Elevator Pitch
My rating for The Trade Desk’s (NASDAQ:TTD) shares stays as a Buy.
I predicted that TTD’s Q3 2022 bottom line would come in above Wall Street analysts’ expectations with my previous November 7, 2022 write-up for The Trade Desk. My prediction came true, as The Trade Desk’s actual third quarter non-GAAP adjusted earnings per share (or EPS) of $0.26 turned out to be +15% higher than the market’s consensus bottom line projection of $0.23 per share.
In this latest article, my focus is on the preview of TTD’s financial results for the final quarter of the prior year. There aren’t any compelling reasons for me to change my current Buy rating for The Trade Desk. The Trade Desk isn’t expected to miss earnings expectations when it releases its Q4 2022 results next Wednesday, and the stock’s current valuations are still reasonably attractive.
The Market Has A Pessimistic View Of The Trade Desk’s Q4 2022 Results
TTD will disclose the company’s Q4 2022 financial performance next week on February 15, 2023 prior to trading hours.
The sell-side thinks that Q4 2022 would have been a difficult quarter for The Trade Desk based on a review of the consensus financial figures for the company.
It is noteworthy that 18 sell-side analysts reduced their respective fourth quarter top line estimate for The Trade Desk in the last three months, and there wasn’t a single analyst who upwardly revised his or her Q4 revenue forecast for TTD in this same time frame. As a reference, there are 26 analysts covering TTD’s stock, which meant that 69% of the Wall Street analysts were bearish on The Trade Desk’s Q4 2022 top line performance in recent months.
Specifically, the market consensus expects The Trade Desk’s YoY revenue expansion to moderate to +24% in the fourth quarter of 2022 as per S&P Capital IQ data. In comparison, TTD recorded relatively better top line growth rates of +44%, +35%, and +31%, for Q1 2022, Q2 2022 and Q3 2022, respectively on a YoY basis. Wall Street sees TTD’s normalized EPS contracting by -15% from $0.42 in the fourth quarter of 2021 to $0.36 for Q4 2022.
TTD Shouldn’t Disappoint The Market With Its Actual Fourth Quarter Performance
I hold the view that The Trade Desk should be able to report in-line Q4 2022 earnings next Wednesday.
Firstly, the sell-side analysts’ expectations regarding TTD’s fourth quarter financial results are pretty modest, as detailed in the prior section of the current article. As such, The Trade Desk shouldn’t have much difficulty in delivering Q4 2022 results which meet the Wall Street’s consensus financial forecasts.
Secondly, The Trade Desk’s actual performance for the first month of Q4 2022 (October) should have been reasonably decent, and not as bad as what some analysts would have feared. At the company’s Q3 2022 earnings briefing on November 9, 2022, TTD disclosed that certain of its verticals “are outperforming” while others “are more challenged” in the early part of Q4 2022. The Trade Desk also highlighted at its third quarter results call that its European market has witnessed “incredible CTV (Connected Television) growth” between the beginning of October and early-November last year.
Thirdly, TTD’s market share gains could have helped to offset the negative impact of weak demand for the advertising market as a whole. According to a research report (not publicly available) titled “Digital Media: Emergence Of Retail Media and CTV” published by Oppenheimer on January 18, 2023, The Trade Desk has been gaining share in the CTV market. Oppenheimer estimates that TTD’s share of the worldwide CTV market increased from 8.9% in 2021 to 9.6% for 2022, and the research firm forecasts that The Trade Desk’s CTV market share could expand further to 12.1% by 2025.
In summary, I think that The Trade Desk’s actual Q4 2022 financial performance should be roughly in line with what the market is currently anticipating.
The Trade Desk’s Share Price And Valuations
TTD’s stock price has fallen by -38% in the past year. During this same period, the broader market as represented by the S&P 500 corrected by a much milder -11%. The Trade Desk’s absolute and relative share price underperformance in the recent year has brought its valuations down to more appealing levels.
The market currently values The Trade Desk at a consensus forward fiscal 2024 EV/EBITDA ratio of 23.4 times, according to valuation data taken from S&P Capital IQ. In contrast, the Wall Street analysts’ consensus EBITDA CAGR for TTD in the FY 2024-2026 period is +30%. The Trade Desk’s forward EV/EBITDA multiple of 23.4 times appears to be attractive compared with the company’s expected annualized EBITDA growth of +30%. Moreover, TTD has traded at a relatively higher average forward EV/EBITDA valuation multiple of 49.4 times since its public listing in September 2016.
Concluding Thoughts
I leave my Buy rating for The Trade Desk stock unchanged. I expect TTD’s Q4 results to meet Wall Street’s expectations, and the company’s shares don’t seem to be overvalued based on the EV/EBITDA metric.
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