Amid the recent correction in the S&P 500 and Nasdaq, some artificial intelligence (AI) stocks have plunged deep into bear market territory. In extreme cases, some stocks have lost more than half their value within a few weeks. One notable example is The Trade Desk (NASDAQ: TTD), which experienced a sharp decline after reporting its fourth-quarter and full-year 2024 earnings. With a strong performance in 2024 and a high valuation, an unforced error turned investors against the stock.
The company’s recent drop may have redefined its value proposition. Given the bright future of The Trade Desk and its heavily discounted stock price, this may be an ideal opportunity for investors to consider adding shares.
The Trade Desk operates as a buy-side platform for digital advertising. Through its ecosystem, advertisers and ad agencies can create, manage, and monitor digital ad campaigns across various channels. This provides a distinct competitive advantage over major digital advertisers like Google, as The Trade Desk’s platform does not display a bias toward its advertising services. In contrast, Google's platform, which generates a significant portion of the company's revenue, may steer advertisers towards its solutions rather than delivering the best options available.
Furthermore, Alphabet, Google's parent company, is diversifying away from advertising, potentially drawing less focus on their advertising platform. This situation makes The Trade Desk a more appealing option for investors seeking a pure-play advertising stock.
The Trade Desk is also noted for its advanced integration of AI technology. The firm introduced its AI-powered Koa platform in 2018, utilizing deep neural networks to predict bidding prices for real-time auctions and evaluate ad placements. In 2023, it launched Kokai, which built upon Koa’s technology by expanding its application within media buying and enhancing forecasting capabilities. Kokai integrates enhanced data from retailers and introduces a TV Quality index, boosting the potential for connected television opportunities.
This technological evolution has improved efficiency and transparency, providing marketers with valuable audience insights to support informed decisions.
Financially, The Trade Desk has reported impressive growth. Its 2024 revenue exceeded $2.4 billion, marking a 26% annual increase that outpaced the 23% growth seen in 2023. Despite this success, the company faced a setback in the fourth quarter, where its revenue of $741 million fell short of the $756 million projected earlier. This shortfall contributed to a significant drop in the stock price, which fell by almost 60% over a span of 3.5 months after reaching a peak closing price of $139.51 per share last December.
However, analysts suggest that the market might have overreacted to this news. In fact, The Trade Desk's net income for 2024 reached $393 million, demonstrating a remarkable 120% growth. Additionally, the first-quarter revenue forecast is set at $575 million, which would represent a 17% increase if achieved. Although this figure indicates a potential slow down, the company’s growth trajectory remains robust.
Current discussions regarding the P/E ratio of The Trade Desk indicate interesting trends; while the P/E currently stands at 72, the forward P/E ratio has adjusted to 31, which some proponents argue indicates a shift toward value investing. This is a stark change from early December when the P/E was almost 230. The current reduced earnings multiple could motivate investors to purchase shares.
Taking into account the company's technological advancements and performance metrics, the recent downturn in The Trade Desk stock may present a golden opportunity for investment. The missed revenue forecast was a significant misstep, and the previous inflated P/E ratio left little margin for errors. Nevertheless, as the company’s platform becomes increasingly vital for advertisers aiming to enhance campaign effectiveness, fueled by innovations like its Kokai platform, sustained revenue and profitability improvements could lead to a brighter future.
In summary, the shift in the investment landscape, coupled with the company’s efforts to optimize its advertising platform, positions The Trade Desk as a compelling choice for AI stock enthusiasts, particularly before its share price rebounds.
Investors looking to capitalize on opportunities in the stock market may want to consider The Trade Desk as it adapts to changing market dynamics and capitalizes on its innovative approaches. Whether this represents a second chance for those who may have initially overlooked the stock is yet to be seen.
As noted, this is a critical time for potential investors in The Trade Desk stock. The potential for significant returns is evident, as demonstrated by past analyst predictions and success stories. As the company continues to leverage its AI technologies effectively, it could very well draw the attention of a larger pool of investors.