Investors are offloading shares of The Trade Desk today as two analysts expressed bearish sentiments toward the internet advertising platform company.
Analyst Coverage
Bianca Dallal from Redburn initiated coverage of The Trade Desk (TTD) with a Sell rating and set a target price of $34, implying a potential 60% decline. Meanwhile, Dan Salmon of New Street Research downgraded the stock from Hold to Sell. However, he did increase his price target on the stock to $69 from $57, which still falls below the current level.
Stock Performance
In response to the analyst notes, The Trade Desk’s shares are down by 4.2% on Tuesday, currently priced at $86.86. It’s worth noting that the stock has nearly doubled in value since the beginning of the year.
Industry Analysis
According to Dallal’s comprehensive 122-page report, The Trade Desk is a premium ad-buying platform primarily catering to agencies. In an industry where scale and independence are highly valued, the company has benefited from being the largest competitor to Google. However, limited access to premium media inventory from Google and other sources has hindered The Trade Desk’s share of ad spending. Dallal also points out that Google’s ad buying platform enjoys privileged access to data and media inventory.
Dallal acknowledges The Trade Desk’s strong position in the connected TV market, where it has better access for streaming video advertising compared to internet display ads. Additionally, she speculates that increased regulatory scrutiny on Google could potentially benefit The Trade Desk.
However, Dallal remains unconvinced by these factors, stating that they merely explain the market enthusiasm surrounding the stock but fail to justify its current share price. She notes that The Trade Desk only commands a 70% share in the 20% of the connected TV market it serves, with most advertising still being sold through direct deals.
In conclusion, The Trade Desk is experiencing selling pressure due to bearish analyst reports. Investors are cautious about the company’s position in ad spending, particularly in the face of Google’s dominance in the industry. Despite having a stronghold in the connected TV market, The Trade Desk’s share price is deemed excessive by Dallal.
The Trade Desk Faces Challenges Despite Growth Projections
According to Dallal, industry growth projections suggest that The Trade Desk will capture 65% of the total CTV industry growth by 2028. However, she argues that this view is overly optimistic, ignoring the significant number of direct publisher deals that bypass The Trade Desk. Dallal also cautions that market growth expectations might be too ambitious if macroeconomic pressures arise.
Dallal’s assessment of the stock is that both consensus expectations and market valuations are too high. She expresses concern that evidence of the former will lead to a decline in the latter.
While NewStreet’s Salmon holds a positive long-term outlook for The Trade Desk, he remains cautious about the battle for economics with advertising agencies and ad sellers.
Similar to Dallal, Salmon worries that the current valuation of the company’s shares is unsustainable. He points out that the stock is now trading at approximately 17 times forward revenue and 45 times estimated adjusted Ebitda.
Salmon also highlights the risks faced by The Trade Desk and other programmatic advertising sellers due to Alphabet’s plan to phase out third-party cookies in its Chrome browser starting in the third quarter of 2024. He estimates that around a quarter of the company’s 2024 gross spend will be executed on Chrome browsers. Additionally, Salmon believes that the near-term potential for The Trade Desk to access “walled garden” inventory on platforms like YouTube and Netflix has diminished.
In conclusion, Salmon predicts a decline in The Trade Desk’s stock from recent highs, with the market focusing more on evolving competitive dynamics and the effectiveness of the company’s post-cookie identity strategy as we approach 2024.
