Shares of growth stock The Trade Desk (TTD -2.11%) have soared about 50% since May 1. Much of this incredible momentum has been driven by the company's impressive first-quarter results. The quarterly figures reassured investors after the company reported worse-than-expected results in the fourth quarter of 2024. For its first quarter, The Trade Desk smashed expectations, reporting revenue far in excess of its own guidance. Furthermore, the company guided for more strong growth in Q2.
But with the stock rising so much and so fast, is The Trade Desk still worth buying at this price?
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What fueled the rebound
The Trade Desk reported revenue of $616 million in Q1, up 25% year over year and ahead of the company's guidance of $575 million. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) came in at $208 million, representing a 34% margin. These figures compare to the adjusted EBITDA of $162 million and an adjusted EBITDA margin of 33% in the year-ago quarter. The company also delivered $0.33 in non-GAAP diluted earnings per share -- a 27% increase compared to the same period last year.
"We're encouraged by the early impact of the strategic upgrades at the company we implemented in Q4, which contributed to our outperformance," said The Trade Desk CEO Jeff Green.
Much of this strength stems from the accelerating adoption of the company's AI-driven ad-buying platform, Kokai, which now powers about two-thirds of client activity. Kokai's advanced tools are helping advertisers improve efficiency and lower costs. According to management, clients that have shifted to the new platform have seen a 42% reduction in cost per unique reach and a 24% drop in cost per conversion.
CEO Jeff Green said in the earnings call that these upgrades were starting to "unlock the next wave of growth." Green emphasized that the business is gaining market share, even amid macroeconomic headwinds, because of programmatic advertising's agility and performance benefits. In addition, strong demand in connected TV and retail media continues to provide tailwinds as brands move budgets away from traditional ad channels.
Finally, customer retention remained above 95% in Q1 -- a streak the company has maintained for over a decade.
A great business -- but a high price
There's no denying The Trade Desk is firing on all cylinders. The company is showing that it can innovate, execute, and win share even in a tough ad market. And its long-term thesis -- becoming the leading independent demand-side platform focused on the open internet -- still seems intact.
But even great businesses can make poor investments at the wrong price.
The Trade Desk trades at about 97 times earnings as of this writing. That's not just rich -- it's extreme. And while the company has consistently posted impressive growth, maintaining such a premium valuation will require near-perfect execution for years to come.
It's also worth remembering that this is a competitive and fast-moving industry. While The Trade Desk has carved out a unique position, giants like Alphabet, Amazon, and Meta Platforms still dominate large chunks of the digital ad market. In addition, regulatory changes, privacy constraints, or even a slowdown in advertiser budgets could all pose risks.
Of course, there's a lot to love about the company. The Trade Desk is arguably the best-run company in adtech. The business has strong momentum, a visionary CEO, and powerful tailwinds as the open internet continues to gain traction. But with the stock's valuation looking stretched, investors should be cautious.
For existing The Trade Desk shareholders, the recent report and the stock's move higher is nothing but good news. Selling, therefore, could prove to be a mistake. But for prospective investors in the tech company, the better move may be to look elsewhere. A high-flying multiple like this leaves little room for error -- and history shows that even modest disappointments can lead to sharp pullbacks when expectations are this high.
As always, price matters. Of course, the stock could continue rising from here, leaving some investors feeling like they've missed out. But risks are arguably too significant for investors considering buying the stock at its current price.
