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After gapping to all-time highs yesterday, investors are securing some profits today following The Trade Desk's (TTD -5%) upbeat Q3 report. The online ad-buying platform surpassed analyst earnings and sales expectations and issued energetic Q4 revenue guidance, all reflecting healthy ad buying throughout the quarter. The headliner remained CTV, or Connected TV, which includes smart TVs, streaming devices, and many other electronics connected to the internet. TTD is excited over the secular shift toward CTV and the outsized growth potential it offers.

So why are shares encountering selling pressure today? Valuation is an underlying factor. TTD reached a forward earnings multiple of 72x yesterday, placing it in priced-to-perfection territory. As a result, TTD's Q3 report was placed under a microscope, which revealed a few minor blemishes. For instance, the company's earnings beat was a penny below its Q2 upside. Additionally, and more importantly, TTD's Q4 revenue guidance of at least $756 mln translates to +25% yr/yr growth, a slight slowdown from the +27% delivered in Q3. Management expressed cautious optimism about Q4, encouraged by its current momentum, but concerned that some brands are not overly interested in advertising during a polarized political landscape, creating a different dynamic in 4Q24 compared to past fourth quarters.

Despite these nitpickings, TTD's Q3 report carried over many uplifting trends seen throughout this year.

• CTV remains TTD's fastest-growing channel and shows no signs of slowing. The company's partners, like Disney, Walmart, Roku, and Netflix, are strengthening their ties with TTD due to an expanding CTV opportunity. Legacy cable continues to fade while streaming services are constantly gaining momentum, a trend that should propel CTV-related gains even higher over the long term.
• A sturdy support beam for CTV is ad-supported streaming. Companies like Netflix (NFLX) and Amazon (AMZN) have launched ad-supported video streaming in recent years to attract more eyes and extract more revenue. NFLX mentioned last month that its ad-tier plan accounted for over half of its sign-ups in countries where it is offered, boasting a 35% jump in membership sequentially. Meanwhile, AMZN noted last week that Prime Video ads have been a recent growth area.
• Overall advertising was healthy during Q3. TTD commented that most of its verticals exhibited strength, particularly medical health, home and garden, and pets. Political spending was also strong in Q3, as expected. International spending growth outstripped North America for the seventh consecutive quarter in Q3. However, international spending represents only around 12% of TTD's total revenue, with North America comprising the remainder. Still, TTD sees meaningful growth opportunities across the EMEA and Asia Pacific.

TTD delivered a solid Q3 report that gave investors little to complain about. CTV continues to carve out additional growth opportunities for the company while overseas markets offer further upside potential. However, following such a sizeable gap-up yesterday, an over +100% improvement over January lows that gave TTD a frothy valuation, the market is not overly thrilled by TTD's cautious optimism surrounding Q4, spurring a sell-the-news reaction today.