In recent months, few stocks have had a more difficult time than The Trade Desk (TTD +0.63%). Issues such as contending with resistance from digital ad giants and a contentious launch of its generative AI platform have impacted the company. Consequently, the stock sells for 62% below its 52-week high.
Nonetheless, the deep discount in the stock price has redefined the stock's value proposition. That arguably makes the stock a buy, and here's why.
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Where The Trade Desk stands
The Trade Desk offers a digital ad buying platform where advertisers and ad agencies can determine the platforms, programs, and times that yield the highest expected returns for them and place the ads accordingly.
Indeed, The Trade Desk is establishing itself in a lucrative ad niche. MarketResearch.com estimates the global digital ad and marketing market to grow to more than $1.1 trillion by 2030, an 11% compound annual growth rate (CAGR) from its $595 billion size in 2024.
To capitalize on that market, many customers prefer The Trade Desk because competing platforms from the likes of Alphabet and Meta Platforms tend to favor their own ad businesses, which may reduce returns on ad spending for a customer.
Unfortunately for The Trade Desk, these ad giants have also acted more like "walled gardens." This marks a departure from the "open internet" they previously supported, and indeed, the closed ecosystems could freeze out independent operators such as The Trade Desk.
The company has responded by leaning into the open internet, a focus on premium content, and Unified ID 2.0, which allows for targeting that is conscious of privacy. Much of this happens through Kokai, a generative AI-driven platform that leverages this technology to improve upon its previous platform, Solimar. Unfortunately, customers have not taken well to Kokai, as it removed features from Solimar that were popular with users and litigation relating to the platform.
Although the company is working to address complaints about Kokai and touting its benefits to customers, one has to assume that this contributed to The Trade Desk missing its own revenue estimate in the fourth quarter of 2024 after 33 quarters of beating such numbers.
Since announcing that miss in February, the stock has not revisited its intraday all-time high of $141.53 per share, and the walled gardens and slowing revenue growth continue to weigh on the stock.
NASDAQ: TTD
Key Data Points
The Trade Desk by the numbers
Despite such worries, its growth continues, nonetheless. In the first half of 2025, revenue of $1.3 billion increased by 22% compared to the same period last year.
As previously mentioned, growth rates are in a downtrend, as The Trade Desk's revenue grew by 27% yearly during the same period one year ago. That was enough to lead to a 39% rise in operating income, but its net income of $141 million rose by only 21% compared to year-ago levels amid a spike in its provision for income taxes.
Looking ahead, analysts forecast 17% revenue growth for 2025 and 2026, indicating that revenue growth rates are finally on track to stabilize.
Furthermore, the stock may finally be ready for a rebound. It has risen about 25% from its September low, and as it continues to address its recent challenges, confidence could return to the stock.
Additionally, valuations have become more attractive. Before the Q4 earnings announcement, its P/E ratio had exceeded 150, a lofty level even for a successful growth tech stock. Today, its earnings multiple is at 65, and with a forward P/E ratio of 30, The Trade Desk is becoming increasingly inexpensive.
Buy The Trade Desk
Given the current state of The Trade Desk, investors should consider buying it at its current 62% discount.
Admittedly, the market had likely overvalued the stock before the revenue miss, and the slowing rate of revenue growth made a 150 P/E ratio hard to justify. Moreover, the value proposition has become more uncertain as The Trade Desk contends with walled gardens and the negative customer response to Kokai.
However, none of these challenges has stopped the company's revenue growth, indicating that demand remains for a neutral ad-buying platform like The Trade Desk's. Since its revenue is a tiny fraction of the total addressable market, industry expansion and the platform's growing usage in the business should eventually take The Trade Desk stock back to all-time highs and beyond.
