Why The Trade Desk Stock Popped 40% in May

Shares of The Trade Desk (NASDAQ: TTD) were soaring last month as the ad tech leader delivered better-than-expected results in its first-quarter earnings report, redeeming itself after an earlier miss, and benefited from a broader risk-on movement in the market. That included a surge on May 12 when the U.S. and China agreed to lower tariff rates.

As a result, The Trade Desk stock finished May up 40%, according to data from S&P Global Market Intelligence.

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As you can see from the chart below, the stock popped following its May 8 earnings report and gained on the following session due to the favorable trade war news.

TTD data by YCharts.

The Trade Desk makes amends

The Trade Desk, which is the leading independent, demand-side platform in ad tech, got off to a rough start to the year after missing its own guidance for the first time in February when it reported Q4 earnings.

Its Q1 earnings report reassured investors, showing that the Q4 miss was indeed a blip rather than a sign of underlying problems.

In Q1, The Trade Desk's revenue jumped 25% to $616 million, easily topping estimates at $575.3 million, and management said the strategic updates it implemented in Q4 were paying off. On the bottom line, it also delivered strong results as adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $208 million were up from $162 million in the quarter a year ago. Adjusted earnings per share increased from $0.26 to $0.33, topping expectations at $0.25.

The Trade Desk stock gained 19% on May 9 on the news and then added another 12% on May 12 on news that the U.S. and China were lowering their tariff rates for 90 days. Due to its exposure to advertising, The Trade Desk is sensitive to the macroeconomic climate, so calming trade tensions is a good sign for the company.

Over the rest of the month, the stock was mostly flat.

Image source: Getty Images.

What's next for The Trade Desk

The Trade Desk remains an expensive stock at a price-to-earnings (P/E) ratio of 91 based on generally accepted accounting principles (GAAP), but the company looks poised for long-term growth thanks to its investments in AI and the broader growth of the digital advertising market.

Looking ahead to Q2, the company expects revenue of at least $682 million, or at least 17% on adjusted EBITDA of $259 million. If it can maintain that kind of growth, the stock should move higher over the long term.

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Jeremy Bowman has positions in The Trade Desk. The Motley Fool has positions in and recommends The Trade Desk. The Motley Fool has a disclosure policy.