Advertising software businesses can look unbeatable when ad budgets are expanding. But they can also look fragile when uncertainty rules the macroeconomic environment, pressuring ad spend. Shareholders of programmatic advertising specialist The Trade Desk (TTD 2.77%) have experienced both sides of these market dynamics (and the related investor sentiment that accompanies them) in recent years.
After peaking in late 2024, the stock has fallen more than two-thirds. Part of that decline reflects a broader reset for some growth stocks after many of them soared in late 2020 and in 2021. Part also reflects company-specific disappointment, including management's admission that it fell short of its own expectations in the fourth quarter of 2024.
Of course, a big drawdown does not automatically create a bargain. Investors need to decide whether the business can return to faster growth -- and whether today's valuation leaves enough room for mistakes.
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Decelerating growth
The sell-off in the tech company's shares has come even though The Trade Desk's underlying business has continued to perform well. The advertising technology company reported third-quarter revenue of $739 million, up 18% year over year. Excluding spending on its platform for political ads in the year-ago quarter, growth was 22%.
Ultimately, however, even though growth was good, it still marked a deceleration from 19% revenue growth in Q2 and 25% growth in Q1.
Profitability remains a bright spot for the company. Q3 net income came in at $116 million, which translated to a 16% net income margin. And adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) was $317 million, or a 43% margin.
Customer retention also stayed strong. Management said it has now retained more than 95% of customers for eleven years in a row.
But could growth slow even more? It might. Management guided for at least $840 million of revenue in Q4 2025. Compared with Q4 2024 revenue of $741 million, that points to about 13% year-over-year growth (18.5% when excluding political spend in the fourth quarter of 2024).
Can CTV save the day?
With growth slowing, shareholders are looking for a reacceleration in The Trade Desk's business.
They might find it in internet-connected TV (CTV).
"The shift to biddable CTV is accelerating, and we expect decisioned CTV will become the default buying model in the years ahead," said The Trade Desk CEO Jeff Green in the company's third-quarter 2025 earnings call.
Spelling out the bull case, CTV is both The Trade Desk's largest advertising channel and its fastest-growing.
Management provided some color on CTV's importance to its business in its third-quarter earnings call.
"CTV has been consistently growing at a faster rate than the overall business, which was the case again in the third quarter," explained The Trade Desk chief financial officer Alex Kayyal in the company's third-quarter earnings call. "Video, which includes CTV, represented around 50% of our business in Q3 and continues to grow as a percentage of our channel mix."
The investment case for The Trade Desk largely depends on whether this shift stays strong enough to pull the full company back to higher growth.
NASDAQ: TTD
Key Data Points
The Trade Desk stock: Buy, sell, or hold?
Even after the drawdown, investors should not automatically assume The Trade Desk stock is cheap. It isn't. Shares currently command a price-to-earnings ratio of about 44 -- far above the S&P 500's multiple of 26.
When would I buy the stock? If shares fell as low as $30, I'd consider the risks of a potential further deceleration to finally be fully priced in, and I'd consider buying the stock then. Additionally, if growth reaccelerates but shares are still trading at the levels they are today, it might also be worth considering buying. Until then, I'll stay on the sidelines.
