Trade Desk reported second-quarter earnings that exceeded management guidance by 2%, yet shares fell more than 30% in after-hours trading after management issued relatively weak third-quarter guidance. Customer retention is 95%, and connected TV, the largest segment, continues to grow rapidly. Client adoption of Kokai, the new programmatic operating system, is ramping, and AI ad-generation tools exist on the platform. eMarketer data show CTV viewership time far exceeds CTV's share of US ad spending, indicating underutilization that should narrow and benefit Trade Desk. The company retains a narrow moat and shares appear over 30% below an $82 fair value.
Trade Desk sold off more than 30% in after-hours trading after reporting second-quarter earnings that exceeded management guidance by 2%. However, this was paired with third-quarter guidance that appears weak relative to historical precedent. Customer retention remains strong at 95%. Why it matters: TTD is back near April lows, in what seems to be a classic ad tech dynamic wherein decent quarters can still be punished if there is any sniff of growth durability fears.
According to eMarketer, the spread between CTV viewership time (high) and CTV's share of US total ad spending (low) is widening, which informs our belief that it is underutilized. We believe this spread will narrow, and this trend should disproportionately benefit TTD. The bottom line: We maintain our narrow moat rating, and we view the shares as undervalued at more than a 30% discount to our $82 fair value estimate. We view the current risk/reward profile as attractive.
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