The Trade Desk (TTD) is Attracting Investor Attention: Here is What You Should Know

The Trade Desk TTD reported third-quarter 2024 non-GAAP earnings of 41 cents per share, beating the Zacks Consensus Estimate by 2.5% and increasing 24.2% year over year.

TTD’s earnings beat the Zacks Consensus Estimate in three of the trailing four quarters and missed once, the average earnings surprise being 6.09%.

The Trade Desk Price, Consensus and EPS Surprise

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

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

Revenues of $628 million surpassed the Zacks Consensus Estimate by 1.31%. The top line soared 27.3% year over year.

Following third-quarter 2024 results, TTD shares fell 5.58% to close at $125.13 on Friday. The Trade Desk shares have appreciated 73.9% year to date, outperforming the Zacks Computer and Technology sector’s return of 30%.

However, TTD shares are expected to benefit from growing market share in the Connected TV (CTV) domain, which was its fastest-growing channel in the third quarter of 2024. A rich partner base that includes the likes of Disney DIS, Comcast’s CMCSA division NBCU, Walmart, Roku ROKU, LG, Netflix and others is a key catalyst.

TTD Expands CTV Partnerships and UID2 Adoption

TTD is benefiting from an expanding global footprint, continuing development of the omnichannel ad inventory and strong adoption of programmatic advertising.

North America represented about 88% of The Trade Desk’s third-quarter revenues and international represented about 12% in the third quarter of 2024.

In third-quarter 2024, customer retention remained at more than 95%.

Expanding partner base is a major growth driver. Spotify extended its partnership with TTD, piloting integrations with OpenPath and UID2 through the Spotify Ad Exchange.

TTD is signing more multiyear joint business plans (JBPs) with leading agencies and brands. More than 40% of the company’s business this year will fall under JBPs, which improves revenue visibility.

TTD won several new clients in the third quarter of 2024. Reach, a UK news publisher of 130 media brands, adopted EUID to enhance ad experiences while also protecting journalism.

Global media company Motorsport Network adopted EUID to offer relevant ads to its 60 million users, focusing on privacy and transparency.

Cint also integrated UID2 for enhanced and omnichannel brand lift measurement.

Roku announced its adoption of UID2 to enhance advertiser targeting precision and enable secure data collaboration through Roku Media.

TTD’s Operating Margin Improves

Adjusted EBITDA in the third quarter of 2024 rose 28.8% year over year to $257 million. Adjusted EBITDA margin was 40.9%, which expanded 50 basis points (bps) on a year-over-year basis.

Operating expenses increased 14% year over year to $519.5 million. The upside was caused by higher Platform operations expenses.

Operating income was $108.5 million compared with the year-ago quarter’s reported figure of $37.7 million.

TTD’s Balance Sheet and Cash Flow Remain Strong

As of Sept. 30, 2024, cash and cash equivalents were $1.21 billion compared with $1.01 billion on June 30, 2023.

Net cash from operating activities was $273 million in the third quarter compared with the second-quarter 2024 figure of $81 million.

The company repurchased $54 million of its Class A common stock in the third quarter of 2024. As of Sept. 30, 2024, The Trade Desk had $521 million available and authorized for repurchases.

TTD’s Q4 Guidance Positive

For fourth-quarter 2024, The Trade Desk expects revenues to be $756 million, which suggests growth of about 25% on a year-over-year basis.

TTD anticipates adjusted EBITDA to be nearly $363 million.

The Zacks Consensus Estimate for fourth-quarter 2024 revenues is pegged at $753.61 million, indicating year-over-year growth of 24.4%. The consensus mark for earnings is pegged at 57 cents per share, unchanged over the past 30 days and suggesting 39.02% growth year over year.

The Zacks Consensus Estimate for TTD’s 2024 revenues is pegged at $2.46 billion, indicating year-over-year growth of 26.49%. The consensus mark for earnings is pegged at $1.63 per share, unchanged over the past 30 days and indicating 29.37% growth year over year.

TTD Shares: Buy, Sell or Hold Post Q3 Earnings?

The Trade Desk’s strong portfolio and expanding partner base are positive. The growing footprint in the retail media is a tailwind for TTD’s prospects. Its AI-powered solution, Kokai, is helping advertisers identify and target new potential customers with much greater precision.

Hence, investors who already own the stock might expect the company’s growth prospects to be rewarding over a longer term.

The technical indicator is also bullish for The Trade Desk as the shares trade above the 50-day and 200-day moving averages, indicating robust upward momentum.

TTD Shares Trade Above 50-Day & 200-Day SMA

However, The Trade Desk’s Value Score of F suggests a stretched valuation at the moment.

Currently, TTD is trading at a premium, with a forward 12-month Price/Sales of 21.13x compared with the sub-industry’s 6.25x.

Price/Sales Ratio

The Trade Desk carries a Zacks Rank #3 (Hold), which implies investors should wait for a more favorable entry point to accumulate the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Zacks Investment Research

Launched on 07/17/2001, the iShares Russell Mid-Cap Growth ETF (IWP) is a passively managed exchange traded fund designed to provide a broad exposure to the Mid Cap Growth segment of the US equity market.

The fund is sponsored by Blackrock. It has amassed assets over $17.12 billion, making it the largest ETFs attempting to match the Mid Cap Growth segment of the US equity market.

Why Mid Cap Growth

Compared to large and small cap companies, mid cap businesses tend to have higher growth prospects and are less volatile, respectively, with market capitalization between $2 billion and $10 billion. Thus, companies that fall under this category provide a stable and growth-heavy investment.

Growth stocks have higher than average sales and earnings growth rates. While these are expected to grow faster than the broader market, they also have higher valuations. Something to keep in mind is the higher level of volatility that is affiliated with growth stocks. Even though growth stocks are more likely to outperform their value counterparts in strong bull markets, value stocks have a record of delivering better returns in almost all markets than growth stocks.

Costs

Investors should also pay attention to an ETF's expense ratio. Lower cost products will produce better results than those with a higher cost, assuming all other metrics remain the same.

Annual operating expenses for this ETF are 0.23%, putting it on par with most peer products in the space.

It has a 12-month trailing dividend yield of 0.42%.

Sector Exposure and Top Holdings

Even though ETFs offer diversified exposure which minimizes single stock risk, it is still important to look into a fund's holdings before investing. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.

This ETF has heaviest allocation to the Information Technology sector--about 26.90% of the portfolio. Industrials and Consumer Discretionary round out the top three.

Looking at individual holdings, Palantir Technologies Inc Class A (PLTR) accounts for about 2.66% of total assets, followed by Trade Desk Inc Class A (TTD) and Monolithic Power Systems Inc (MPWR).

The top 10 holdings account for about 16.1% of total assets under management.

Performance and Risk

IWP seeks to match the performance of the Russell MidCap Growth Index before fees and expenses. The Russell Midcap Growth Index measures the performance of the mid-capitalization growth sector of the U.S. equity market. It is a subset of the Russell Midcap Index, which measures the performance of the mid-capitalization sector of the U.S. equity market & approximately 47% of the total market value of the Russell Midcap Index.

The ETF return is roughly 25.22% so far this year and is up about 43.55% in the last one year (as of 11/11/2024). In the past 52-week period, it has traded between $91.43 and $130.42.

The ETF has a beta of 1.10 and standard deviation of 23.15% for the trailing three-year period, making it a medium risk choice in the space. With about 293 holdings, it effectively diversifies company-specific risk.

Alternatives

IShares Russell Mid-Cap Growth ETF holds a Zacks ETF Rank of 2 (Buy), which is based on expected asset class return, expense ratio, and momentum, among other factors. Because of this, IWP is a great option for investors seeking exposure to the Style Box - Mid Cap Growth segment of the market. There are other additional ETFs in the space that investors could consider as well.

The iShares S&P Mid-Cap 400 Growth ETF (IJK) and the Vanguard Mid-Cap Growth ETF (VOT) track a similar index. While iShares S&P Mid-Cap 400 Growth ETF has $9.88 billion in assets, Vanguard Mid-Cap Growth ETF has $15.40 billion. IJK has an expense ratio of 0.17% and VOT charges 0.07%.

Bottom-Line

Retail and institutional investors increasingly turn to passively managed ETFs because they offer low costs, transparency, flexibility, and tax efficiency; these kind of funds are also excellent vehicles for long term investors.

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Zacks Investment Research