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The Trade Desk's (NASDAQ:TTD) Q1 Sales Top Estimates But Stock Drops


Adam Hejl /
2022/05/10 4:09 pm EDT
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Advertising software maker The Trade Desk (NASDAQ:TTD) reported Q1 FY2022 results topping analyst expectations, with revenue up 43.4% year on year to $315.3 million. However, guidance for the next quarter was less impressive, coming in at $364 million at the midpoint, being 0.19% below analyst estimates. The Trade Desk made a GAAP loss of $14.5 million, down on its profit of $22.6 million, in the same quarter last year.

Is now the time to buy The Trade Desk? Access our full analysis of the earnings results here, it's free.

The Trade Desk (TTD) Q1 FY2022 Highlights:

  • Revenue: $315.3 million vs analyst estimates of $304.2 million (3.63% beat)
  • EPS (non-GAAP): $0.21 vs analyst estimates of $0.14 (44.9% beat)
  • Revenue guidance for Q2 2022 is $364 million at the midpoint, being 0.19% below analyst estimates
  • Free cash flow of $136.1 million, roughly flat from previous quarter
  • Gross Margin (GAAP): 79.7%, up from 77% same quarter last year

“We delivered outstanding performance in the first quarter, growing 43% versus a year ago, representing our strongest first quarter revenue growth in the last four years. This performance is testament to the value that marketers are increasingly placing on data-driven advertising 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 exceptional over the last year, growing from quarterly revenue of $219.8 million, to $315.3 million.

The Trade Desk Total Revenue

And unsurprisingly, this was another great quarter for The Trade Desk with revenue up 43.4% year on year. But the revenue actually decreased by $80.2 million in Q1, compared to $94.5 million increase in Q4 2021. 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 30% year on year to $364 million, slowing down from the 100% 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 28.7% 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 79.7% in Q1.

The Trade Desk Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.79 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 $21.8 billion, more than $1.1 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 were impressed by the exceptional revenue growth The Trade Desk delivered this quarter. And we were also excited to see that it outperformed analysts' revenue expectations. On the other hand, it was less good to see the deterioration in gross margin and the revenue guidance for the next quarter missed analysts' expectations. Zooming out, we think this was still a decent, albeit mixed, quarter, showing the company is staying on target. But investors might have been expecting more and the company is down 6.26% on the results and currently trades at $41 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.

One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 70% year on year and best-in-class SaaS metrics it should definitely be on your radar.

The author has no position in any of the stocks mentioned.