Trade Desk (TTD) shares have seen a sharp decline of 32.5% this year. Despite the company exceeding its forecast with a strong first quarter performance—reporting a 25% stock rise and a 32.6% increase since May 8—growing macroeconomic uncertainty is likely to tighten advertising budgets, complicating matters for TTD.
This leads us to the question: Should investors consider buying TTD shares now? Let’s explore the latest quarterly results alongside the company’s long-term outlook.
First Quarter Revenue Overview
TTD announced revenues of $616 million, marking a 25% increase from the previous year and exceeding management’s guidance of at least $575 million. Adjusted EBITDA was $208 million, reflecting a 34% margin, compared to $162 million with a 33% margin last year. Connected TVs contributed to a 40% share of digital spending, while mobile made up 30%. The display segment had a slightly lower share, and audio accounted for about 5%. Notably, the quarterly customer retention rate was over 95%.
Additionally, TTD reported net cash from operating activities at $291.4 million and achieved free cash flow of $230 million. Adjusted earnings per share reached 33 cents, up 27% year-over-year.
The company also mentioned that two-thirds of its clients are now using the Kokai platform ahead of schedule. This platform is noted for its low cost per conversion and per acquisition. By year-end, full adoption by clients is expected, and the integration of KOA AI tools is being hailed by management as a significant enhancement.
TTD has also acquired Spinasa, a prominent digital advertising data firm. This acquisition aims to enrich TTD’s programmatic advertising platform through improved data quality. Their flagship identity solution, Unified ID 2.0, is experiencing increased adoption, with revenues projected at $682 million for the second quarter of 2025.
Future Outlook for TTD
However, growing macroeconomic uncertainty and escalating trade tensions could negatively impact TTD, potentially tightening advertising budgets. The company has indicated that larger, global brands are already feeling the pressures of a volatile environment. If these macro headwinds persist into the latter part of 2025, revenue growth could be significantly hindered.
The competitive landscape remains intense, especially with giants like Alphabet and Amazon dominating the digital advertising sector. TTD faces considerable market pressure, compounded by increasing regulatory scrutiny regarding data privacy, which complicates targeting established audiences.
While connected TV remains a solid revenue stream, the market is becoming more fragmented. Concerns grow that any downturn in this segment could severely influence overall performance. TTD generates 88% of its revenue from North America, leaving only 12% from international markets, which restricts potential growth avenues.
Moreover, rising costs could threaten profitability. Operating expenses rose by 21.4% year-over-year to $561.6 million as the company continues to invest in enhancing its platform’s capabilities. High costs may squeeze margins, particularly if revenue growth stalls.
Given these complexities, analysts have been cautious, as seen by downward revisions in estimates over the past month.
Comparison with Peers
TTD’s stock drop of 32.5% year-to-date is more severe than the 13.7% decline in the Internet services sector and the 1.3% decline in the Zacks S&P 500 composite.
Stock Performance Analysis
In recent comparisons, TTD hasn’t performed as strongly as other digital advertisers, such as Alphabet and Amazon, which saw declines of 16.3% and 4.9%, respectively. In contrast, Magnite reported a slight gain of 1.3% year-to-date.
Valuation Insights
From a valuation standpoint, TTD appears quite expensive, trading at a price/revenue ratio of 12.99x compared to 4.75x for the industry.
Investment Considerations for TTD
In light of the first-quarter results, Trade Desk faces significant challenges due to economic uncertainties, rising expenses, and fierce competition. Its strong dependence on CTV and the North American market limits flexibility for growth. The ongoing stock decline, downward revisions in estimates, and high valuations add to concerns. With a Zacks Rank of #4 (Sales), it might be wise for investors to consider offloading this stock.
