The Trade Desk Stock Is Down 50%. Is It a Buy for 2025?

Core Insights - The Trade Desk reported a 22% year-over-year revenue increase in Q4, totaling $741 million, which fell short of analyst expectations of $758 million, leading to a significant stock decline [1][10] - Despite the revenue miss, The Trade Desk's long-term growth prospects remain strong, particularly in the connected TV advertising market, which is expected to grow substantially [3][7] Financial Performance - For 2024, The Trade Desk's revenue is projected to grow 26% to $2.4 billion, an acceleration from the previous year's 23% growth [4] - Adjusted earnings per share increased by 44% year-over-year in Q4, with annual adjusted earnings growing 32% to $1.66 per share [4] Market Position - The Trade Desk holds a strong competitive position in the programmatic advertising space, with its demand-side platform accounting for 90% of digital ad spending [6] - The company's Unified ID 2.0 technology is widely adopted by leading streaming services, enhancing audience targeting capabilities [6] Industry Context - Digital ad spending grew 13% last year, positioning The Trade Desk's performance favorably against industry growth [5] - The connected TV ad market is projected to grow 20% to reach $38 billion in 2024, representing a significant opportunity for The Trade Desk [7] Valuation Concerns - The Trade Desk's price-to-earnings (P/E) ratio stands at 92, indicating a high valuation despite strong growth, with a more reasonable price-to-free-cash-flow multiple of 57 [8] - A substantial portion of the free cash flow, $494 million, is attributed to stock-based compensation, raising concerns about the sustainability of this figure [9] Investor Sentiment - The company's failure to meet expectations for the first time in 33 quarters led to a sharp stock reaction, attributed to operational missteps during the quarter [10] - The current high valuation relative to the S&P 500's 29 times earnings suggests that investors may want to consider other growth stocks with more favorable earnings multiples [11]