The Trade Desk’s Q4 Earnings: A Mixed Bag for Investors

The Trade Desk (NASDAQ: TTD), a leading digital advertising technology company, recently released its Q4 earnings report, which painted a mixed picture for investors. The company reported earnings of $0.59 per share on revenue of $741 million, slightly missing analyst expectations of $0.60 per share and $760 million in revenue. While the results were broadly in line with forecasts, the weaker-than-expected forward guidance raised concerns among investors, leading to a decline in the stock price following the announcement. Despite this short-term setback, The Trade Desk continues to show resilience in the rapidly evolving digital advertising landscape.

TTD Stock: A Story of Volatility and Growth

Despite the recent dip, The Trade Desk’s stock has been a standout performer in 2024, surging over 70% since the start of the year. This impressive growth far outpaces the broader market, as the S&P 500 has risen by 27% over the same period. However, TTD stock has historically been quite volatile, with annual returns swinging sharply—from 14% in 2021 to a steep decline of -51% in 2022, followed by a strong rebound of 61% in 2023 and 63% in 2024. Investors should be prepared for this level of unpredictability, as the stock’s performance is closely tied to the dynamics of the digital advertising industry and broader macroeconomic trends.

Connected TV: The Driving Force Behind Growth

The Trade Desk’s Q4 performance was supported by continued growth in connected TV (CTV) advertising, a sector that has been a key driver of the company’s success. The company reported a 22% year-over-year increase in revenue, reaching $741 million for the quarter. Additionally, The Trade Desk maintained a strong customer retention rate of 95%, a testament to its platform’s stickiness and value proposition. The company also processed a record $12 billion in ad spend during the quarter, highlighting its expanding influence in the digital advertising market. These metrics underscore The Trade Desk’s position as a leader in programmatic advertising, particularly as CTV continues to gain traction.

TTD’s Financial Health: A Closer Look

The Trade Desk’s financial health remains robust, despite the shortfall in earnings and revenue. The company reported an adjusted EBITDA margin of 47% for Q4, while net earnings per share rose 44% year-over-year to $0.59. These strong profitability metrics suggest that The Trade Desk is effectively managing its costs and scaling its operations. However, the company’s forward guidance for Q1 2025 was cautious, with revenue expected to come in at $575 million and adjusted EBITDA at $145 million. Both figures are below consensus estimates of $582 million in revenue and $193 million in EBITDA, which has raised questions about the company’s ability to maintain its growth momentum in the near term.

Is TTD Stock Undervalued?

At its current price below $90 per share, The Trade Desk stock is trading at 18x trailing revenue, significantly below its five-year average price-to-sales (P/S) ratio of 28x. This valuation contraction reflects the weaker-than-expected Q4 performance and the cautious outlook for the coming quarter. However, analysts argue that the stock may now be undervalued, with potential challenges already factored into its price. For long-term investors, this could present an opportunity to buy into a high-growth company at a discounted valuation. That said, the stock’s valuation will likely remain sensitive to broader market conditions, including interest rate movements and macroeconomic uncertainty.

The Trade Desk: A High-Risk, High-Reward Investment

The Trade Desk’s stock has demonstrated significant growth potential, driven by its leadership in the digital advertising space and the secular tailwind of connected TV. However, the company’s reliance on a rapidly changing industry and its exposure to macroeconomic risks make it a high-risk investment. For investors seeking stability, alternatives like the Trefis High-Quality portfolio may offer better returns with lower volatility. This portfolio, which includes 30 carefully curated stocks, has outperformed the S&P 500 with cumulative returns exceeding 100% since its inception.

As The Trade Desk looks ahead, the company’s ability to navigate the challenges of 2025 will be critical. With its strong customer retention, growing influence in CTV, and attractive valuation, TTD stock remains a compelling option for investors willing to tolerate volatility. However, the coming quarters will be pivotal in determining whether the company can reclaim its growth trajectory and justify its long-term potential.