The Trade Desk stock price has moved from the best-performing company in the Nasdaq 100 Index in 2024 into the worst. It has crashed by 42% this year and by 50% from its highest point this year. This crash has brought its market capitalization from nearly $70 billion in November to $33.43 billion today.
Why The Trade Desk stock has crashed
The Trade Desk stock price has crashed this year, erasing most of the gains made last year when it was the best-performing company in the Nasdaq 100 Index.
This retreat is likely because of its valuation concerns, as its market capitalization jumped to nearly $70 billion in 2024, a big number for a company that made over $2.4 billion in revenue and a net profit of $393 million last year.
These numbers meant that the company’s price-to-earnings multiple jumped to a peak of 225 last year. That multiple means that, assuming constant growth rate, the company would take about 225 years to break even.
Its PE multiple was higher than most companies, including the wildly popular companies like NVIDIA, Microsoft, and Netflix. It is common for a highly overvalued company to go through a valuation reset after going parabolic over time.
The Trade Desk is still a highly overvalued company since it has a trailing twelve-month (TTM) P/E ratio of 83 and a forward multiple of 38.
SaaS companies are often valued using the rule-of-40 method, which involves comparing its revenue growth and margins. In TTD’s case, its forward revenue growth is about 20%, while its net profit margin is 8%, giving it a metric of 26%. This makes it highly overvalued.
The silver lining is that when using the free cash flow margin of 26, the company has a rule-of-40 metric of 46, which is a good one.
Growth concerns remain
The Trade Desk stock price has also crashed as concerns about its growth considering that the TV advertising industry is slowing.
The most recent results showed that The Trade Desk made $616 million in the first quarter, a big increase from $491 million a year earlier. Its net income jumped from $32 million to $51 million.
Wall Street analysts anticipate that The Trade Desk’s revenue will rise by 17% this quarter to $685 million. It will then grow by 13.95% in Q3 to $715 million.
The annual revenue is expected to come in at $2.86 billion, up by 16.8% from a year earlier. Therefore, there are concerns that the company’s growth trajectory is losing steam.
TTD stock price analysis
The Trade Desk stock | Source: TradingView
The daily chart shows that the Trade Desk share price crashed and formed a big down-gap in February when it published its earnings. It then continued its strong downtrend and bottomed at $42.98 in April.
The stock has now bounced back and is trading at $68. It has also formed a bullish flag pattern, comprising of a vertical line and a descending channel. A bullish flag is one of the most bullish continuation patterns in technical analysis.
Therefore, it is likely that the Trade Desk stock price will continue soaring, with the next point to watch being at $80.
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