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The Trade Desk (NASDAQ: TTD) is a growth stock I’ve held in my portfolio for many years now. And it’s up more than 300% since the start of 2019, so it has made me money as a long-term investor.
However, it has become incredibly volatile recently. After Q1 earnings in January, the share price slumped by 32% in a single day. Then it drifted even lower, reaching a trough in April, before nearly doubling. The Trade Desk seemed to be making a comeback.
Until Friday (8 August) that is, when the stock crashed nearly 39%. That was its worst single-day fall since the advertising technology firm listed in 2016.
This gives me a bit of a dilemma. Should I buy more shares while they’re down? Or sell and move on to a new opportunity?
A strong quarter
The Trade Desk is an advertising tech platform that helps businesses buy digital ads. Customers use its software to bid for ad placements in real time across the internet (websites, apps, streaming TV, podcasts, etc).
For example, a protein powder company is going to get more bang for its buck advertising to people listening to an exercise-related podcast. The Trade Desk uses data and AI to instantly decide which ad to place and at what price.
In Q2, revenue jumped 19% year on year to $694m, outpacing the wider digital advertising market and beating estimates. Adjusted earnings per share of $0.41 matched forecasts.
Growth in connected TV (CTV) continues to be very strong, helped by partnerships with the likes of Disney, Roku, and Netflix.
Meanwhile, clients that have transitioned the majority of their budgets to Kokai, its new AI-powered platform, are spending more. And all clients are expected to have migrated to Kokai by the end of 2025.
What’s the problem then?
Looking ahead to Q3, however, management warned about the potential impact of tariffs. And it guided for 14% year-on-year growth (a notable slowdown from previous quarters).
Perhaps more seriously, the competitive threat from Amazon seems to be intensifying. The tech giant’s own demand-buying platform places ads across the internet, not just on its own properties (Amazon, Prime Video, Fire TV, Twitch, Kindle et al).
However, CEO Jeff Green argues that the firm’s value proposition is its role as a neutral platform for advertisers to buy across the “open internet.” But he says that Amazon, like Alphabet-owned Google and Meta, are “walled gardens” that have a vested interest in directing ad spend to their own platforms (potentially creating conflicts of interest).
Green still believes the biggest market in advertising remains the open internet. In other words, he’s not worried, and even views Amazon as a potential partner.
My move
So, what am I doing? Well, I do fear the competitive threat from Amazon. I fear it might poach some of The Trade Desk’s customers with lower fees, particularly ad sales for commercials in the CTV space.
On the other hand, the stock is now trading at just 25 times next year’s forecast earnings. That’s the cheapest it has ever been.
If The Trade Desk’s problems are temporary, this is an attractively priced growth stock and might be worth considering. However, I’m going to wait a couple more quarters before deciding whether to buy more shares.
