Following The Trade Desk's (TTD 1.67%) astronomical 85% year-to-date gain, analysts seem split on their views for the stock recently. Several analysts recently argued that the stock's sky-high valuation after the run-up represents a good opportunity to sell and take profits. But financial firm Piper Sandler recently raised its 12-month price target for the stock from $77 to $100. In addition, the firm reiterated that the tech stock remains its top large-cap investment idea.
Let's examine why Piper Sandler is so bullish, even as some analysts are advising shareholders to sell and move on.
The path to $100
Shares of The Trade Desk could appreciate more than 20% over the next 12 months, according to Piper Sandler. Justifying the firm's aggressive price target, it cited broader-market advertising and consumer spending trends holding up better-than-anticipated recently, despite a tough macroeconomic environment. In addition, the firm expects improving profitability in the second half of the year to be a key driver for the stock.
The Trade Desk chief financial officer Laura Schenkein said in the company's first-quarter earnings call that she expects the ad tech specialist's headcount to grow this year, albeit at about half of the year-over-year growth rate it grew last year. This "sets us up [operating leverage] nicely for the rest of the year and for 2024," Schenkein explained in the company's second-quarter earnings call.
Further, there's substance behind Piper Sandler's praise for The Trade Desk's better-than-expected revenue trends this year. The company grew its first-quarter revenue 21% year over year, even as many companies in the digital advertising space weren't growing at all or were, at best, growing at a rate in the single digits. Management also provided impressive guidance for second-quarter revenue to increase at a rate of at least 20% year over year -- and this guidance was provided well into the second month of Q2. "While macro conditions remain uncertain, visibility has improved slightly since the beginning of the year," Schenkein said in The Trade Desk's earnings call about the company's guidance.
These analysts disagree
But several other analysts have a more bearish stance on the stock. Redburn analyst Bianca Dallal recently initiated coverage on the stock with a 12-month price target of $34. The basis of her bear case is that the market's expectations for the business are simply too high today. Worse-than-expected growth from the company could lead to valuation multiple compression, she argues. In addition, she believes the market is overlooking the number of ad deals occurring directly with publishers, bypassing The Trade Desk. Finally, she thinks the stock's valuation doesn't fully price in the risks of a potential worsening of macroeconomic conditions.
Meanwhile, New Street analyst Dan Salmon lowered his rating on the stock from hold to sell. His 12-month price target on the stock is $69. Though the analyst is upbeat about the company's long-term opportunity, he's cautious about the stock's valuation today.
While there's good reason to be impressed by The Trade Desk this year, given its rapid top-line growth in a difficult environment, it wouldn't hurt for investors to approach shares with caution given their extraordinary gains this year.
