TTD stock valuations are still a concern
Since The commercial counter (NASDAQ:TTD) The stock peaked at nearly $ 1,000 in December, bargain hunters are trying to decide if the stock is a buy from here. Added to the uncertainties are the mixed results for the first quarter.
TTD stock has traded in a narrow range since breaking first quarter estimates, but issued negative guidance. This is what investors should do next.
TTD stock clouded by Outlook
In the first quarter report, TTD posted non-GAAP earnings per share of $ 1.41. It posted impressive revenue growth of 36.8% over the previous year to reach $ 219.8 million.
For the second quarter, TTD is forecasting revenue of $ 259-262 million, within the consensus estimate of $ 251.6 million. It has adjusted EBITDA of at least $ 84 million.
For a company valued at around $ 25 billion, annualized revenue of $ 1 billion, or 25 times sales, leaves no room for a clouded outlook. In its press release, the company wrote: “We have not provided any outlook for GAAP net income or a reconciliation of forecast Adjusted EBITDA to net income.” He cited the variability and complexity of charges (excluded from non-GAAP) as an issue. For example, stock-based compensation varies depending on the stock price.
The excuse of stock-based compensation is unusual. Many tech companies will offer generous stock-based compensation, but still post a clear outlook. This is troubling for shareholders because TTD could pay more than expected in the next quarter, which would result in a loss to GAAP earnings.
The 10-to-1 stock split will improve liquidity and attract smaller retail investors. Yet the split does not change the high valuations.
CEO Jeff Green is very optimistic about TTD’s connected TV business. He cited that CTV more than doubled its spending from last year. CTV’s impressive trends will accelerate. Traditional television slows down as CTV’s growth takes off.
Covid-19 provided a macro tailwind for the CTV market. Cable cutting in linear cables has also accelerated. People are more often looking for Internet content offered by CTV. Advertisers are making the change and increasing their spending in this segment. In addition to TTD offering different apps and channels, the company helps advertisers manage their reach and frequency. Thus, this promotes the growth of CTV and increases the long term prospects of The Trade Desk.
Compared to its peers, TTD stocks rank third in terms of value. The Growth Score is a perfect 100/100.
The value of TTD is unlikely to improve in the short term. The market is willing to pay a premium for the company’s strong growth prospects in 2021. If the value score increases, that’s bad news for the stock. This would imply a sharp drop in the share price.
On his conference call, CFO Blake Grayson said, “With all of that, seeing reasonable acceleration this year on an annual basis makes me really excited, comfortable with the business and the situation in 2021.
Despite the CFO’s optimism, cautious investors should align the required future growth with the current share price.
A five-year discounted cash flow growth output model uses the growth in perpetuity formula (also known as Gordon growth) to calculate the terminal value after five years. Assume the following metrics:
|Discount rate||9.8% – 8.8%||9.3%|
|Growth rate in perpetuity||2.8% – 3.8%||3.3%|
|Just value||$ 450 – $ 631||$ 525.78|
Templates courtesy of Finbox
Note the high annual growth in implicit income below:
|(USD in millions)||Entrance projections|
|End of exercises||20-Dec||21-Dec||22-Dec||23-Dec||Dec 24||25-Dec|
Prior to the 10-for-1 stock split, TTD shares had a fair value of approximately $ 516. Readers may lower the discount rate if the risk assumptions are too high. Also, setting a higher growth rate for that year and the next would increase the implied fair value.
Your takeaway meals
The Trade Desk is down sharply from all-time highs for good reason. After the Nasdaq Seriously stumbled in February, investors are unwilling to pay too much for growth stocks. TTD shares have seen strong growth but should consolidate from here.
Expect the stock to trade in a narrow range for a few months. The stock could resume its uptrend after posting better quarterly results this year and into 2022.
At the time of publication, Chris Lau had (directly or indirectly) no position in any of the stocks mentioned in this article. The opinions expressed in this article are those of the author, subject to the publication guidelines of InvestorPlace.com.