outpacing the industry significantly, it can keep doing so because the global programmatic advertising market is expected to clock a terrific annual growth rate of 35% through 2032, according to Future Market Insights, generating $720 billion in annual revenue by the end of the forecast period.
The company sees its overall global addressable market as $830 billion this year, with all kinds of advertising eventually transacted digitally. If so, revenue and earnings could continue to grow consistently over the long run as the company seizes an increasing share of digital ad spending.
Analysts anticipate 24% annual growth in the company's earnings for the next five years. If it can sustain that same level over the next decade, its earnings could jump to $10.30 per share after 10 years, based on 2023's earnings estimate of $1.20 per share.
But it won't be surprising to see it clock faster growth since it has been outperforming Wall Street's expectations over the past four quarters. The chart at the end of the previous section also shows that the company's earnings growth is expected to accelerate to more than 30%.
So if the company's bottom line grows at 30% a year over the next decade, its EPS could hit $16.54 per share after 10 years. The stock trades at 58 times forward earnings, which is on the expensive side. But the multiple seems justified given its impressive growth and multibillion-dollar opportunity.
Assuming The Trade Desk has a discounted multiple of 40 after five years -- which is nearly equivalent to its 2022 forward earnings multiple when the stock had taken a heavy beating -- its stock price could jump to $660.
That would be more than 10 times its current price. As such, growth investors might want to buy it before it becomes more expensive.
