Programmatic advertising leader The Trade Desk (NASDAQ:TTD) is set to report first quarter numbers after the bell on May 7, and the data increasingly shows that those numbers will be quite good. But there’s one problem: TTD stock, up 81% over the past month, is already priced for good first quarter numbers.
So, will The Trade Desk’s numbers be good enough to lift an already elevated TTD stock even higher?
I think so. Digital advertising trends appear to already be in recovery mode from the novel coronavirus pandemic. The Trade Desk is one of the higher quality players in the digital ad world. As such, the company will likely report strong recovery trends in April. A strong read on April sales trends should be enough to push this stock back towards its pre-novel coronavirus pandemic highs above $300.
Zooming out, though, it doesn’t really matter if TTD stock jumps 10% or drops 10% after earnings.
This is a long-term winner, with secular growth tailwinds that will persist long after Covid-19 passes. Thus, if TTD stock jumps 10% on earnings, stick with the rally. If TTD stock drops 10% on earnings, buy the dip.
Either way, TTD stock will head way higher over the next three to five years, and this is a name you want to own for the long haul.
The Trade Desk Earnings Should Be Good
Of course, the digital ad space has been whacked over the past few months because nobody advertises when the economy is shut down and consumers aren’t spending money.
But, over the past few weeks, a clear trend has emerged from other digital ad companies’ earnings reports: while March was awful for the industry, advertising levels have picked up in April.
Facebook (NASDAQ:FB), Pinterest (NYSE:PINS), Alphabet (NASDAQ:GOOG,NASDAQ:GOOGL) and Snap (NYSE:SNAP) all said something to that effect. Perhaps most notably, Facebook’s digital ad revenue growth rates went from sharply negative in March, to flat in April.
That’s good news for The Trade Desk. Even better news? The streaming TV market is booming.
Roku (NASDAQ:ROKU) and Netflix (NASDAQ:NFLX) reported outstanding first quarter numbers, while Disney (NYSE:DIS) said that Disney+ is adding roughly 10 million new subscriptions per month. Amid all this streaming TV growth, the streaming TV ad market is booming, too, even against the backdrop of Covid-19 (that’s important for The Trade Desk because the company is a big player in programmatic OTT advertising).
Overall, then, it increasingly appears that The Trade Desk’s first quarter earnings report will be quite good, supported by a strong digital advertising rebound in April and robust tailwinds in streaming TV advertising.
The Trade Desk Stock is a Long-Term Winner
Will strong earnings be enough to justify the 81% rally in TTD stock over the past month?
I think so. But even if they aren’t, it’s not a big deal in the big picture. Any near-term post-earnings weakness in TTD stock will translate into longer-term strength.
That’s because The Trade Desk is going to grow by leaps and bounds over the next several years.
Long story short, programmatic advertising – or the act of using data-driven algorithms to optimize and automate the advertising process – is the future of advertising. Today, programmatic advertising accounts for about 20% of the $650 billion global advertising market. By the end of the decade, that share will move up towards 100%, implying a multi-hundred-billion-dollar opportunity for The Trade Desk to grow over the next 10 years.
As the undisputed demand-side leader in this market, The Trade Desk will turn those market tailwinds into sustained 20%-plus revenue and profit growth for a lot longer. As the company does, TTD stock will keep roaring higher.
My modeling suggests that this stock could hit $400 within the next few years, based on 2025 earnings per share potential of over $10.
The Bottom Line on TTD Stock
The Trade Desk’s first quarter earnings report should be quite good. It should underscore rebounding digital advertising trends and continued strong momentum in streaming TV advertising. If so, then it will support the recent rally in TTD stock.
If that doesn’t happen, and TTD stock drops on worse-than-expected earnings, that dip will be a buying opportunity. The Trade Desk is a long-term winner, with robust growth tailwinds and a huge addressable market. Shares will be materially higher in three to five years.
Big picture: buy TTD stock for the long haul, and buy more if it drops after earnings.
Luke Lango is a Markets Analyst for InvestorPlace. He has been professionally analyzing stocks for several years, previously working at various hedge funds and currently running his own investment fund in San Diego. A Caltech graduate, Luke has consistently been rated one of the world’s top stock pickers by various other analysts and platforms, and has developed a reputation for leveraging his technology background to identify growth stocks that deliver outstanding returns. Luke is also the founder of Fantastic, a social discovery company backed by an LA-based internet venture firm. As of this writing, he was long TTD, PINS, SNAP, and ROKU.
