Slaven Vlasic
Elevator Pitch
I have a Buy investment rating assigned to The Trade Desk’s (NASDAQ:TTD) stock.
In my prior article for The Trade Desk written on August 16, 2022, I reviewed TTD’s Q2 2022 financial results and highlighted a number of long-term growth drivers for the company. I turn my attention to previewing The Trade Desk’s upcoming third quarter earnings with the current update.
The sell-side sees The Trade Desk generating strong double-digit earnings growth on both a YoY and QoQ basis for Q3 2022. My bet is on TTD exceeding investors’ expectations and achieving a third quarter earnings beat. Connected TV or CTV advertising should be gaining market share from traditional linear TV advertising to a greater degree than what the market anticipates. As such, I maintain my Buy rating for The Trade Desk.
Q3 2022 Financial Results Release Date For The Trade Desk
The Trade Desk noted in a previous October 27, 2022 announcement that TTD will be reporting its earnings for the third quarter of this year on November 9, 2022, prior to trading hours.
Analysts Have Positive Expectations About TTD’s Third Quarter Financial Performance
TTD is expected to deliver an excellent set of results for Q3 2022 based on an analysis of Wall Street’s consensus financial projections.
The sell-side’s consensus financial forecasts point to The Trade Desk’s normalized earnings per share or EPS growing by +25.4% YoY from $0.18 for the third quarter of 2021 to $0.23 in the third quarter of the current year. This will represent an improvement from TTD’s +11.1% YoY bottom line expansion in Q2 2022, and translate into a +15.0% QoQ EPS increase for The Trade Desk.
Furthermore, a significant number of Wall Street analysts have changed their minds and think that The Trade Desk’s actual Q3 2022 earnings will turn out to be better than what they previously estimated.
Notably, 10 of the 21 sell-side analysts covering TTD’s shares have increased their respective third quarter bottom line projections for the company in the last three months. During the same period, only two analysts lowered their Q3 earnings forecasts for The Trade Desk, while the other analysts kept their EPS estimates unchanged. As a result, The Trade Desk’s current consensus Q3 2022 normalized EPS is +6.6% higher as compared to what it was three months ago.
My Prediction Is An Earnings Beat For The Trade Desk
My opinion is that The Trade Desk will achieve higher-than-expected earnings for the third quarter of 2022.
Although the sell-side analysts’ consensus forecasts for TTD have been raised in the past few months, I still think that Wall Street is too conservative. As an illustration, TTD’s consensus Q3 2022 EBITDA projection of $141 million as per S&P Capital IQ is just +0.7% above the company’s management guidance of $140 million.
In my view, there is a key factor supporting a Q3 2022 earnings beat for The Trade Desk. The shift from traditional linear TV advertising to CTV advertising could be happening at a much faster pace than expected.
On September 22, 2022, media research firm Magna Global published its most updated advertising market forecasts for the US. Specifically, Magna Global expects national linear TV advertising revenue to decline by -3.3% in 2022, while it forecasts that CTV advertising revenue will rise by +22.1% this year.
AVOD (Advertising-based Video On Demand) is seen to be a major growth driver for CTV advertising. At the company’s Investor Day on October 4, 2022, The Trade Desk emphasized that the introduction of “AVOD offerings” by certain streaming services such as Disney (DIS) and Netflix (NFLX) “represents the biggest surge in CTV inventory and opportunity that we’ve ever seen.”
Positive Growth Momentum For TTD Should Be Sustained In The Fourth Quarter
Looking ahead, I expect The Trade Desk to continue with its strong financial performance in Q4 2022. The positives relating to events such as the FIFA World Cup 2022 and the US midterm elections should be able to offset the negatives associated with the weak macroeconomic environment.
The FIFA World Cup will take place between November 20, 2022 and December 18, 2022. Advertising company Dentsu Group (OTCPK:DNTUF) (OTCPK:DNTUY) estimates that “the World Cup is predicted to have a $2 billion positive impact on ad spend.” This forecast appears to be reasonable, considering that around $2.4 billion was spent on advertising for the 2018 World Cup.
With regards to the positive spillover from elections on advertising spend, The Trade Desk highlighted at its early-October 2022 Investor Day that it “had a tailwind, mostly in the second half of the year around the U.S. presidential election” in 2020. Separately, Magna Global also made specific mention of the “cyclical ad spend around the mid-term elections” in its late-September 2022 US advertising market forecasts research report.
In a nutshell, fears regarding the negative effects of weak advertising demand for the industry and TTD might be overblown. In the final quarter of this year, events like mid-term elections and the FIFA World Cup 2022 should provide a boost to The Trade Desk’s financial performance.
Concluding Thoughts
I have a Buy investment rating for The Trade Desk. My expectations of a third quarter earnings beat and strong growth momentum in Q4 2022 support a Buy rating for TTD.
Be the first to comment