Boosting Our Price Target for This Holding Even as Shares Sag

We are seeing the Portfolio’s shares of The Trade Desk TTD sag this morning despite the company delivering better-than-expected September quarter results and upside guidance for the current quarter.

Expectations were already high coming into Thursday night’s earnings report, given the 20% move in the shares over the last two months, but the post-election pop that led them to close last night above $132 raised that expectations bar even higher. We suspect that what helped push TTD shares higher in the last few days were reports that about $3.5 billion was spent on the 2024 presidential election between president-elect Donald Trump and Vice President Kamala Harris. That’s the most expensive U.S. election in history and doesn’t factor in the spending on congressional and other races.

Even though Trade Desk continued to post impressive double-digit gains for revenue and profits near 27% year over year, with its guidance indicating that should continue in the current quarter, those impressive figures are coming up short against such elevated expectations.

While TTD shares come back to earth, we are lifting our price target to $140 from $135 to reflect the ongoing shift to streaming from linear TV and broadcast radio, and the growing adoption of advertising-based revenue models for those streaming platforms. During the September quarter, video and connected TV (CTV) accounted for just under half of Trade Desk’s revenue, up from around the mid-40% level in the year-ago quarter. That remains Trade Desk’s largest business and most likely its largest opportunity, even as advertisers continue to embrace mobile and podcast advertising. Mobile accounts for roughly a mid-30% share of the overall revenue while audio is a sub-10% business.

While the current quarter will see some benefit from 2024 political spending, that will fade as we move into 2025. That could lead to somewhat slower revenue growth compared to the 26% Trade Desk is tracking to deliver this year. But the prospects, especially those for CTV, should continue to drive favorable top-line and profit growth in the coming quarters as Netflix NFLX, Amazon AMZN and others see their streaming video advertising revenue mix grow. That will be one of the yardsticks by which we measure Trade Desk’s progress for its business and the outlook for the shares.

Those prospects also mean that Trade Desk should continue to generate very nice levels of cash. Year to date, the company generated $540 million in cash, which contributed to the $1.7 billion in cash and equivalents on the company’s balance sheet exiting September. During the quarter, Trade Desk repurchased $54 million of stock at an average price of around $108, which leaves $521 million remaining under its current program authorization. As Trade Desk generates additional cash in the coming quarters, we would not be surprised to see it follow the increasingly typical corporate playbook that includes increasing that repurchase program.

Because we see further gains in Trade Desk’s business as streaming across multiple media formats continues to take advertising dollar share, we will remain owners of TTD shares. Hammering home this point is one of the takeaways from the Digital Content Forum held in London this week. The message directed at traditional TV producers was: “…you either embrace social and digital platforms or face lean times.” As more content lands on those streaming platforms, advertisers will follow as they look to meet consumers where they are consuming content.

With just over 15% upside to our revised price target and because the TTD position size in the Portfolio near 3.5% is a larger one, we are going to patiently wait for a more attractive spot to present itself. For folks who are underweight the shares relative to the Portfolio, Friday's retrenchment is a nice place to add some, but with support near the 50-day moving average near $113, that would be a better one. That line of thinking keeps our Two rating intact for TTD shares, but should they drift lower to that level of support, we will revisit our thinking.

More Pro Portfolio

At the time of publication, TheStreet Pro Portfolio was long TTD and AMZN.