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The Trade Desk (NASDAQ:TTD) Surprises With Q3 Sales But Quarterly Guidance Underwhelms


Kayode Omotosho /
2022/11/09 6:12 am EST
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Advertising software maker The Trade Desk (NASDAQ:TTD) reported Q3 FY2022 results beating Wall St's expectations, with revenue up 31.1% year on year to $394.7 million. However, guidance for the next quarter was less impressive, coming in at $490 million at the midpoint, being 3.75% below analyst estimates. The Trade Desk made a GAAP profit of $15.8 million, down on its profit of $59.3 million, in the same quarter last year.

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The Trade Desk (TTD) Q3 FY2022 Highlights:

  • Revenue: $394.7 million vs analyst estimates of $386.5 million (2.13% beat)
  • EPS (non-GAAP): $0.26 vs analyst estimates of $0.23 (15.2% beat)
  • Revenue guidance for Q4 2022 is $490 million at the midpoint, below analyst estimates of $509.1 million
  • Free cash flow of $108.6 million, up 23.9% from previous quarter
  • Gross Margin (GAAP): 82.2%, in line with same quarter last year

“Q3 was another strong quarter for The Trade Desk with 31% growth that significantly outpaced the market. This performance underlines the value of decisioned media buying on The Trade Desk as the world’s largest advertisers seek to maximize return on every campaign dollar,” said Jeff Green, 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 impressive over the last two years, growing from quarterly revenue of $216.1 million in Q3 FY2020, to $394.7 million.

The Trade Desk Total Revenue

And unsurprisingly, this was another great quarter for The Trade Desk with revenue up 31.1% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $17.8 million in Q3, compared to $61.6 million in Q2 2022. We'd like to see revenue increase by a greater amount each quarter, but a one-off fluctuation is usually not concerning.

Guidance for the next quarter indicates The Trade Desk is expecting revenue to grow 23.8% year on year to $490 million, in line with the 23.6% 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 24.9% 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 82.2% in Q3.

The Trade Desk Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.82 left to spend on developing new products, marketing & sales and the general administrative overhead. This is a great 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. It is good to see that the gross margin is staying stable which indicates that The Trade Desk is doing a good job controlling costs and is not under pressure from competition to lower prices.

Key Takeaways from The Trade Desk's Q3 Results

Sporting a market capitalization of $21.1 billion, more than $1.32 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.

It was good to see The Trade Desk deliver strong revenue growth this quarter, on top of solid free cash flow. And we were also excited to see that it outperformed analysts' revenue expectations. On the other hand, it was unfortunate to see that the revenue guidance for the next quarter missed analysts' expectations. Overall, this quarter's results were mixed. The company is down 2.6% on the results and currently trades at $42.25 per share.

The Trade Desk may have had a tough quarter, but does that actually create an opportunity to invest 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.