Is it worth considering a purchase during the 55% drop in stock prices for The Trade Desk?

Considering a 55% drop, is it wise to seize the discounted opportunity in The Trade Desk?

The Trade Desk, a prominent player in the programmatic advertising industry, has faced a turbulent year, with its stock plummeting by 55% year to date. This decline follows the release of the company's full-year 2024 results, which showed slower revenue growth and a high valuation causing concern among investors.

Connected TV, a key growth area for The Trade Desk, is witnessing increased competition with the entry of giants like Amazon into the market. To counter this, The Trade Desk has struck a deal with Roku, gaining access to 80 million households in the connected TV advertising space.

Meanwhile, Meta Platforms, another significant player, is making strides by winning a larger share of advertisers' wallets due to its focus on AI tools. These tools are driving strong returns for advertisers and boosting user engagement, making Meta a formidable competitor.

The stiff competition from larger tech giants like Meta and Amazon, with their integrated AI capabilities, is hampering The Trade Desk's ability to sustain healthy growth levels. In Germany, the strategic partnership between Amazon and Netflix further threatens The Trade Desk's business model, giving advertisers direct access to Netflix's premium ad inventory via Amazon's platform.

Despite these challenges, The Trade Desk is forecasted to return to double-digit growth in 2026. The company's Q1 revenue in 2025 showed a significant improvement, up by 25% year over year, helping to win back investor confidence. However, the slowing revenue growth continued into Q2, with a 19% increase, and earnings increasing just a few cents to $0.39 per share.

The forecasted adjusted EBITDA of $277 million would be an improvement of just 8% year over year. This slow growth, coupled with the company's expensive valuation, may lead to more pain for investors. The Trade Desk is currently trading at 66 times trailing earnings, which is double the average price-to-earnings ratio of the Nasdaq-100 index.

In the most recent quarter, Meta's revenue increased by 22%, further highlighting the competitive pressure on The Trade Desk. Amazon, another competitor in the digital advertising market, reported a 23% year-over-year increase in its advertising business last quarter to $15.7 billion.

Looking ahead, The Trade Desk's guidance for the current quarter predicts a further deceleration in revenue growth to 14% for a total of $717 million. This indicates a challenging road ahead for the company as it navigates the intensifying competitive landscape in the digital advertising industry.