Why The Trade Desk Stock Dropped Today
Key Points
The Trade Desk beat on top and bottom lines last night.
GAAP earnings growth, however, was weak, and guidance suggests sales growth is still slowing.
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The Trade Desk (NASDAQ: TTD) stock tumbled 6.2% through 9:50 a.m. ET Thursday, despite beating analyst targets for both sales and earnings last night.
Analysts forecast The Trade Desk to earn $0.34 per share on sales of $841.2 million in Q4. TTD actually earned $0.59 per share on sales of $847 million.
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The Trade Desk Q4 earnings
Unfortunately, this good news wasn't quite as good as it looks at first glance. "$0.59," you see, was a non-GAAP number; when calculated under generally accepted accounting principles (GAAP), The Trade Desk actually earned closer to $0.39 per share -- just 8% more than last year.
Viewed in the context of 14% year-over-year sales growth, this implies weakening profit margins for the advertising seller and advertising effectiveness measurer, and indeed, TTD's net profit margin contracted by three full percentage points to 22%.
For the full year fiscal 2025, TTD grew sales 18% to $2.9 billion (so sales growth also slowed in Q4). On the plus side, full-year net profit margin was only 15%, so Q4 represented an improvement in that regard. Profits for the year were $0.90 per share -- up 15%.
Is The Trade Desk stock a sell?
Turning to guidance, The Trade Desk says investors can expect revenue to decline sequentially in Q1 2026, but rise year over year, to $678 million. Even the y-o-y growth rate, however, will be only 10%, representing continued deceleration.
Management did not give GAAP earnings guidance for Q1, noting only that "adjusted EBITDA" will be "approximately $195 million" -- down more than half from Q4 2025.
Long story short, TTD is a 27.5 P/E stock with slowing sales growth and potentially declining profits. That sounds like a sell to me.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends The Trade Desk. The Motley Fool has a disclosure policy.
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