On Tuesday, New Street Research adjusted its stance on shares of The Trade Desk (NASDAQ:TTD), downgrading the stock from Neutral to Sell, while maintaining a price target of $86.00. The firm pointed to an unchanged price target despite the downgrade.
The analyst cited the company's increased access to premium inventory from smaller walled gardens such as Spotify (NYSE:SPOT) and Netflix (NASDAQ:NFLX), as well as market share gains from its main competitor, Google (NASDAQ:GOOGL)'s DV 360, which has been impacted by antitrust concerns.
The Trade Desk is recognized for its superior vision, strategy, and execution, and is anticipated to exceed third-quarter 2024 guidance and provide strong fourth-quarter guidance, bolstered by political advertising spending. The analyst's fourth-quarter estimates remain slightly above consensus and could increase further if political ad spending surpasses expectations.
Despite the positive outlook for the near term, the analyst expressed concerns for the year 2025. The valuation of The Trade Desk, based on enterprise value to adjusted EBITDA, has reached approximately 50 times, which suggests limited room for upward consensus revisions, especially as political ad dollars exit in a non-election year. This forms the basis for the analyst's cautious stance on the stock's future performance.
In other recent news, The Trade Desk, a dominant player in the digital advertising sector, has been the subject of several positive developments. Citi, KeyBanc, Jefferies, HSBC, and Truist Securities have all increased their stock price targets for the company, reflecting confidence in its growth outlook.
The upward revisions are based on the sustained growth potential of Connected TV (CTV) and Retail Media, considered key drivers for The Trade Desk's future performance.
The Trade Desk's Q2 sales increased by 26%, and the adjusted EBITDA margin improved to 41%, with a projected Q3 revenue of $618 million and an expected adjusted EBITDA of around $248 million. These financial results and projections are crucial for investors. The company's revenue is projected to meet or even slightly surpass the forecasted $623 million, according to KeyBanc.
Analysts from various firms have expressed increased confidence in the company's ability to maintain a growth rate of over 20% in the coming years. This growth is anticipated to be driven by advancements in connected TV (CTV) and retail media, with the potential for accelerated growth due to regulatory changes. These are recent developments and investors are advised to monitor the company's performance closely.
InvestingPro Insights
While New Street Research has downgraded The Trade Desk (NASDAQ:TTD) to Sell, recent data from InvestingPro paints a more nuanced picture of the company's financial health and market performance. The Trade Desk boasts impressive gross profit margins, with InvestingPro data showing a gross profit margin of 81.23% for the last twelve months as of Q2 2024. This aligns with one of the InvestingPro Tips highlighting the company's "impressive gross profit margins."
Moreover, The Trade Desk's revenue growth remains strong, with a 25.91% increase in quarterly revenue as of Q2 2024. This robust growth supports the analyst's expectation of The Trade Desk exceeding its third-quarter guidance and providing strong fourth-quarter projections.
However, investors should note that The Trade Desk is trading at a high earnings multiple, with a P/E ratio of 229.69. This elevated valuation echoes the analyst's concerns about limited room for upward revisions and potential challenges in 2025. The company's stock is also trading near its 52-week high, with the price at 97.97% of its peak, suggesting that much of the positive outlook may already be priced in.
For investors seeking a more comprehensive analysis, InvestingPro offers 18 additional tips for The Trade Desk, providing a deeper understanding of the company's financial position and market dynamics.
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