The Trade Desk (TTD 1.67%) has been a top stock since it went public in 2016, and the adtech company showed why it has a long history of outperforming the market in its latest earnings report.
Shares soared 17.5% on Feb. 16 after the company smashed top-line estimates for its fourth quarter. Revenue jumped 23% year over year to $605.8 million, well ahead of the consensus at $582.2 million. On the bottom line, adjusted earnings per share improved from $0.38 to $0.41, which fell short estimates at $0.43. However, investors overlooked that in favor of the strong top-line beat and better-than-expected guidance.
For the first quarter, management expects revenue of at least $478 million, compared to the analyst consensus of $451.9 million. That would represent 25% growth from the year-ago period.
This strong report redeems the prior update from The Trade Desk when the stock plunged on fourth-quarter guidance, and it's a good reminder that the leading independent demand-side platform remains an attractive stock. Let's take a look at three reasons The Trade Desk stock can keep gaining from here.
Image source: Getty Images.
1. The Trade Desk proved it can grow through a downturn
The last couple of years have been tough for the digital advertising industry. Revenue growth at the two biggest ad platforms, Alphabet and Meta Platforms, was either negative or near flat at one point during the bear market as brands cut back on ad spending in preparation for a recession.
As The Trade Desk CEO Jeff Green explained on the earnings call: "For nearly all of 2023, there was uncertainty, particularly around economic growth rates and recessionary fears. In that environment, CMOs [chief marketing officers] become much more reliant on their CFOs, and CFOs needed to make sure that every dollar spent was in service of growth, which means CMOs had to focus more than ever on where they could achieve efficacy and deliver strong and provable return on ad spend."
In that environment, The Trade Desk was still able to deliver revenue growth of at least 20% in each of the last 14 quarters, something almost no other adtech company or digital advertising platform did.
That performance should give investors confidence in the company's resilience because it can still grow rapidly even in a weak environment in a cyclical industry. Its revenue growth should accelerate as the industry breaks out of its current down cycle.
2. The Trade Desk is riding the connected TV wave
One of the biggest trends in digital advertising in recent years is the rise of connected TV (CTV), or ad-driven streaming. CTV is a valuable market for advertisers and platforms like The Trade Desk because it offers the precise targeting of a channel like social media with the engagement of TV with large-screen video ads.
CTV has also gained momentum because leading streaming companies like Netflix, Disney, and Amazon have all recently launched ad-supported tiers. As they grow, that will open up more ad inventory for The Trade Desk. In fact, the growth of CTV in 2023 helped fuel the company's strong performance, and it should continue to drive the company's growth higher.
The Trade Desk doesn't break out CTV results, but the category should be a source of strength for the company in the coming years.
3. It's poised to thrive in a cookieless world
Google is set to remove third-party cookies (the web tool that tracks users from website to website) from Chrome later this year.
However, The Trade Desk has the leading cookieless protocol, Unified ID 2.0 (UID2), which major advertisers like Disney and Procter & Gamble have adopted as a replacement for cookies. UID2 gives advertisers a scrambled email address that they can use to track users from site to site.
Green also sounded confident about the company's position in a cookieless world:
I just want to be clear on one point: For all of the industry debate that's been caused by these changes, The Trade Desk stands to benefit. ... we see approximately 15 million ad impression opportunities every second on our platform. And the vast majority of the ad impressions that we value don't have anything to do with third-party cookies.
Those channels include CTV, retail media, and digital audio, which are fast-growing channels that don't rely on cookies.
Overall, The Trade Desk seems to be in a stronger position than its peers as cookies disappear, meaning it could use the opportunity to grab market share.
The Trade Desk has proven its mettle over the last several years, and the company has a number of promising growth opportunities ahead, including Kokai, its new AI platform. With strong top-line growth, wide margins, and a history of leadership in its industry, The Trade Desk looks set to continue beating the market.
