Advertising software maker The Trade Desk (NASDAQ:TTD) beat analyst expectations in Q1 FY2023 quarter, with revenue up 21.4% year on year to $382.8 million. Guidance for next quarter's revenue was $452 million at the midpoint, which is 1.43% above the analyst consensus. The Trade Desk made a GAAP profit of $9.33 million, improving on its loss of $14.6 million, in the same quarter last year.
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The Trade Desk (TTD) Q1 FY2023 Highlights:
- Revenue: $382.8 million vs analyst estimates of $364.3 million (5.07% beat)
- EPS (non-GAAP): $0.23 vs analyst estimates of $0.12 ($0.11 beat)
- Revenue guidance for Q2 2023 is $452 million at the midpoint, above analyst estimates of $445.6 million
- Free cash flow of $177 million, up 40.8% from previous quarter
- Gross Margin (GAAP): 77.8%, down from 79.7% same quarter last year
“We delivered outstanding performance in the first quarter, once again outpacing the digital advertising market, growing revenue 21% year-over-year to $383 million. Our strong start to the year is testament to the increasing value that marketers place on objective, transparent, data-driven media buying on the open internet,” said Jeff Green, Co-founder and CEO of The Trade Desk.
Founded by former Microsoft engineers Jeff Green and Dave Pickles, The Trade Desk (NASDAQ:TTD) offers cloud-based software that uses data to help advertisers better plan, place and target their online ads.
The digital advertising market is large, growing and becoming more diverse, both in terms of audiences and media. This as a result drives a growing need for a software that enables advertisers to use data to automate and optimize ad placements.
Sales Growth
As you can see below, The Trade Desk's revenue growth has been very strong over the last two years, growing from quarterly revenue of $219.8 million in Q1 FY2021, to $382.8 million.
This quarter, The Trade Desk's quarterly revenue was once again up a very solid 21.4% year on year. But the revenue actually decreased by $107.9 million in Q1, compared to $96 million increase in Q4 2022. However, The Trade Desk's sales do seem to have a seasonal pattern to them, and since management is guiding for revenue to rebound in the coming quarter we wouldn't be too concerned.
Guidance for the next quarter indicates The Trade Desk is expecting revenue to grow 19.9% year on year to $452 million, slowing down from the 34.6% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 20.8% over the next twelve months.
In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.
Profitability
What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. The Trade Desk's gross profit margin, an important metric measuring how much money there is left after paying for servers, licenses, technical support and other necessary running expenses was at 77.8% in Q1.
That means that for every $1 in revenue the company had $0.78 left to spend on developing new products, marketing & sales and the general administrative overhead. Despite the recent drop, this is still a good gross margin that allows companies like The Trade Desk to fund large investments in product and sales during periods of rapid growth and be profitable when they reach maturity.
Key Takeaways from The Trade Desk's Q1 Results
Sporting a market capitalization of $31.3 billion, more than $1.33 billion in cash and with positive free cash flow over the last twelve months, we're confident that The Trade Desk has the resources it needs to pursue a high growth business strategy.
We liked to see that The Trade Desk beat analysts’ revenue expectations pretty strongly this quarter and reported strong free cash flow. And we were also glad that the revenue guidance for the next quarter exceeded analysts' expectations. On the other hand, it was less good to see the deterioration in gross margin. Overall, this quarter's results seemed pretty positive and shareholders can feel optimistic. But the market was likely expecting more and the company is down 4.5% on the results and currently trades at $62.05 per share.
Should you invest in The Trade Desk right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.
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The author has no position in any of the stocks mentioned.