History Set a High Bar for The Trade Desk

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Programatic advertising has a simple premise: Use machine-learning algorithms to make sure that the ads you see online are for things that you might actually want to buy. And The Trade Desk (NASDAQ: TTD) is a rapidly growing specialist in that field. Not rapidly enough, though: It missed expectations for its first quarter, and its share price got whacked following its earnings release last week.

In this segment from Motley Fool Money, host Chris Hill and senior analyst Andy Cross discuss how high expectations factored into the market’s response to the report, where the company has been, and where it’s headed from here.

To catch full episodes of all The Motley Fool’s free podcasts, check out our podcast center. A full transcript follows the video.

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This video was recorded on May 10, 2019.

Chris Hill: Rough week for The Trade Desk. First-quarter revenue for the programmatic ad platform was not what analysts had come to expect, and shares of The Trade Desk were down 18% this weekend.

Andy Cross: Oh, the challenge of high expectations, Chris! The Trade Desk is a programmatic company that serves up ads through algorithms and computers, mostly through online, although they’re pushing more into connected TV with the likes of Hulu and Roku, as those businesses continue to do really well. Revenues were up 41%. That was a slowdown from 56% last quarter and 60% in the first quarter of 2018. $121 million in revenue. That was a little better than their management’s guidance. But again, it wasn’t just lights out as people had come to expect with The Trade Desk. Again, adjusted operating profits up 31%. Ahead of management’s own guidance as well, too. The guidance was just a little bit, hey, it’s great, but it’s not super great. And with those expectations, with a stock price that sells at more than 20 times sales, Chris, if you’re not continuing to really destroy your expectations game, it’s just not going to do it for investors. And so the stock on that day sold off about 15%.

But, overall The Trade Desk story and why I like this business very much is, it continues to do very well, take market share in an exciting growing space as we think about consuming media in lots of different ways on lots of different devices. That’s going to be driven by advertising over the next five, 10 years. And they’re going to play right into that.

Hill: Yeah, even with the drop this week, this is a stock that has more than tripled over the past year. It’s the proverbial good problem to have when you get into that range of, your earnings report needs to be perfect and your guidance needs to blow away Wall Street. But maybe this makes the stock a little bit more reasonable.

Cross: I think it does, Chris. I think for long-term owners of The Trade Desk or people who are interested in buying, this is a good opportunity now. It’s only an $8 billion company competing in a very large market space. And they’re profitable, and they’re growing. I expect that to continue. I think ultimately The Trade Desk stock will do well for investors who will hold on for five years.

Andy Cross has no position in any of the stocks mentioned. Chris Hill has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends The Trade Desk. The Motley Fool recommends ROKU. The Motley Fool has a disclosure policy.

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