TLDR
- Trade Desk stock crashed 30% in premarket trading after reporting Q2 earnings that met expectations but showed slowing growth
- Revenue growth is expected to slow to 14% in Q3, down from 19% in the previous quarter
- CFO Laura Schenkein is departing after more than a decade with the company, to be replaced by Alex Kayyal on August 21
- Q2 revenue of $694 million beat expectations but marked a slowdown from 25% growth in Q1 and 26% growth in prior year Q2
- Major advertisers in auto and consumer packaged goods sectors experienced volatility at the start of Q2, though conditions have since stabilized
The Trade Desk stock took a beating Friday morning, falling 30% in premarket trading to $61.61. The selloff came after the ad-tech company reported second-quarter results that technically beat expectations but revealed some concerning trends underneath the surface.
The company posted Q2 revenue of $694 million, topping Wall Street’s estimate of $686 million. Adjusted earnings per share came in at $0.41, matching analyst expectations exactly. On paper, these look like decent numbers for a company that’s been growing rapidly.
But investors focused on what’s happening with the growth rate instead. Revenue growth slowed to 19% in Q2, down from the 25% pace seen in the first quarter. That’s also a drop from the 26% growth rate Trade Desk posted in Q2 of last year.
The real concern comes from the company’s guidance for the current quarter. Management expects revenue of at least $717 million in Q3, which sounds reasonable until you do the math. That figure implies growth of just 14% year-over-year.
Leadership Shakeup Adds to Investor Concerns
Adding fuel to the fire is news that CFO Laura Schenkein will be stepping down after more than a decade with the company. She’ll be replaced by Alex Kayyal, a board member who previously spent nearly ten years at Salesforce in various executive roles.
Schenkein will remain with Trade Desk as a non-executive officer through the end of the year to help with the transition. The CFO departure comes as Trade Desk has also replaced its Chief Operating Officer and Chief Revenue Officer within the past 24 months.
CEO Jeff Green addressed some of the revenue headwinds during the earnings call. He explained that right at the beginning of April, some of the company’s biggest brand clients started experiencing “even greater volatility.” These clients are mainly in the auto and consumer packaged goods sectors, which represent important categories for Trade Desk.
Green did note that conditions have stabilized since then. But the damage may already be done in terms of Q3 projections and investor confidence.
Market Pressures Mount
The slowdown isn’t happening in a vacuum. Demand-side platform providers like Trade Desk are facing pressure as advertisers tighten their marketing budgets. Macro uncertainty has companies being more cautious about spending.
There’s also competition from larger platforms that advertisers are gravitating toward. TikTok and Meta Platforms’ Facebook and Instagram are pulling in more ad dollars as companies prefer the reach these platforms provide.
Amazon has been mentioned as another potential threat to Trade Desk’s market share. However, management says that’s not what they’re seeing in their business right now.
Jefferies analyst James Heaney maintains a Buy rating on the stock with a $100 price target. He notes the growth slowdown likely creates concerns about Trade Desk’s long-term trajectory, even though the company is going through a natural transformation from an emerging company to one with quarterly sales in the multibillion-dollar range.
The company was added to the S&P 500 in July, marking its arrival as a major player in the ad-tech space. But Friday’s selloff more than wiped out the stock’s 24% gain over the past three months.
Wall Street analysts currently have a Strong Buy consensus rating on Trade Desk stock, with 24 Buy ratings and four Hold ratings. The average price target sits at $94.58, suggesting analysts still see upside potential despite the current concerns. However, those price targets and ratings are likely to be revised following the Q2 results.
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