Shares of The Trade Desk (TTD 0.18%) imploded last week. The stock tanked when the digital ad-buying platform company reported a much lower revenue growth rate for Q2 than it did in its previous quarter. Making matters worse, the company's net profit margin narrowed significantly and management guided for even slower growth in Q3. Finally, a chief financial officer transition may have added to investor skittishness.
Since the Thursday report, shares have slid about 38%. Even worse, this puts the stock at a painful year-to-date decline of more than 50%.
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Is this a buying opportunity, or have investors overreacted? After all, this isn't some debt-ridden company in decline. The Trade Desk may not be growing as fast as it was, but its revenue is still rising at robust double-digit rates. Furthermore, the company has no debt and tons of cash, and it's very profitable. Are these factors enough of a reason to buy, or is the growth stock still overvalued, even after its big pullback?
Slowing growth
Let's examine the digital ad-buying company's decelerating growth. Q2 revenue rose 19% year over year to $694 million, down from about 25% growth in Q1. Looking to Q3, management guided for revenue of "at least" $717 million. In other words, management expects growth of 14% or greater for the period. And this growth forecast comes with a caveat. As management explained in its second-quarter earnings call, this guidance assumes "the macro environment remains stable, and we don't see disruptions from large global brands, which make up a significant portion of our business, due to tariff uncertainty."
To be fair, management noted that its third quarter in 2024 benefited from elevated political ad spending. Strip that out, and management's forecast implies growth closer to 18%. Still, the year‑over‑year pace appears to be cooling -- 25% to 19% to 14% (or 18% ex‑politics) -- which marks a meaningful deceleration.
A healthy business
The underlying business remains solid. Q2 adjusted EBITDA was $271 million, with a 39% margin -- though this is lower than the company's 41% margin in the year-ago quarter. Customer retention remained above 95% for the 11th consecutive year.
Crucially, The Trade Desk has a massive cash cushion. As of June 30, 2025, the company held about $1.7 billion in cash, cash equivalents, and short-term investments, plus no debt. It also used $261 million in Q2 to repurchase shares, with another $375 million remaining under its authorization. That's a powerful combo: robust liquidity and active capital return, underscoring both business strength and management's confidence.
Innovation also remains front and center -- from artificial intelligence (AI)‑driven Kokai and connected TV momentum to retail media connections and supply path tools like OpenPath -- laying groundwork for sustained relevance.
A lofty valuation demands excellence
The stock's pre-selloff valuation was historically rich. Shares traded at a triple-digit price-to-earnings multiple, reflecting investors' sky-high expectations for the company's growth trajectory. No wonder decelerating growth and a leadership shakeup spooked investors.
But even after the stock's big sell-off, meaningful risk remains. Shares now trade at a price-to-earnings multiple in the 60s -- more than double the S&P 500's price-to-earnings ratio of about 25. A cooling top line, expanding platform costs, risks of tariffs impacting client ad budgets, and a high valuation are risks that combine to make this a stock worth avoiding for now.
Yet given The Trade Desk's fortress-like balance sheet, high margins, and robust product evolution, the stock is still worth keeping an eye on. At a certain price, shares may be worth buying. But I believe that the price should be significantly lower.
