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The Trade Desk Delivers Another Monster Quarter

Rick Munarriz, The Motley Fool

Shares of The Trade Desk (NASDAQ: TTD) are closing out the trading week hitting fresh all-time highs, blasting skyward on Friday after posting better-than-expected fourth-quarter results shortly after Thursday's market close. The leading provider of high-tech programmatic solutions to the advertising industry continues to ride the wave of marketers demanding more effective allocation of their ad dollars across all media platforms.

The Trade Desk has been one of the market's hottest stocks, more than quadrupling since the start of last year. Revenue rose 56.4%, hitting a record $160.5 million in the fourth quarter. The Trade Desk was eyeing just 43% in top-line growth -- $147 million -- for the period. Naysayers arguing that the shares were priced for perfection ahead of the report seem to forget that sometimes there are things better than perfection.

The Trade Desk celebrating the market open at its 2016 Nasdaq debut.

The Trade Desk celebrating the market open at its 2016 Nasdaq debut. Image source: The Trade Desk.

Ad it up

There's no denying the appeal of The Trade Desk's algorithm-fueled approach to fleshing out ad campaigns. More than $2.35 billion in gross spending was allocated to The Trade Desk's platform in 2018, with a little more than a fifth of that going The Trade Desk's way for its efforts. It's hard to cut The Trade Desk loose, as customer retention has clocked in north of 95% for the past 21 quarters.

Investors may not view advertising as a high-margin industry, but The Trade Desk's machine-propelled approach makes it deliciously scalable. If revenue is growing nicely, there's a fair chance that the bottom line is growing even faster. Reported and adjusted earnings more than doubled for The Trade Desk in the fourth quarter, checking in at $0.84 and $1.09 a share, respectively.

There's plenty to like in The Trade Desk's report. Revenue accelerated from the nearly 50% pace it posted last time out. Accelerating top-line bursts are always welcome, and they're pretty rare for companies growing their business north of 50%.

Guidance is also encouraging, even if it expects things to decelerate in the near term. The Trade Desk sees total gross spending of at least $3.2 billion in 2019, up at least 36% since the outlay on its platform in 2018. The Trade Desk sees revenue rising 36% to $637 million for all of 2019 and climbing 35% to $116 million during the seasonally sleepy first quarter. It sees margins contracting to the point that adjusted EBITDA moves just 14% higher to $182 million this year.

The good news for investors is that guidance seems to be little more than a conservative serving suggestion for The Trade Desk. It landed 9% ahead of its revenue forecast in the fourth quarter, and that follows beats of 17%, 9%, and more recently 2% in the first three quarters of 2018, respectively. Advertising may be the art of promising more than you can deliver, but with The Trade Desk, it's the other way around when it comes to its quarterly updates.

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Rick Munarriz has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends The Trade Desk. The Motley Fool has a disclosure policy.