The Trade Desk (TTD) is down 12% after the company beat Q3 estimates but offered disappointing guidance for the fourth quarter.
High-multiple growth stocks get penalized when they miss elevated expectations.
The Trade Desk is an ad-tech company -- the leading independent buy-side programmatic advertising platform. Ad-tech stocks have suffered in recent years as Google and Facebook dominate the digital advertising market.
The Trade Desk is doing well, however, as a leader in the burgeoning programmatic advertising industry.
Third quarter adjusted EBITDA (a pre-tax profit measure) grew 47% to $24.4 million vs. $21 million guidance while revenue rose 50% to $79.4 million vs. $76 million guidance.
The company said it continues to win new business and the customer retention rate remains above 95%. Third quarter growth by channel: Mobile +40%, Mobile in-app +77%, Mobile video +140%, Connected TV +159%.
The Trade Desk is in "land-grab" mode. Management continues to invest heavily in the business to maximize sales growth (at the expense of profits) because it sees a large opportunity in programmatic advertising across the globe. Still, the company has been profitable since 2013 as it enjoys EBITDA margins well-above most software-as-a-service (SaaS) peers.
The ~7x sales multiple leaves a small margin of error for management. The company guided for fourth quarter revenue of $101 million, which was in-line with the fourth quarter outlook implied from previous guidance. However, the Street estimates was slightly higher than $101 million. The company raised its 2017 revenue outlook by the same margin that it beat third quarter estimates. Investors wanted more, so this ad-tech stock is getting hit hard despite the that fact revenue estimates for this year and next are higher than they were yesterday.