Trade Desk Earnings: Executing on All Fronts as Connected TV and Retailers Drive Demand

We increased our fair value estimate for The Trade Desk TTD slightly to $48 from $46. Unlike its advertising supply-side peers, the demand-side platform provider continues to experience improving demand from advertisers and ad agencies. The firm has positioned itself well to benefit from growth in the connected TV market and expanding digital ad spending among retailers and on their online properties.

While we commend the firm for executing well, unquestionably increasing its ad-tech market share while maintaining its leadership position among demand-side platforms, we still believe the stock is significantly overvalued. The stock is trading at 17 and 43 times 2024 sales and adjusted EBITDA, respectively. This is compared with its peers’ average valuation multiples of 2.5 and 7.3, respectively. While we project that the firm will comfortably outperform its peers through 2027, in our view, such a premium is still unwarranted. Our fair value estimate represents 2024 sales and adjusted EBITDA multiples of 9 and 22, assuming 22% average revenue growth and nearly two percentage points of EBITDA margin expansion through 2027.

We also think that increasing competition from the supply side cannot be ignored. Both supply- and demand-side providers are searching for less costly paths to sell and buy ads, aggressively attempting to work directly with advertisers or publishers. More competition could pressure the firm’s take rate which we estimate has been sitting comfortably in the 19%-21% range. We may also see more activity in terms of mergers and acquisitions on the supply side to compete more effectively against The Trade Desk. We also wouldn’t be surprised to see attempts at consolidation on the demand side among rivals, especially after the bankruptcy of MediaMath.