The Trade Desk (TTD 0.95%) stock surged higher following the release of its quarterly report for the fourth quarter of 2023. Amid those gains, it achieved a 52-week high before pulling back, taking it to a level last reached in the summer.
Still, with a higher stock price, valuations have become elevated, and the share price has reached a point from which it pulled back months earlier. Does that mean investors missed the opportunity to buy this stock at a reasonable price? Let's take a closer look.
The Trade Desk's quarterly report
You can easily see why investors were happy with The Trade Desk's latest earnings report. For 2023, revenue rose 23% yearly to more than $1.9 billion. While that was less than 2022's 32% increase, it still amounts to robust growth.
Also, operating expenses increased 19% for the year, and other income (income from interest and short-term investments) rose about fivefold. As a result, the 2023 net income of $179 million spiked from the $53 million reported in 2022.
The company also generated about $552 million in free cash flow, more than the $465 million generated in 2022. That bodes well for shareholders because the company authorized share repurchases amounting to $700 million.
Share counts had grown for years but have begun to level off over the last year near the 490 million level. With the company's improving financials and lower share count, it is more likely the share price will rise in the near term.
NASDAQ: TTD
Key Data Points
Also, thanks to the aforementioned gains, the stock is up by around 35% over the last year. However, that also amounts to a forward P/E ratio of 62 and a price-to-sales (P/S) ratio of 25. Both multiples have fallen from the levels of the 2021 bull market, but they still make The Trade Desk a pricey stock by almost any measure.
TTD PE Ratio (Forward) data by YCharts
Is The Trade Desk worth its valuation?
Still, the fact that investors are paying these multiples warrants a closer look at the business. The Trade Desk operates a demand-side platform that allows companies and agencies to manage digital ad campaigns. Through this technology, users can run ads when and where they can potentially deliver a higher return on investment.
Moreover, The Trade Desk is a neutral platform. That gives it a competitive advantage over a company like Alphabet. Since Alphabet derives most of its revenue from acting as an advertising site, users may prefer an ad management tool from a company not profiting directly from digital ads.
Additionally, the opportunity in digital advertising is massive. Grand View Research estimated the global digital ad market was a $421 billion industry in 2023. Furthermore, by 2030, it expects the market to grow to $1.15 trillion, a 16% compound annual growth rate. Hence, the company's crucial role in this growing industry bodes well for The Trade Desk.
Are new investors too late?
Given current conditions, long-term investors can likely still win with The Trade Desk stock. Admittedly, the stock's valuation may have moved moderately ahead of fundamentals, and its stock price could correct in the near term.
Nonetheless, The Trade Desk has become an increasingly significant player in a massive industry expected to significantly increase in size for years to come. With profits rising and share counts likely to fall in subsequent quarters, both shareholders and new buyers stand a good chance of earning market-beating returns with this SaaS stock.
