Trade Desk's Shares Plummet; Question Arises: Is AppLovin to Blame?
Investors in The Trade Desk (TTD) were feeling the burn on Thursday as shares plummeted, but they couldn't help but feel a twinge of jealousy. As The Trade Desk's stock tumbled more than 30%, its adtech rival AppLovin (APP) was soaring, jumping over 20% on its fourth-quarter earnings.
For The Trade Desk shareholders, it was a brutal turn of events, especially since AppLovin had surpassed The Trade Desk as the largest adtech company by market cap.
A Rocky Quarter
The Trade Desk's fourth quarter was a far cry from its typically stellar performance. Revenue came in at $741 million, a 22% increase, but fell short of consensus estimates and management's guidance. CEO Jeff Green was direct about the disappointing results, acknowledging that they had missed expectations for the first time in 33 quarters as a public company.
Green wasn't concerned about missing Wall Street estimates, but he saw missing the company's own guidance as a breach of trust with investors. The company had predicted revenue of at least $756 million in the fourth quarter and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $363 million. Yet, The Trade Desk fell short, reporting $350 million in adjusted EBITDA and non-GAAP EPS of $0.59, edging out the Wall Street consensus of $0.57.
Execution Missteps or New Competition?
Companies can miss estimates for various reasons. Typically, poor execution, weak customer demand, macroeconomic headwinds, or competitive shifts are some of the leading causes of earnings shortfalls. For The Trade Desk, Green pointed the finger at weak execution, stressing that it hadn't lost sight of the large potential opportunity. Instead, Green attributed the disappointing results to a series of small execution missteps while preparing for the future.
One of those missteps was the delayed rollout of Kokai, The Trade Desk's new AI-based platform for customers. The company aims to upgrade 100% of its customers from Solimar to Kokai in 2025. Another misstep was The Trade Desk's largest-ever reorganization in December, which may have slowed the business down. Lastly, the company made deliberate decisions to focus on long-term opportunities instead of short-term revenue growth.
AppLovin: A Looming Threat?
Green didn't discuss competitive threats on the call. However, AppLovin, the new adtech giant, has taken The Trade Desk's crown as the leading independent DSP on the market. AppLovin reported 75% growth in advertising revenue to $3.22 billion for 2024, surpassing The Trade Desk's $2.44 billion in revenue on a 26% growth rate.
Despite their focus on different markets - AppLovin on mobile gaming and in-app ads, and The Trade Desk on serving big brands and ad agencies - AppLovin's expansion into new markets poses a potential threat. AppLovin aims to add more businesses in the digital economy in 2025 and intends to launch a self-service AI dashboard and explore Connected TV (CTV) advertising, targeting The Trade Desk's growing video market share.
The Trade Desk's Future
Green's explanation for missing guidance deserves credence, and one quarter of results doesn't provide enough evidence to conclude that something fundamental has changed with The Trade Desk. Yet, Green admitted that The Trade Desk and AppLovin are on a collision course. AppLovin's robust financial performance and focus on expanding market share make it a formidable competitor.
If Green's analysis is accurate, The Trade Desk's internal missteps may be the reason for the revenue miss, but AppLovin's growth strategy and competitive focus highlight the complexity of the advertising market. Investors should monitor The Trade Desk's customer retention, a key metric the company has consistently maintained at over 95% for the past 11 years.
While The Trade Desk's stock is trading at a low P/E ratio of 50 based on adjusted earnings per share, the potential for a rebound remains if the company can turn things around. However, AppLovin's rapid growth puts pressure on The Trade Desk to stay competitive in the ever-evolving adtech landscape.
- Despite the turbulence in The Trade Desk's stock price, some investors might consider this an opportune moment for investing, given the potential for recovery and the company's resilient history.
- To effectively manage their financial portfolios, investors often rely on dashboards that provide real-time data on their investments, including The Trade Desk's stock performance.
- The poor performance of The Trade Desk's stock might encourage Aussiedlerbote subscribers, who follow European tech stocks, to consider how AppLovin's success could impact their investment strategies in the adtech sector.
- During the earnings call, CEO Jeff Green should have addressed the significant threat posed by AppLovin's ascendancy in the adtech market, its aggressive growth strategy, and the impact of their new self-service AI dashboard on The Trade Desk's market share.
