Should You Hold or Sell The Trade Desk Stock Post Q1 Earnings?

The Trade Desk (TTD) shares have plunged 32.5% year to date. Though the company’s better-than-expected first quarter results offered some respite, with shares jumping 32.6% since May 8. Revenues were up 25%, implying strong demand trends. On the other hand, heightened macro uncertainty is expected to squeeze ad budgets, which does not bode well for TTD.

So now the question is, should investors think of buying TTD stock at the moment? Let’s address this question by evaluating the company’s latest quarterly performance and long-term prospects.

TTD’s Q1 Earnings Snapshot

TTD reported revenues of $616 million, up 25% year over year and surpassing management’s revenue guidance of at least $575 million. Adjusted EBITDA stood at $208 million (34% margin) compared with $162 million (33% margin) in the year-ago quarter. Video, which includes connected TV or CTV, represented a high 40s percentage share of digital spend, while mobile had a mid-30 percent share. Display constituted a low double-digit share, and audio represented around 5%. Customer retention stood at over 95% for the quarter reported.

TTD reported net cash provided by operating activities of $291.4 million, and free cash flow was $230 million. Adjusted earnings per share came in at 33 cents, up 27% from the year-ago quarter. 

The Trade Desk Price, Consensus and EPS Surprise

The Trade Desk price-consensus-eps-surprise-chart | The Trade Desk Quote

The company also noted that its Kokai platform was now being used by two-thirds of the clients, much ahead of schedule. The platform is now delivering on lower funnel KPIs, including 24% lower cost per conversion and 20% lower cost per acquisition, added TTD. 100% adoption by clients is expected to be completed by the year-end. The integration of Koa AI tools was highlighted by management as a “game changer” for the Kokai platform.

TTD also completed the acquisition of Sincera, a leading digital advertising data company. This buyout will help enhance its programmatic advertising platform by integrating Sincera’s actionable insights on data quality.   Unified ID 2.0, the company’s flagship identity solution and an alternative to third-party cookies, is witnessing increasing adoption. For the second quarter of 2025, revenues are expected to be $682 million.

Where is TTD Headed From Here?

Increasing macroeconomic uncertainty and escalating trade tensions do not augur well for TTD, as these could squeeze ad budgets. TTD highlighted the impact of the volatile macro backdrop, particularly on the large global brands. If macro headwinds worsen or persist into the second half of 2025, revenue growth may face further pressure due to reduced programmatic demand.

The intensely competitive nature of the digital advertising industry, dominated by industry giants like Alphabet GOOGL and Amazon AMZN, as well as players like Magnite MGNI, continues to put pressure on TTD’s market positioning. Growing regulatory scrutiny around data privacy and evolving consumer data practices also threaten to disrupt the established audience-targeting methods.

While CTV remains a strong revenue driver, the market is increasingly fragmented and competitive. Heavy reliance on CTV for growth is a concern, as any adverse impact on this segment could weigh heavily on the overall performance.  Moreover, TTD derived 88% of its revenue from North America while only 12% came from international markets. A weak international footprint limits TTD’s total addressable market expansion potential.

Increasing costs are likely to weigh on profitability. In the last reported quarter, total operating costs surged 21.4% year over year to $561.6 million. Expenses soared on account of continued investments in boosting platform capabilities, particularly platform operations. Higher costs can prove a drag on margins, especially if the revenue growth does not keep pace. 

Given all these factors, analysts remain bearish on the stock, as evident from the downward estimate revision in the past 30 days. 

TTD Stock Plunge Steeper than Peers

TTD stock’s plunge of 32.5% YTD is steeper than the 13.7% decline of the Internet Services industry and the 1.3% decline of the Zacks S&P 500 composite.

Price Performance

The company has underperformed its digital advertising peers, including Alphabet and Amazon and Magnite. Alphabet and Amazon shares have plunged 16.3% and 4.9%, respectively, in the same time frame. Magnite has gained 1.3% YTD. Magnite is a supply-side platform that helps publishers manage and sell their ad inventory across various formats like streaming, online video, display and audio.

Lofty Valuation for TTD

From a valuation perspective, TTD is quite expensive. The stock is trading at a premium with a forward 12-month Price/Sales of 12.99X compared with the industry’s 4.75X.

Investment Thesis for TTD Stock

Despite strong first-quarter results, The Trade Desk faces significant headwinds from macroeconomic uncertainty, rising costs, and fierce competition. Its heavy reliance on CTV and North America limits growth flexibility. Steep stock decline YTD, downward estimate revision activity and expensive valuation are other concerns. With a Zacks Rank #4 (Sell), investors would be better off if they offloaded this stock from their portfolios. 

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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