After an 83% Plunge, Is The Trade Desk Dead Money?

For years, The Trade Desk (NASDAQ: TTD) was one of the top stocks on the market.

From its IPO in 2016 to its peak in late 2024, the stock gained more than 4,000% as it regularly put up revenue growth of 20% or more, and delivered strong profit margins as well. The stock also benefited from a premium valuation.

However, over the last year, The Trade Desk has collapsed. The adtech stock has fallen 83% from its peak in late 2024 as the business has slowed to its weakest growth rate ever, except for a brief dip during the pandemic.

The chart below shows how The Trade Desk's revenue has slowed over the last year.

Source: The Trade Desk quarterly reports

The Trade Desk stock plunged after its Q4 2024 report a year ago. It briefly recovered after the Q1 report, and then tumbled again after the Q2 results as fears of a collapse in the business returned. The Trade Desk's revenue has now fallen for three straight quarters, and management expects revenue to slow again in the current quarter, calling for at least $678 million in revenue in the first quarter, which would be just 10% growth.

Image source: Getty Images.

The source of The Trade Desk's troubles

While The Trade Desk management has blamed its challenges on poor execution and a weak macro environment, the real cause seems to be competition.

In fact, The Trade Desk's slowdown began right when Amazon (NASDAQ: AMZN) announced a new demand-side platform (DSP) experience that offers improved usability, reducing campaign setup time by 75%, and better full-funnel optimization.

Since then, it seems like Amazon has gained market share on The Trade Desk in areas like retail media and Connected TV, and it's clear why. Amazon has a unique reach in advertising. It has unmatched customer data on the shopping habits of hundreds of millions of its e-commerce customers, which it can offer to brands for targeted ads. It also has its own streaming platform, with more than 200 million Amazon Prime subscribers, giving advertisers an easy way to reach its streaming audience. Amazon has also partnered with the likes of Netflix, Roku, Spotify, and SiriusXM, further growing its reach.

The Trade Desk management sees its platform as the antidote to "walled gardens," or self-contained ad ecosystems, but the walled gardens like Alphabet, Meta Platforms, and Amazon, which are the three biggest digital advertising platforms in the world, have a clear appeal to advertisers as they're all connected to huge sources of traffic.

What it means for The Trade Desk

On its fourth-quarter earnings call, the company noted weakness among consumer packaged goods (CPG) and auto advertisers due in part to tariffs and other macro headwinds. Those categories make up 25% of its business, and without them, it would have reported much stronger growth.

That may be true, but investors should be aware that the leading digital advertising platforms all saw robust growth in the fourth quarter. Google advertising reported 13.6% growth in the quarter. Meta grew its ad revenue by 24.3%, and Amazon's ad revenue rose by 23%. Netflix has also touted strong advertising growth.

The Trade Desk's challenges seem reflected in the plunge in the stock, and the valuation looks reasonable at a price-to-earnings ratio of 27, but a turnaround isn't guaranteed.

If the source of The Trade Desk's problems is enhanced competition, including from Amazon, that won't be easy to overcome. At this point, investors are better off waiting for revenue growth to stabilize before buying the stock. Shares might look cheap, but as the recent earnings report showed, the stock can still go lower.

Jeremy Bowman has positions in Amazon, Meta Platforms, Netflix, Roku, and The Trade Desk. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, Netflix, Roku, Spotify Technology, and The Trade Desk. The Motley Fool has a disclosure policy.