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Trade Desk (NASDAQ:TTD) Delivers Strong Q2 Numbers, Next Quarter Sales Guidance Is Optimistic


Full Report / August 09, 2021
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Advertising software maker The Trade Desk (NASDAQ:TTD) reported Q2 FY2021 results that beat analyst expectations, with revenue up 100% year on year to $279.9 million. Trade Desk made a GAAP profit of $47.6 million, improving on its profit of $25.1 million, in the same quarter last year.

Trade Desk (TTD) Q2 FY2021 Highlights:

  • Revenue: $279.9 million vs analyst estimates of $262.8 million (6.52% beat)
  • EPS (non-GAAP): $0.18 vs analyst estimates of $0.13 (42.7% beat)
  • Revenue guidance for Q3 2021 is $282 million at the midpoint, above analyst estimates of $274.7 million
  • Free cash flow of $3.37 million, down 94.4% from previous quarter
  • Gross Margin (GAAP): 81.8%, up from 77% previous quarter

Founded in 2009, The Trade Desk (NASDAQ:TTD) offers cloud-based software that uses data to help advertisers better plan, place and target their online ads.

Digital advertising is a massive industry and while large platforms like Google and Facebook provide tools for buyers of ads, it is still in their interest to sell as many ads for as much money as possible. The Trade Desk is providing online marketing agencies with an independent platform that helps them optimize ad-campaigns to be more cost-efficient.

The platform integrates the data advertisers have about their potential customers with all the other data Trade Desk has available, and automatically makes suggestions about who is the highest-value audience, when to reach them and how. Once the campaign is running, Trade Desk scans millions of available ad slots in real-time and automatically makes bids for placements when they are likely to yield the results the advertiser is looking for. Interestingly, to keep its incentives aligned with its customers, Trade Desk is selling the ad slots at cost and not making any money from them. Instead it charges its customers subscription fee for using its product that is based on a percentage of the overall ad spend.

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 to automate and optimize ad placements, which Trade Desk is well positioned to benefit from.

The Trade Desk is mainly competing with tools for ad buyers provided by ad sellers like Google (NASDAQ:GOOGL) or Facebook (NASDAQ:FB) and divisions of companies like AT&T (NYSE:T) and Adobe (NASDAQ:ADBE).

Sales Growth

As you can see below, Trade Desk's revenue growth has been exceptional over the last year, growing from quarterly revenue of $139.3 million, to $279.9 million.

Trade Desk Total Revenue

This was a standout quarter for Trade Desk with quarterly revenue up an absolutely stunning 100% year on year. which is above average for the company. On top of that, revenue increased $60.1 million quarter on quarter, a very strong improvement on the $100.1 million decrease in Q1 2021, and a sign of acceleration of growth, which is very nice to see indeed.

Analysts covering the company are expecting the revenues to grow 23% over the next twelve months, although we would expect them to review their estimates once they get to read these results.

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. Trade Desk's gross profit margin, an important metric measuring how much money there is left after paying for servers, licences, technical support and other necessary running expenses was at 81.8% in Q2.

Trade Desk Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.81 left to spend on developing new products, marketing & sales and the general administrative overhead. Significantly up from the last quarter, this is a great gross margin, that allows companies like 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 Trade Desk's Q2 Results

Sporting a market capitalisation of $39.9 billion, more than $705 million in cash and with positive free cash flow over the last twelve months, we're confident that Trade Desk has the resources it needs to pursue a high growth business strategy.

We were impressed by the exceptional revenue growth Trade Desk delivered this quarter. And we were also glad to see the improvement in gross margin. Zooming out, we think this was a fantastic quarter that should have shareholders cheering. The company is up 1.2% on the results and currently trades at $85 per share.

Is Now The Time?

When considering Trade Desk, investors should take into account its valuation and business qualities, as well as what happened in the latest quarter. There is a number of reasons why we think Trade Desk is a great business. While we would expect growth rates to moderate from here, its revenue growth has been strong, over the last two years. On top of that, its bountiful generation of free cash flow empowers it to invest in growth initiatives, and its very efficient customer acquisition hints at the potential for strong profitability.

Trade Desk's price to sales ratio based on the next twelve months of 32.9x indicates that the market is definitely optimistic about its growth prospects. But looking at the tech landscape today, Trade Desk's qualities stand out and we still like it at this price.