The Trade Desk (TTD 2.82%), a former highflying digital advertising disruptor, has fallen on hard times this year.
Just how hard? The former market darling is neck and neck with financial stock Fiserv as the worst-performing stock in the S&P 500 Index in 2025, having shed 66.2% of its value this year through Dec. 9.
A decline like that could portend longer-term secular problems, but could also signal a buying opportunity. So, which is it for the Trade Desk? Let's dig in.
NASDAQ: TTD
Key Data Points
2025 problems emerged early on
The problems for The Trade Desk emerged early in the year, when the company missed revenue estimates for its fourth-quarter 2024 earnings release in February. That ignominiously marked the company's first "miss" in 33 quarters, or eight years, as a public company.
Revenue did grow more than 22% that quarter, so it wasn't as if results totally fell off a cliff. Still, this year is on pace for a significant deceleration in growth. Factoring in The Trade Desk's fourth-quarter outlook, revenue is on pace for $2.89 billion, which would mark 18.2% growth -- an 8-percentage-point deceleration from 2024.
In addition, margins are expected to compress, with adjusted (non-GAAP) earnings per share projected to grow by just 7.2% in 2025.
Again, these aren't bad numbers by any means, but with the stock entering the year trading around 71 times adjusted EPS, there wasn't much room for error.
What's to blame?
There are several reasons for the lackluster financial performance compared with expectations, including some legitimate concerns and others that are not entirely the company's fault. First, The Trade Desk is a demand-side programmatic advertising platform, and 2025 has a tough comparison with the 2024 election year. Election years typically see elevated ad spending, which probably explains the acceleration in 2024 revenue and the subsequent deceleration this year.
Second, there has been a rapid pace of spending this year, as The Trade Desk invested in a major overhaul of its digital ad data marketplace, introducing a new service called Audience Unlimited that utilizes generative AI-based recommendations for advertisers. The company has also introduced several innovations related to one-to-one advertiser-to-publisher direct deals, including Deal Desk and OpenPath.
Rapid product introduction is also coming at a time of increased executive turnover at the company. Since March, the company has replaced its Chief Financial Officer, Chief Operating Officer, and Chief Revenue Officer. The departure of former CFO Laura Schenkein, announced during the second-quarter earnings call, caused a particularly negative reaction.
With the flurry of new products and high executive turnover, investors may be concerned The Trade Desk is having to work harder to keep up with would-be competition from larger, more diversified Magnificent Seven companies that also in the digital advertising space.
Amazon's emerging DSP is a big concern
The slowdown has compounded fears among investors that big tech, namely Amazon (AMZN 1.47%), is competing harder with The Trade Desk in terms of its demand-side programmatic advertising platform (DSP).
Specifically, Amazon has inked several high-profile connected TV partnerships this year, utilizing the data it has gleaned from its e-commerce, Prime Video, and Fire TV hardware platforms to inform its ad buying offerings to customers. It has also been reported that Amazon is aggressively undercutting The Trade Desk on price; analysts have discovered Amazon is offering fees as low as 1% of ad spend, whereas The Trade Desk typically prices at 12% to 15%.
Indeed, if Amazon succeeds in pulling more Trade Desk customers away at the margins, it could have an outsized impact on The Trade Desk's multiple.
Image source: Getty Images.
But there's hope for a turnaround
Trade Desk CEO Jeff Greene has attempted to reassure investors that Amazon's DSP is mainly serving Amazon's own ad inventory, primarily sponsored ads on the Amazon e-commerce site and Prime Video, with only a small percentage serving advertisers on off-Amazon properties. This is why Amazon can "afford" such low fees for its demand-side ad software – it's making all the money on the ads themselves.
Greene maintains that The Trade Desk's objectivity, aiming to unify data across the "open internet" outside of the walled gardens owned by big tech, will pay off in the long run.
To that end, The Trade Desk is embarking on a longer-term project to measure ad effectiveness across the open internet across various types and formats of publishing, including journalism, live sports, audio podcasts, and more. Unifying all these publishing sources is a more challenging task than measuring one's own properties, such as Amazon measuring ad effectiveness on its own website or video platform, or Facebook and Instagram measuring ad effectiveness on those platforms.
"In 10 years, I don't think Amazon has a DSP as we define it," Greene dismissed on the recent conference call with analysts. In other words, Greene doesn't see Amazon making much headway serving ads outside of its own properties.
Opportunity knocks?
It's quite possible fears over Amazon's competitive intrusion turn out to be overblown, that Amazon mainly sticks to serving its own ad inventory, and that The Trade Desk continues to dominate the "open internet" outside of Amazon, Facebook and Instagram, and Google Search.
However, the overhanging fears likely won't go away until The Trade Desk proves its worth with stronger revenue and earnings growth. That being said, it's possible that the current valuation already reflects many of these fears. Shares trade at 22.1 times this year's adjusted EPS and 18.9 times next year's adjusted EPS estimates, which are certainly less daunting valuations compared with the beginning of this year, and are actually below-market multiples now. Management has also gotten more aggressive with share repurchases as the stock has fallen, and that's beginning to actually lower the Trade Desk's share count.
Therefore, it appears that the risk-reward ratio favors buyers of the stock at these levels. If the deceleration and margin pressure continue, there may very well be a bit of downside left; however, if The Trade Desk's new investments enable it to fend off big tech's advances and advertisers appreciate the Trade Desk's "neutrality" over the long-term, there could be a significant rebound at some point.
