The Trade Desk (TTD 2.52%) was one of the market's hottest digital advertising stocks. It went public at a split-adjusted price of $1.80 on Sept. 21, 2016, and it rallied more than 6,100% to a record closing price of $139.51 on Dec. 4, 2024. A $20,000 investment in its IPO would be worth $1.24 million today.
But today, The Trade Desk's stock trades at around $57. It lost more than half of its value as investors fretted over its slowing top-line growth. Does that pullback represent a good buying opportunity for patient long-term investors?
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Why did growth investors love The Trade Desk?
The Trade Desk owns the world's largest independent demand-side platform (DSP) for digital ads. DSPs sell advertising space for programmatic (automated) ads across desktop, mobile, and connected TV (CTV) platforms to advertisers. They work in tandem with sell-side platforms (SSPs), which help publishers sell their own ad inventories.
Bigger tech companies like Alphabet's Google and Meta Platforms bundle together DSPs, SSPs, and other tools in their own digital advertising platforms, but they generally lock advertisers and publishers into their websites, apps, and advertising networks. To break free of those "walled gardens" and reach a broader range of platforms across the "open internet," many of those companies turn to independent DSPs and SSPs.
NASDAQ: TTD
Key Data Points
Instead of going toe-to-toe with Google or Meta in the mobile and PC markets, The Trade Desk is expanding its CTV business through ad-supported streaming video services. To help advertisers deal with the tightening restrictions for collecting third-party data, it provides Solimar, an AI-powered platform that collects more first-party data, and its Unified ID 2.0 (UID2) solution that replaces traditional cookies. It's also been building its own OS for smart TVs called Ventura to host its own ads.
Furthermore, it's been bypassing SSPs like Magnite and Google's Ad Exchange with OpenPath, a platform that directly links publishers to advertisers. All of those efforts could transform it into a more broadly diversified advertising company.
From 2016 to 2024, its revenue grew at a compound annual growth rate (CAGR) of 36% as its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) increased at a CAGR of 41%. Its adjusted EBITDA margin expanded from 32% to 41%. That incredible growth trajectory fueled its millionaire-making gains over the past eight and a half years.
Why did The Trade Desk's stock get cut in half?
At its peak last December, The Trade Desk's enterprise value hit $67.1 billion -- which was 21 times its projected revenue and 55 times its adjusted EBITDA for 2025. It was priced for perfection at those levels, but its near-term outlook was imperfect.
In 2024, The Trade Desk's revenue rose 26%, its adjusted EBITDA increased 31%, and its adjusted EBITDA margin expanded by a percentage point to 41%.
But for the first quarter of 2025, it expects its revenue to grow "at least" 17% year over year as its adjusted EBITDA declines approximately 10%. It attributes that slowdown to challenging comparisons to the prior-year quarter, which included an extra day from the leap year and higher spending on political ads. At the same time, it's ramping up its investments in "infrastructure and talent" as it expands its advertising ecosystem.
For the full year, analysts expect its revenue to rise 18%, its adjusted EBITDA to grow 12%, and its adjusted EBITDA margin to dip 2 percentage points to 39%. That mix of slower growth and higher costs spooked the bulls, even though it didn't indicate its core business was deteriorating. However, The Trade Desk's high valuation made it an easy target as the threats of higher tariffs, sticky inflation, and elevated interest rates drove many investors away from pricey growth stocks this year.
Is The Trade Desk's pullback a buying opportunity?
That pullback reduced The Trade Desk's enterprise value to $26.1 billion, or 9 times and this year's revenue and 23 times this year's adjusted EBITDA. Those valuations are reasonable relative to its growth rates, but its upside could remain limited as long as the macro headwinds throttle the expansion of the advertising sector. So if you plan to hold The Trade Desk's stock for at least a few years instead of a few months, it's a great time to accumulate some shares as the bulls look the other way.
