Shares of The Trade Desk (TTD) have surged approximately 50% since May 1, driven by the company’s impressive first-quarter performance. This rebound followed underwhelming results in the fourth quarter of 2024. The Trade Desk exceeded expectations in Q1, reporting revenue significantly above its guidance and forecasting continued strong growth for the second quarter.
The company reported Q1 revenue of $616 million, a 25% increase year over year, surpassing its guidance of $575 million. Adjusted EBITDA reached $208 million, achieving a margin of 34%, compared to $162 million and a 33% margin in the previous year. Non-GAAP diluted earnings per share rose 27% to $0.33. CEO Jeff Green attributed this success to strategic upgrades implemented in Q4, which contributed to the company’s outperformance.
The strong results are largely due to the growing adoption of the company’s AI-driven ad-buying platform, Kokai, now utilized by about two-thirds of client activity. Kokai’s advanced tools have enhanced advertiser efficiency and reduced costs, with a 42% reduction in cost per unique reach and a 24% drop in cost per conversion. Green highlighted in the earnings call that these upgrades are unlocking a new wave of growth, with the company gaining market share despite economic challenges. The continued demand in connected TV and retail media is also a factor, as brands are shifting budgets from traditional ad channels. Customer retention remained above 95% in Q1, a trend maintained for over a decade.
Despite the company’s strong performance, its stock valuation is high, trading at about 97 times earnings. This premium valuation poses risks, requiring near-perfect execution to maintain current levels. The adtech industry is competitive and fast-paced, with major players like Alphabet, Amazon, and Meta Platforms dominating segments of the digital ad market. Regulatory changes, privacy constraints, or a slowdown in advertiser budgets also present potential risks.
While The Trade Desk is well-regarded, with a strong momentum and a visionary CEO, the high stock valuation suggests investors should proceed with caution. For existing shareholders, the recent positive report may reinforce their position, but potential investors might consider alternatives due to the stock’s high valuation and associated risks. The potential for sharp pullbacks remains if expectations are not met, emphasizing the importance of price in investment decisions.