Even as a handful of analysts' upgraded their 12-month price targets for The Trade Desk (TTD 1.67%) shares following the adtech company's second-quarter earnings report earlier this month, the stock is down sharply in August. In total, shares have fallen about 18%. Is this a buying opportunity?
While ownership of a tech stock like The Trade Desk is bound to give investors a rollercoaster ride, analysts may be right: It looks like a great time to buy into this fast-growing company's growth story.
Business momentum
The Trade Desk reported stellar second-quarter results. Highlighting its business momentum, revenue increased 23% year over year to $464 million. This was an acceleration compared to 21% year-over-year growth in Q1. Over the same period, net income swung from a loss of $0.04 to a profit of $0.07. Non-GAAP earnings per share increased from $0.20 in the year-ago period to $0.28. Second-quarter revenue and adjusted earnings per share beat analysts' average estimates for $455 million and $0.26, respectively.
The Trade Desk also provided strong guidance. Its outlook for "at least" $485 million of third-quarter revenue implies a year-over-year revenue growth rate similar to its growth rate in Q2. However, given how the company often reports revenue above its guidance, actual revenue could actually come in high enough for the company to post a second quarter in a row of accelerating growth.
Bolstering the bull case for the stock, the company's data-driven ad-buying platform is winning over advertisers' budgets even in an uncertain operating environment for marketers. More importantly, The Trade Desk is growing significantly faster than other major digital advertisers, showing how it is taking market share.
"I'm confident we will continue to gain share, especially in key growth markets such as [connected TV]," said The Trade Desk founder and CEO Jeff Green in the company's second-quarter earnings release.
Also worth emphasizing, an uncertain environment is proving to be a catalyst for the company.
"Perhaps what's most interesting right now is how marketers are seeking a sense of certainty in an uncertain environment," explained Green during the company's second-quarter earnings call. "Much of the product rollouts and partnership growth we've seen this year is because we're giving our clients certainty and reliability that they can't get elsewhere."
What analysts are saying
Following the company's earnings report, analysts have rushed to upgrade their 12-month price targets for The Trade Desk shares. At least six analysts have upgraded their 12-month price targets, and three of those targets are $100 or higher. Additionally, every Wall Street analyst to release a note on the stock following the earnings report has a "buy" or similar rating, like "overweight" or "outperform" ratings.
Consider Susquehanna analyst Shyam Patil's view. He raised his 12-month price target for the stock from $90 to $105, citing the company's strong second-quarter financial results and third-quarter guidance. Evercore ISI analyst Shweta Khajuria raised her target for the stock from $75 to $100, noting that the company deserves its high valuation multiple in light of its strong business execution. Wells Fargo analyst Brian Fitzgerald boosted his price target for the stock to $100 -- up from $82. Fitzgerald noted that the company is growing rapidly despite the overall market remaining challenging for companies in the digital advertising space. Finally, Baird analyst Vikram Kesavabhotla initiated coverage of the stock last week with an outperform rating and a $88 12-month price target, praising the company's innovation in artificial intelligence (Kokai) and the company's direct integration with publishers (OpenPath). Additionally, Baird pointed to the company's international momentum, where ad spend growth on its platform has outperformed its North American segment for two quarters in a row. These factors, together, will likely be catalysts for shares, Kesavabhotla explained.
These analysts seem to be onto something. The quarter's results should definitely have investors increasing their estimates for the stock's potential. Further, a price of $100 within 12 months doesn't seem impossible.
It's time for investors to give their intrinsic value estimates for the stock a significant boost. Indeed, considering how upbeat The Trade Desk's second-quarter earnings call was, I believe now is a good time for investors to be opportunistic and buy shares. As management said during the earnings call, The Trade Desk faces a "tidal wave of opportunity..."
Investors, of course, should remember that no investment is without risk. Further, the long-term journey of owning The Trade Desk sock will undoubtedly be volatile. Nevertheless, this seems like a great time to get in on this fast-growing, debt-free company with a massive market to continue taking share from for years to come.
