Why'd The Trade Desk Stock Drop 25%?

What’s happening with The Trade Desk stock prices and why is it such a big deal? Welcome to our breakdown of the most important changes in the stock market this week. 

Today, we’re talking about The Trade Desk, a high-growth digital advertising company that places ads in places like Roku and Hulu. You’ve probably seen them, right? At the very least you’ve seen their name in the news if you’re finance-savvy and follow changes in the stock market.

Let’s dive into why the stock went down, why that’s got everybody in a frenzy, and why it’s so important for you to know.

Bottom Line: On December 22, 2020, TTD traded at $97. On May 11th, the low was $46. Now, it’s hovering around $51. The market cap is $25 billion with $700 million of cash on the balance sheet. Folks, this is a real business that’s really valuable on sale for ½ the price it was 6 months ago.

What is The Trade Desk?

As mentioned, The Trade Desk is a digital advertising company that sells ad space to marketers across different digital platforms in order to put their companies and brands in front of highly-targeted audiences who are most likely to engage with them. Sounds a bit like Facebook, right? It’s similar, and that’s what makes it such an interesting business to look at.

At its core, the company is an advertising platform that tracks who you are. They’re able to deliver ads across whichever platform you find yourself browsing. Because they’re able to follow you around digitally, they’re really good at sending the right ads to the right people. 

Yeah, still sounds similar to Facebook Ads, right? Yep. Good. Glad you’re catching on. Facebook is profitable because of the massive amounts of ads they’re able to sell on the social platform. The Trade Desk is profitable in the same way. Understanding their business model helps us understand where their revenue growth has come from. 

However, it’s a pretty volatile market, and the drop in share price is evidence of that.

What Happened to The Trade Desk in 2021?

Let’s take a step back and first analyze where The Trade Desk came from on the market. The  company IPO’ed in 2016 and has since been growing pretty quickly (300% in 2020). They had $100 million of revenue in 2015, which is quite a bit. However, compare that to $1.1 billion in 2020 and you’re looking at a company that’s growing at a rate of about 20-30%. 

What?! This is a company you’ll want to watch. But, what happened to cause a 25% drop in share prices in May of 2021?

The company was worth only $45 a stock when it went public and peaked at $1,000 recently. Then, they released their Q1 earnings reports. Suffice to say that the projections were less than stellar, causing shareholders to get a little spooked. While the company reported 35% growth, investors were looking for more.  

The Trade Desk executed a 10 for 1 reverse stock split. This would have the effect of reducing the share price from around $500 to $50 allowing investors who wanted to invest smaller amounts of money to purchase shares more easily.

This means that a $700 investment pre-split could only buy you one share with $200 left over. After this split, $700 could buy 14 shares @ $50 each (keep in mind that at WealthStack, we allow our users to invest as little as $5 in any stock. The announcement of TTD’s stock split, a somewhat rare but perfectly normal capital transaction, caused a further freak out in the company’s share price. 

It’s worth mentioning that changes in the digital advertising space aren’t helping much either. In order to create highly-targeted ad campaigns, you have to know where people are online, what they’re doing and what they’re interests are. 

Google recently announced that they’ve decided not to implement technologies that track people online, which is a big win for us (yay!) but a massive blow to ad tech companies that rely on this such as Facebook and The Trade Desk.

Should You Invest in The Trade Desk in 2021?

Does all of this mean that you shouldn’t invest in The Trade Desk stock in 2021? Nope, not at all! Over my years of experience in the stock market, I’ve come to learn that one of the biggest things you should be looking at is whether or not the business is a good business.

At its core, The Trade Desk is a great business. Their business model has been shown to be highly profitable and there is relatively low competition at least in the specific niche that they’re working within. Just take a look at the free cash flow yield of the company and you’ll see just how great this stock is.

So, what do you do when you find a good business? Wait until everybody else is freaking out and buy the shares when everybody else is selling. Why? You want to be buying when everyone else is afraid, when there is a massive change in price, and whenever you find a good business.

Because TTD’s stock has fallen so much, the prices are unlikely to fall much more. Now is the time to buy. You can invest in a good business for practically half off and still rest easy knowing that the company’s not going anywhere anytime soon.

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