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Trade Desk, Inc. 10-K Analysis & Summary – 2/21/2025

⚠️This is not investment advice.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️

The Trade Desk, Inc.

Filing date:

02/21/2025

TLDR:

The Trade Desk, Inc. demonstrates continued revenue growth driven by increased platform spend. Net income significantly increased, reflecting improved operating leverage.

ELI5:

The Trade Desk is making more money because more companies are using their platform to buy ads, and they’re managing their costs better.

Accession #:

0001671933-25-000029

Published on

Analyst Summary

  • Revenue Growth: 26% year-over-year, indicating strong market demand for TTD’s platform.
  • Net Income Growth: 120% year-over-year, demonstrating improved profitability and operating leverage.
  • Gross Spend Growth: 25% year-over-year, reflecting increased client activity on the platform.
  • Strong Liquidity: Significant cash and cash equivalents and short-term investments, providing financial flexibility.
  • Positive Operating Cash Flow: Strong cash flow from operations, indicating a healthy and sustainable business model.

Opportunities and Risks

  • Competition: Intense competition from other DSP providers, including larger companies like Google and Amazon.
  • Reliance on Third-Party Data and Cookies: Dependence on third-party data and cookies for ad targeting, which are subject to increasing privacy restrictions.
  • Evolving Privacy Regulations: The complex and evolving landscape of privacy regulations, including GDPR and CCPA, could impact the company’s ability to collect and use data.
  • Macroeconomic Conditions: Macroeconomic downturns could negatively impact advertising budgets and client spend.
  • Cybersecurity Threats: The risk of data breaches and cyberattacks, which could disrupt services and damage the company’s reputation.
  • CTV Growth: Significant opportunity to expand reach and revenue in the rapidly growing CTV market.
  • International Expansion: Untapped potential in international markets, particularly in Europe and Asia.
  • Data and Measurement Innovation: Continued innovation in data and measurement capabilities could provide a competitive advantage.
  • Omnichannel Capabilities: Offering clients capabilities across all media channels and devices enables advertisers to manage highly effective omnichannel campaigns.

Potential Implications

Stock Price

  • Monitor the impact of privacy changes (cookie deprecation, GDPR, CCPA) on TTD’s data collection and targeting capabilities.
  • TTD’s ability to compete effectively against larger players in the DSP market.
  • The success of TTD’s international expansion efforts.
  • Growth in CTV and other emerging channels.

SEC Filing Report: Trade Desk, Inc. (10-K) – Fiscal Year 2024

Executive Summary

This report analyzes The Trade Desk, Inc.’s 10-K filing for the fiscal year ended December 31, 2024. The company demonstrates continued revenue growth driven by increased platform spend. Net income significantly increased, reflecting improved operating leverage. Key risks include intense competition, reliance on third-party data and cookies, and evolving privacy regulations. Opportunities lie in expanding CTV reach, international growth, and innovation in data and measurement. Overall, the company appears well-positioned for continued growth, but investors should closely monitor the evolving regulatory landscape and competitive pressures. A **Hold** rating is suggested, pending further clarity on the long-term impact of privacy changes and competitive dynamics.

Company Overview

The Trade Desk, Inc. (TTD) operates a self-service, cloud-based platform for programmatic ad buying. It empowers clients to manage data-driven digital advertising campaigns across various channels and devices. The company’s revenue model is based on a platform fee charged as a percentage of client spend. TTD is headquartered in Ventura, California, and operates globally.

Detailed Analysis

Management’s Discussion and Analysis (MD&A)

Management expresses optimism about the future of programmatic advertising and TTD’s position within the industry. They highlight key growth strategies, including increasing client spend, expanding omnichannel capabilities, and international growth. The MD&A acknowledges the impact of macroeconomic uncertainty but emphasizes the company’s long-term investment strategy. A potential red flag is the mention of potential consolidation of holding companies, which could negatively impact revenue.

Financial Statement Analysis

Key Ratios and Trends

  • Revenue Growth: 26% year-over-year, indicating strong market demand for TTD’s platform.
  • Net Income Growth: 120% year-over-year, demonstrating improved profitability and operating leverage.
  • Gross Spend Growth: 25% year-over-year, reflecting increased client activity on the platform.
  • Operating Expenses: Increased across all categories (Platform Operations, Sales & Marketing, Technology & Development, General & Administrative), reflecting investments in growth initiatives.

Balance Sheet Highlights

  • Strong Liquidity: Significant cash and cash equivalents and short-term investments, providing financial flexibility.
  • Working Capital: Healthy working capital position, indicating efficient management of current assets and liabilities.
  • Operating Lease Liabilities: Significant operating lease liabilities, reflecting long-term commitments for office and hosting facilities.

Cash Flow Analysis

  • Positive Operating Cash Flow: Strong cash flow from operations, indicating a healthy and sustainable business model.
  • Investing Activities: Net cash used in investing activities, primarily for property and equipment and short-term investments.
  • Financing Activities: Net cash used in financing activities, primarily for share repurchases.

Uncommon Metrics

The filing mentions “Gross Billings” as a key metric for internal management. While not a GAAP measure, it provides insight into the total volume of transactions processed through the platform. The company also highlights client retention rate (over 95%), indicating strong client loyalty.

Risk and Opportunity Assessment

Risks

  • Competition: Intense competition from other DSP providers, including larger companies like Google and Amazon.
  • Reliance on Third-Party Data and Cookies: Dependence on third-party data and cookies for ad targeting, which are subject to increasing privacy restrictions.
  • Evolving Privacy Regulations: The complex and evolving landscape of privacy regulations, including GDPR and CCPA, could impact the company’s ability to collect and use data.
  • Macroeconomic Conditions: Macroeconomic downturns could negatively impact advertising budgets and client spend.
  • Cybersecurity Threats: The risk of data breaches and cyberattacks, which could disrupt services and damage the company’s reputation.

Opportunities

  • CTV Growth: Significant opportunity to expand reach and revenue in the rapidly growing CTV market.
  • International Expansion: Untapped potential in international markets, particularly in Europe and Asia.
  • Data and Measurement Innovation: Continued innovation in data and measurement capabilities could provide a competitive advantage.
  • Omnichannel Capabilities: Offering clients capabilities across all media channels and devices enables advertisers to manage highly effective omnichannel campaigns.

Conclusion and Actionable Insights

The Trade Desk, Inc. demonstrates strong financial performance and growth potential. However, investors should be aware of the risks associated with competition, privacy regulations, and macroeconomic uncertainty. The company’s success hinges on its ability to adapt to the evolving advertising landscape and maintain its competitive edge through innovation and strategic investments. A **Hold** rating is recommended, with a watchful eye on the company’s progress in navigating these challenges and capitalizing on its growth opportunities. Specifically, monitor:

  • The impact of privacy changes (cookie deprecation, GDPR, CCPA) on TTD’s data collection and targeting capabilities.
  • TTD’s ability to compete effectively against larger players in the DSP market.
  • The success of TTD’s international expansion efforts.
  • Growth in CTV and other emerging channels.

Financial Analysis of The Trade Desk (TTD) – 2024

1. Financial Ratio and Metric Analysis

Profitability

  • Gross Profit Margin:

    • Calculation: Gross Profit Margin = (Revenue – Cost of Revenue) / Revenue = $2,444,831 / $2,444,831 = 100% (Since cost of revenue is not explicitly provided, and the revenue is the first line item, we assume cost of revenue is negligible for the purpose of this calculation.)
    • Trend: Comparing to 2023, where the Gross Profit Margin was also effectively 100% ($1,946,120 / $1,946,120), there is no change.
    • Industry: The Trade Desk operates in the advertising technology industry. Software companies typically have high gross profit margins, often exceeding 70%. A 100% gross profit margin is exceptionally high and suggests a business model with minimal direct costs associated with revenue generation.
  • Operating Profit Margin:

    • Calculation: Operating Profit Margin = Income from Operations / Revenue = $427,167 / $2,444,831 = 17.47%
    • Trend: In 2023, the Operating Profit Margin was $200,480 / $1,946,120 = 10.30%. The increase from 10.30% to 17.47% represents a significant improvement in operational efficiency.
    • Industry: For the AdTech industry, operating margins can vary widely. Established players often have margins in the 15-25% range. TTD’s 17.47% is within a healthy range, indicating good cost management relative to revenue.
  • Net Profit Margin:

    • Calculation: Net Profit Margin = Net Income / Revenue = $393,076 / $2,444,831 = 16.08%
    • Trend: In 2023, the Net Profit Margin was $178,940 / $1,946,120 = 9.20%. The increase from 9.20% to 16.08% indicates a substantial improvement in overall profitability.
    • Industry: A net profit margin of 16.08% is strong for the AdTech industry, suggesting effective management of expenses and taxes.
  • Return on Assets (ROA):

    • Calculation: ROA = Net Income / Total Assets = $393,076 / $6,111,951 = 6.43%
    • Trend: To determine the trend, we would need the ROA from the previous comparable period, which is not provided in the filing.
    • Industry: An ROA of 6.43% suggests that TTD is generating a reasonable profit from its assets.
  • Return on Equity (ROE):

    • Calculation: ROE = Net Income / Total Stockholders’ Equity = $393,076 / $2,949,145 = 13.33%
    • Trend: To determine the trend, we would need the ROE from the previous comparable period, which is not provided in the filing.
    • Industry: An ROE of 13.33% indicates that TTD is generating a good return for its shareholders.
  • Earnings Per Share (EPS) – Basic and Diluted:

    • Calculation: Basic EPS = $0.80, Diluted EPS = $0.78 (as provided in the filing)
    • Trend: In 2023, Basic EPS was $0.37 and Diluted EPS was $0.36. The increase in both Basic and Diluted EPS reflects a significant improvement in earnings attributable to shareholders.
    • Industry: EPS is a critical metric for investors. The increase in TTD’s EPS suggests strong earnings growth, which is generally viewed positively.

Liquidity

  • Current Ratio:

    • Calculation: Current Ratio = Total Current Assets / Total Current Liabilities = $5,336,458 / $2,873,465 = 1.86
    • Trend: In 2023, the Current Ratio was $4,313,954 / $2,510,838 = 1.72. The increase from 1.72 to 1.86 indicates a slight improvement in short-term liquidity.
    • Industry: A current ratio of 1.86 is generally considered healthy, indicating that TTD has sufficient current assets to cover its current liabilities.
  • Quick Ratio (Acid-Test Ratio):

    • Calculation: Quick Ratio = (Total Current Assets – Inventory) / Total Current Liabilities. Since inventory is not explicitly listed, we assume it is negligible. Therefore, Quick Ratio ≈ Current Ratio = 1.86
    • Trend: Assuming inventory is negligible, the Quick Ratio is approximately the same as the Current Ratio. Therefore, the trend is the same as the Current Ratio, increasing from 1.72 in 2023 to 1.86 in 2024.
    • Industry: A quick ratio of 1.86 suggests strong short-term liquidity, even when excluding inventory (if any).
  • Cash Ratio:

    • Calculation: Cash Ratio = (Cash and Cash Equivalents + Short-Term Investments) / Total Current Liabilities = ($1,369,463 + $552,026) / $2,873,465 = 0.67
    • Trend: In 2023, the Cash Ratio was ($895,129 + $485,159) / $2,510,838 = 0.55. The increase from 0.55 to 0.67 indicates an improvement in immediate liquidity.
    • Industry: A cash ratio of 0.67 suggests that TTD has a reasonable amount of liquid assets to cover its current liabilities.

Solvency/Leverage

  • Debt-to-Equity Ratio:

    • Calculation: Debt-to-Equity Ratio = Total Liabilities / Total Stockholders’ Equity = $3,162,806 / $2,949,145 = 1.07
    • Trend: In 2023, the Debt-to-Equity Ratio was $2,724,468 / $2,164,219 = 1.26. The decrease from 1.26 to 1.07 indicates a decrease in leverage.
    • Industry: A debt-to-equity ratio of 1.07 suggests a moderate level of leverage.
  • Debt-to-Assets Ratio:

    • Calculation: Debt-to-Assets Ratio = Total Liabilities / Total Assets = $3,162,806 / $6,111,951 = 0.52
    • Trend: In 2023, the Debt-to-Assets Ratio was $2,724,468 / $4,888,687 = 0.56. The decrease from 0.56 to 0.52 indicates a slight decrease in the proportion of assets financed by debt.
    • Industry: A debt-to-assets ratio of 0.52 suggests that TTD finances a little over half of its assets with debt.
  • Interest Coverage Ratio (Times Interest Earned):

    • Calculation: Interest Coverage Ratio = EBIT / Interest Expense. EBIT = Net Income + Income Tax Expense + Interest Expense = $393,076 + $114,226 + $1,514 = $508,816. Interest Coverage Ratio = $508,816 / $1,514 = 336.08
    • Trend: In 2023, EBIT = $178,940 + $89,055 + $1,656 = $269,651. Interest Coverage Ratio = $269,651 / $1,656 = 162.83. The increase from 162.83 to 336.08 indicates a significant improvement in the ability to cover interest expenses.
    • Industry: An interest coverage ratio of 336.08 is exceptionally high, indicating that TTD has a very strong ability to meet its interest obligations.

Activity/Efficiency

  • Inventory Turnover:

    • Not applicable, as TTD is not primarily a retail or manufacturing company and does not appear to hold significant inventory.
  • Days Sales Outstanding (DSO):

    • Calculation: DSO = (Accounts Receivable / Revenue) * 365 = ($3,330,343 / $2,444,831) * 365 = 497.44 days
    • Trend: In 2023, DSO = ($2,870,313 / $1,946,120) * 365 = 537.94 days. The decrease from 537.94 to 497.44 days indicates a slight improvement in the efficiency of collecting receivables.
    • Industry: A DSO of 497.44 days is very high and could indicate issues with collections or the terms offered to clients.
  • Days Payable Outstanding (DPO):

    • Calculation: DPO = (Accounts Payable / Revenue) * 365 = ($2,631,213 / $2,444,831) * 365 = 392.63 days
    • Trend: To determine the trend, we would need the DPO from the previous comparable period, which is not provided in the filing.
    • Industry: A DPO of 392.63 days is very high, suggesting that TTD is taking a long time to pay its suppliers.
  • Asset Turnover:

    • Calculation: Asset Turnover = Revenue / Total Assets = $2,444,831 / $6,111,951 = 0.40
    • Trend: In 2023, Asset Turnover = $1,946,120 / $4,888,687 = 0.40. There is no change in asset turnover.
    • Industry: An asset turnover of 0.40 suggests that TTD is not generating a high level of revenue relative to its asset base.

Valuation

  • Price-to-Earnings Ratio (P/E):

    • Calculation: P/E Ratio = Stock Price / EPS = $72.06 / $0.80 = 90.08
    • Trend: To determine the trend, we would need the P/E ratio from the previous comparable period, which is not provided in the filing.
    • Industry: A P/E ratio of 90.08 is very high, suggesting that the stock is expensive relative to its earnings. This could indicate high growth expectations.
  • Price-to-Book Ratio (P/B):

    • Calculation: P/B Ratio = Market Cap / Book Value of Equity. Market Cap = Shares Outstanding * Stock Price. Assuming shares outstanding is approximately 496,101 (in thousands) * $72.06 = $35,750,488,060. Book Value of Equity = $2,949,145 (in thousands). P/B Ratio = $35,750,488,060 / $2,949,145,000 = 12.12
    • Trend: To determine the trend, we would need the P/B ratio from the previous comparable period, which is not provided in the filing.
    • Industry: A P/B ratio of 12.12 is relatively high, suggesting that the market values the company’s assets at a premium.
  • Price-to-Sales Ratio (P/S):

    • Calculation: P/S Ratio = Market Cap / Revenue. Market Cap = $35,750,488,060. Revenue = $2,444,831 (in thousands). P/S Ratio = $35,750,488,060 / $2,444,831,000 = 14.62
    • Trend: To determine the trend, we would need the P/S ratio from the previous comparable period, which is not provided in the filing.
    • Industry: A P/S ratio of 14.62 is high, indicating that investors are paying a premium for each dollar of TTD’s revenue.
  • Enterprise Value to EBITDA (EV/EBITDA):

    • Calculation: EV = Market Cap + Total Debt – Cash and Cash Equivalents. Market Cap = $35,750,488,060. Total Debt ≈ Operating lease liabilities, non-current + Other liabilities, non-current = $247,723 + $41,618 (in thousands) = $289,341,000. Cash and Cash Equivalents = $1,369,463 (in thousands) = $1,369,463,000. EV = $35,750,488,060 + $289,341,000 – $1,369,463,000 = $34,670,366,060. EBITDA = Net Income + Interest Expense + Income Tax Expense + Depreciation and Amortization = $393,076 + $1,514 + $114,226 + $87,490 (in thousands) = $596,306,000. EV/EBITDA = $34,670,366,060 / $596,306,000 = 58.14
    • Trend: To determine the trend, we would need the EV/EBITDA ratio from the previous comparable period, which is not provided in the filing.
    • Industry: An EV/EBITDA of 58.14 is very high, suggesting that the company is highly valued relative to its earnings before interest, taxes, depreciation, and amortization.

Growth Rates

  • Revenue Growth:

    • Calculation: Revenue Growth = (Current Year Revenue – Previous Year Revenue) / Previous Year Revenue = ($2,444,831 – $1,946,120) / $1,946,120 = 25.63%
    • Industry: A revenue growth rate of 25.63% is strong, indicating that TTD is expanding its sales effectively.
  • Net Income Growth:

    • Calculation: Net Income Growth = (Current Year Net Income – Previous Year Net Income) / Previous Year Net Income = ($393,076 – $178,940) / $178,940 = 119.67%
    • Industry: A net income growth rate of 119.67% is exceptionally high, indicating a significant improvement in profitability.
  • EPS Growth:

    • Calculation: EPS Growth = (Current Year EPS – Previous Year EPS) / Previous Year EPS = ($0.80 – $0.37) / $0.37 = 116.22%
    • Industry: An EPS growth rate of 116.22% is very strong, reflecting the substantial increase in earnings per share.

Other Relevant Metrics

  • Gross Spend:

    • Definition: Gross spend measures the amount of a client’s spend on our platform for advertising inventory, value-added services and data; plus the platform fee.
    • Analysis: Gross spend increased from $9,611 million in 2023 to $12,041 million in 2024, a 25% increase. This indicates growth in client spending on the platform.
    • Significance: Gross spend is a key indicator of market share and scale. The company expects the take rate (revenue as a percentage of gross spend) to fluctuate.

2. Commentary

The Trade Desk’s financial performance in 2024 demonstrates significant improvements across key metrics. Revenue grew by 26%, and net income more than doubled, leading to substantial increases in EPS. Profitability margins expanded, reflecting enhanced operational efficiency and cost management. While valuation ratios are high, they are supported by strong growth rates and positive industry trends, suggesting continued investor confidence in the company’s future prospects.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️