The Trade Desk (TTD), a prominent player in the digital advertising world, experienced a significant 38.6% drop in its stock price on Friday, closing at $54.23. This dramatic fall came despite the company exceeding analyst expectations in its second-quarter revenue report, raising eyebrows across the market. The company reported a 19% year-over-year revenue growth, reaching $694 million, surpassing the anticipated $685 million. Adjusted EBITDA also outperformed expectations, hitting $270.8 million against a projected $261 million.
However, this positive financial news was overshadowed by concerns about the company’s future growth and its premium valuation. Brian Wieser, founder of the Madison and Wall consulting firm, pointed out that maintaining the current revenue growth rate in the long term is unrealistic, citing the company’s high price-to-earnings ratio of 66.32. This sentiment is shared by analysts at Bank of America, who downgraded TTD to “underperform” and slashed their price target from $130 to $55, and MoffettNathanson, which lowered its target to $45 from $75.
The primary concern centers around the growing competitive pressure from Amazon (AMZN). Amazon’s advertising revenue saw a significant 23% year-over-year jump to $15.69 billion in the second quarter, fueled in part by the shift to ad-supported video as the default setting for Prime members. Amazon’s aggressive expansion into advertising, including plans to sell ad inventory from Roku (ROKU) and its newly secured NBA streaming rights, is a major threat to companies like The Trade Desk. While Trade Desk CEO Jeff Green downplayed the threat, stating Amazon is a potential partner rather than a competitor, the stark difference in ad fees—Amazon’s approximately 1% compared to Trade Desk’s 12%-15%—creates significant pricing pressure.
Benzinga’s Edge Stock Rankings paint a concerning picture, showing negative trends for TTD across all timeframes. This sharp decline in TTD’s stock price highlights the increasing challenges faced by companies in the digital advertising space as tech giants like Amazon continue to aggressively expand their advertising capabilities. The market’s reaction suggests a significant shift in investor sentiment, raising questions about the long-term sustainability of Trade Desk’s current business model in the face of this intense competition.
