After Earnings, Is Trade Desk Stock a Buy, a Sell, or Fairly Valued?

Trade Desk released its second-quarter earnings report on Aug. 7. Here’s Morningstar’s take on Trade Desk’s earnings and stock.

Key Morningstar Metrics for Trade Desk

• Fair Value Estimate: $82.00
• Morningstar Rating: ★★★★
• Economic Moat: Narrow
• Morningstar Uncertainty Rating: Very High

What We Thought of Trade Desk’s Q2 Earnings

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. Management said connected TV, the firm’s largest segment, continues to grow rapidly.

• Nothing appears structurally wrong with the business. We believe CTV has a considerable runway for growth. Client adoption is ramping nicely for TTD’s new programmatic operating system, Kokai. Artificial intelligence ad-generation tools already exist on the platform, too.
• 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.

• Making it easier for small to midsize businesses to adopt Kokai seems like appealing upside optionality, as it would expand beyond the current customer mix that is primarily large, multinational companies. TTD appears willing to explore this opportunity, and we encourage it.
• Should TTD expand its customer mix beyond the largest companies, we expect operating margins to benefit, thanks to the low marginal cost of adding more customers relative to the marginal revenue derived. This expansion would culminate in direct competition with AppLovin.

Fair Value Estimate for The Trade Desk

With its 4-star rating, we believe Trade Desk’s stock is undervalued compared with our long-term fair value estimate of $82.00. In our opinion, the primary drivers of the company’s value are the growth of digital advertising budgets, the shift toward programmatic advertising, the growth of ad-supported streaming television services, international expansion, and the company’s ability to take market share.

The digital advertising market is massive, with approximately $700 billion of annual spending today. We expect the market to reach $1.5 trillion by 2034 on the heels of GDP growth and advertisers demanding measurability and programmatic, omnichannel solutions. Since going public, Trade Desk has consistently exhibited growth rates greater than the overall industry, underscoring its ability to penetrate the market. We estimate the firm accounts for just under 2% of the digital advertising spending, and we expect this to increase 170% to approximately 5% penetration by 2034.

As part of our analysis, we establish a historical growth/market growth multiple of 2.11 times. We expect this level of market capture to be maintained throughout the projection period thanks to the company’s unique programmatic solutions and unbiased arbiter value proposition. This translates to 22% revenue growth in 2025, progressing gradually to 14% annual revenue growth by 2034.

Read more about Trade Desk’s fair value estimate.

Economic Moat Rating

We believe that Trade Desk warrants a narrow moat rating based on intangible assets and switching costs. We think of the value Trade Desk provides its advertising clients as analogous to automated trading in financial markets. We expect advertisers will be willing to pay a premium to use Trade Desk’s platform versus others. It offers full transparency and control over the algorithm that drives the advertising campaign. It also offers the ability to reach multiple channels across the “open” internet, which includes all locations outside the control of the major search and social media companies.

We are also witnessing the emergence of switching costs as a moat source, as best exemplified by more than 10 years of greater than 95% customer retention and steep increases in revenue per customer. After customers join the platform—likely due to the proprietary algorithms—they tend to deploy additional advertising dollars on the platform as they gain experience with it. If an advertiser were to leave, it would largely be stuck advertising with the walled gardens, which can theoretically also buy ads across the open internet but heavily favor their own inventory. In addition, switching away from Trade Desk would be complex and laborious after years of fine-tuning campaign strategies and incorporating proprietary data.

Read more about Trade Desk’s economic moat.

Financial Strength

We view Trade Desk’s financial position as healthy and improving. As of June 2025, the firm had nearly $1.7 billion in cash and short-term marketable securities. It has no debt. The firm has been profitable since it went public, and we expect margins to continue to improve. However, it has had some shareholder dilution concerns, and stock-based compensation puts a non-cash drag on profitability. In 2022, stock-based compensation hit 32% of revenue, with a significant chunk going to CEO Jeff Green. By March 2025, it had moderated to a more reasonable 21% of revenue.

To offset dilution, the company authorized a $1 billion share repurchase program. With revenue growth averaging 28% year over year since 2021 and reaching approximately $2.5 billion in 2024, the company can execute buybacks without depleting the current level of cash in reserves. Assuming stock repurchases occur at $80 per share, we estimate a roughly 2.5% decrease in total shares outstanding. This should help mitigate the dilutive impact of stock-based compensation over time. Furthermore, we expect stock-based compensation as a percentage of revenue to decrease gradually as the company continues to scale its top line. Overall, we do not foresee any material changes to the current capital structure.

Read more about Trade Desk’s financial strength.

Risk and Uncertainty

We assign Trade Desk a Very High Uncertainty Rating. In our view, the expansion beyond traditional demand-side platform responsibilities creates the largest set of uncertainties. Trade Desk aims to become a central platform for supporting digital advertising across the internet, but this shift complicates the firm’s business.

While Trade Desk has been growing faster than many search and social media ad platforms, Amazon and TikTok are still attracting digital advertising dollars at a faster rate, showing that advertisers still greatly value the audiences these platforms can deliver. These markets silo ad spending within their walls, limiting the applicability of Trade Desk’s programmatic solutions.

Read more about Trade Desk’s risk and uncertainty.

TTD Bulls Say

• Trade Desk’s proprietary algorithms for identification and real-time ad bidding are perfect solutions, since campaign measurability is a constant focus among advertisers.
• As an unbiased advocate for advertiser budgets, Trade Desk has a structural advantage over less transparent ad giants like Google GOOGL, Meta Platforms META, and Amazon AMZN.
• If the firm can get widespread adoption of its solutions that simplify the advertising supply chain, it will foster unmatched publisher dependence.

TTD Bears Say

• Most advertising dollars are routed to the ad giants. Firms like Google and Meta have no incentive to work with Trade Desk, since it would compress their ad revenue.
• Convincing publishers to adopt Trade Desk’s solutions will require considerable technological buy-in.
• Google’s Privacy Sandbox and LiveRamp’s RampID are viable alternatives to the firm’s UID2 identity and consumer behavior tracking solution. The lack of industry adoption of UID2 would keep TTD’s data aggregation and mapping costs high.

This article was compiled by Isela Meraz.