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The digital advertising firm The Trade Desk (NASDAQ: TTD) experienced a 17% drop in its stock value on Friday following the announcement of third-quarter results and a revenue forecast that didn't meet expectations.
The Trade Desk projected a revenue of at least $580 million in Q4 of 2023, whereas analysts had anticipated a higher figure of $610 million.
The company did surpass analysts' third-quarter predictions for earnings and revenue. It reported adjusted earnings of $0.33 per share, above estimates of $0.29 per share. It also reported revenue of $493 million, above estimates of $487 million.
TTD expects enterprise ad spending to be lower in Q4
Analysts have focused on potential ad expenditure decreases by enterprises for the year's final quarter. The Trade Desk noted that there has been a sense of caution among advertisers, particularly in the automotive and entertainment sectors, both of which have been impacted by recent strikes.
According to Wolfe Research analysts, even as the largest independent demand-side platform (DSP), The Trade Desk isn't expected to be shielded from a decline in ad spending.
The Trade Desk joins a list of companies, including Meta (NASDAQ: META), Pinterest (NYSE: PINS), and Snap (NYSE: SNAP), that have signaled the potential for weaker ad spending, influencing their cautious stance or moderated expectations for the fourth quarter.
Wolfe Research analysts expressed doubts about the durability of The Trade Desk's rapid growth in connected TV (CTV), a significant part of the company's revenue stream. The analysts raised questions on whether CTV can maintain its current growth trajectory in the medium term, which could impact The Trade Desk's overall revenue growth that has been bolstered by this business and the company's increasing market share within that segment.
However, analysts at Needham view the stock's decline as an investment opportunity. They maintain that The Trade Desk typically outperforms its guidance and that the current fundamentals do not undermine the company's dominant strategic position, competitive barriers, or pricing power. Therefore, they recommend purchasing shares during this downturn.
Needham analysts encourage investors who may have previously missed out on The Trade Desk to take advantage of the current situation to buy shares of the ad tech industry leader at what they consider a discounted price.
Is TTD stock a good buy right now?
Valued at $31.3 billion by market cap, TTD is among the most prominent digital ad companies in the world. Analysts tracking TTD stock expect it to increase revenue from $1.58 billion in 2022 to $2.4 billion in 2024. Its adjusted earnings are forecast to expand from $1.04 per share to $1.5 per share in this period.
So, TTD stock trades at 13.1x forward sales and 42.6x forward earnings, which is expensive. But growth stocks command a premium, and TTD is on track to increase adjusted earnings by 24% annually in the next five years.
Of the 19 analysts tracking The Trade Desk stock, 18 recommend Buy, and one recommends Hold. The average price target for TTD stock is $81.71, indicating an upside potential of 27.7% in the next 12 months.