The Trade Desk Crashes on Earnings, But Growth Catalysts Persist
In 2024, shareholders of The Trade Desk (NASDAQ: TTD) made out handsomely. The advertising technology stock achieved a return of over 63%. However, things have been far from peachy in 2025. The stock price is down nearly 36% so far this year as of the Feb. 20 close, led by a 32% drop after it released earnings on Feb. 12.
As a result of the poor performance in 2025, The Trade Desk’s value is now slightly lower than it was three years ago. However, total 2024 revenues are 54% higher than total revenues in 2022. Full-year adjusted earnings per share (EPS) is 60% higher, and free cash flow is up 38%. This begs the question: are markets significantly undervaluing this stock that has improved financial performance so drastically in three years?
I’ll look to answer this question by analyzing the firm’s recent financials and other important information.
Overall, it wasn’t a great earnings report for The Trade Desk, at least compared to Wall Street expectations. It beat slightly on adjusted EPS; however, revenue and revenue guidance were weak. Its $741 million in revenue was $18 million below expectations. Revenue guidance for Q1 of $575 million fell short by $7 million.
The disappointing results for The Trade Desk were due largely to self-inflicted mistakes, according to the firm. The rollout of its next-generation AI platform, Kokai, was slower than expected. This was largely deliberate, as the firm wanted to make sure new features were fine-tuned to customer needs. Additionally, the firm performed its largest reorganization in history in December.
Underperformance in management execution compared to its history contributed to the sell-off. This was the first time the company missed its own expectations in 33 quarters. While disappointing, it is hard to expect a company to be perfect.
It has still met its own expectations 97% of the time over that period. The firm stressed that its decisions, which affected short-term performance, were for long-term gain. Still, weak guidance signals the pain may not yet be over for Trade Desk.
Reasons for The Trade Desk’s Multiple Contraction
The Trade Desk’s nearly flat return over the past three years hasn’t been from a lack of ability to grow its profits or revenues. The culprit for its unimpressive mid-term appreciation is that markets are now willing to pay significantly less for each dollar of earnings than they were before. Its forward price-to-earnings (P/E) ratio has dropped 46% since both early 2022 and Dec. 2024 levels of over 75x.
Changes like this are typically associated with a large drop in expectations of revenue growth, margin contraction, or management quality.
Indeed, expected revenue growth is just 18% for 2025, a huge drop-off from 32% growth in 2022. Analysts expect gross and earnings before interest, taxes, depreciation, and amortization (EBITDA) margins to remain high at 80% and 39%, respectively. However, they are notably lower than 2022 levels.
Overall, there is certainly reason for The Trade Desk’s multiple to contract significantly. Additionally, it’s also likely the company’s multiple was simply too high to begin with and needed to come down. However, given management’s strong execution over several years, I don’t see an issue there yet.
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TTD: Benefiting from Long-Term Trends, Hurt by Short-Term Factors
In my eyes, markets seemed to have The Trade Desk priced for perfection, a big reason for its fall after this slip-up. However, there are still many secular trends that The Trade Desk is set to benefit from. This includes the increasing dominance of connected TV (CTV). The company sees this as its most significant growth driver going forward.
The Trade Desk could look to integrate its Ventura platform into VIZIO smart TVs. However, such a relationship could raise concerns about The Trade Desk’s objectivity as an independent demand-side platform.
Overall, The Trade Desk’s recent fall may mark an attractive entry point for long-term growth. However, near-term uncertainty could also result in shares continuing to fall over the coming months.
MarketBeat tracked updates in 19 Wall Street analyst price targets after Trade Desk’s earnings. The average upside implied by these targets is 55% as of the Feb. 20 close, a signal that The Trade Desk may be significantly undervalued.
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