The Trade Desk Is Suddenly Bleeding Customers. Is It a Red Flag for the Adtech Stock?

Several software stocks have plunged since late 2024 on concerns about bloated valuations and fears of AI disruption.

While The Trade Desk (NASDAQ: TTD) isn't ostensibly threatened by AI, it has fallen further than almost any other stocks during that time period, now down 82% from its peak in Dec. 2024.

The leading independent demand-side adtech platform (DSP) has been plagued by slowing growth, stiffer competition, primarily from Amazon, and the strength of "walled gardens" like Alphabet, Meta Platforms, and Apple, making it difficult for it to grab market share.

Management has mostly denied the competitive threat it's facing on its earnings calls and insisted that The Trade Desk's open platform is the best way to buy digital ads, but the stock price says otherwise. CEO Jeff Green has bought shares recently, attempting to instill confidence in the stock, but that hasn't been enough to give it a long-term boost.

Now, The Trade Desk is facing an alarming series of customer defections that seem to underscore deeper problems with the business.

Image source: Getty Images.

Is The Trade Desk bilking customers?

Last month, AdWeek reported that Dentsu and WPP, two of the world's biggest ad agencies, were leaving The Trade Desk's Open Path supply optimization product over "hidden fees and transparency."

OpenPath is one of The Trade Desk's most important new products and was supposed to make it more competitive with Google. CEO Jeff Green even promised that its growth would accelerate in 2025 like an S-curve.

Instead, the opposite seems to be happening as those top ad agencies are saying that it's unclear where their ads are running, and they're also paying hidden fees on the platform.

On Tuesday, the stock plunged on a report in AdAge that Publicis, another giant ad agency, is telling clients not to use The Trade Desk as a DSP for digital media ad buying after an audit found several failures on The Trade Desk's behalf, including that The Trade Desk was overcharging its clients, assessing its DSP fees to other fees, and automatically opting its clients into purchases they hadn't authorized.

Roughly 10% of The Trade Desk's business comes from Publicis brands, so this is potentially a huge loss for The Trade Desk, as it seems unlikely that those brands would go against the advice of Publicis.

In a post on LinkedIn, The Trade Desk CEO Jeff Green seemed to refute the charge and insinuated that Publicis was non-transparent, while The Trade Desk is transparent. He also said that his company had never failed an audit.

One analyst, Stifel, downgraded the stock on the news from buy to hold, and there will likely be more downgrades.

Taken with the news about Dentsu and WPP, which also left The Trade Desk over hidden fees, the adtech company could be facing massive reputational damage here. If its customers no longer trust that its billing practices are fair, they're unlikely to do business with it. The company likes to tout its streak of at least 95% customer retention for 12 consecutive years, but that now appears to be in jeopardy.

What it means for The Trade Desk

The Trade Desk was already spiraling before this news came out. A company that regularly put up revenue growth of 20% or more throughout its history guided to just 10% growth in the first quarter.

The Trade Desk hasn't really offered a satisfying explanation for that deceleration, especially as the digital advertising leaders like Alphabet, Meta Platforms, and Amazon have all posted strong growth in recent quarters, and it's now contending with a defection from some of its biggest customers.

The adtech firm owes its investors a clear explanation for the defections from its ad agency customers as well as for the slowdown in the business. If the company can't deliver that in the coming weeks, investors may be better off selling The Trade Desk and moving on, despite the discount in the stock.

Jeremy Bowman has positions in Amazon, Meta Platforms, and The Trade Desk. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, and The Trade Desk and is short shares of Apple. The Motley Fool has a disclosure policy.