Predicting the future location of The Trade Desk's stock in a five-year span involves speculation based on various factors.
The Trade Desk's (TTD) stock has been attracting the attention of investors eager to capitalize on the expansion of the digital advertising sector. Since the start of 2023, the stock has been consistently rising, leading investors to ponder how long this trend will persist.
However, profiting from this investment can be tricky. With the stock's steady climb since the beginning of 2023, investors may question if the trend will continue in the short term, even challenging the five-year growth theory.
Therefore, it's crucial for investors to conduct a thorough analysis of the stock before deciding if it's still a viable option for generating exceptional returns over the next five years, or if they should remain passive.
The Trade Desk's Role in Digital Advertising
The Trade Desk works as a demand-side advertising management platform. It empowers advertising agencies and companies to manage their digital ad campaigns effectively. By collecting data, companies can fine-tune where their ads are displayed, maximizing their return on investment.
Pondering its value proposition involves understanding why these companies might choose The Trade Desk over its most prominent competitor, Google, owned by Alphabet.
Unlike Google, The Trade Desk specializes solely in managing and collecting ad data, making it a potential neutral platform, which should reassure its customers.
Grand View Research anticipates the digital advertising market will grow at a compound annual growth rate (CAGR) of 16% through 2030. This suggests that the market will grow significantly, providing ample opportunities for companies like The Trade Desk. By 2030, the market size is projected to reach nearly $1.2 trillion, providing The Trade Desk with a vast market to exploit.
The Trade Desk's Financials
At present, The Trade Desk has only managed to capture a small portion of this enormous potential market. In the first nine months of this year, revenue reached $1.7 billion, showing a 27% annual increase. This growth rate is positive but indicates a deceleration compared to earlier years, with a 32% increase in 2022.
Analysts forecast a 27% growth for 2024, followed by a decrease to 20% in 2025. Despite the slowing trend, The Trade Desk's revenue growth will remain robust, surpassing Grand View's predicted CAGR.
Profitability-wise, The Trade Desk has reported annual profits since 2017. While profitability decreased in 2022, it has bounced back, with net income reaching $211 million in the first three quarters of 2024, marking a 157% year-over-year increase.
This growth has contributed to the stock's Skyrocketing by over 400% over the past five years, far outpacing the S&P 500.
However, past performance does not guarantee future results, and valuation concerns may worry investors, particularly in the short term. As of now, The Trade Desk's trailing P/E ratio stands at 193, with a forward P/E ratio of 72 and a price-to-sales (P/S) ratio of 25, signaling that the stock is quite expensive.
The Trade Desk's Stock in Five Years
Despite these valuation concerns, The Trade Desk is likely to outperform the market over the next five years.
While a lot can change in five years, and the industry landscape might shift significantly, the difference between the trailing and forward P/Es suggests that the current stock price is not ahead of itself. Moreover, even if revenue growth decelerates, net income is likely to increase rapidly over the five-year period.
With its elevated stock price, new investors may want to consider implementing a dollar-cost averaging strategy to account for potential near-term pullbacks. However, valuation concerns seem to be more of a temporary issue. As the digital advertising market expands, both The Trade Desk and its shareholders will be ideally positioned to reap significant benefits.
Given the current growth trajectory of The Trade Desk's digital advertising business and its strong financial performance, investors might consider incrementally investing in the company using a dollar-cost averaging strategy, taking into account potential short-term market fluctuations. However, the high valuation indicators such as the trailing P/E ratio and price-to-sales ratio may necessitate careful consideration before making any investment decisions.
