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Bear of the Day: The Trade Desk (TTD)

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The Trade Desk (TTD - Free Report) surged 36% on Wednesday after delivering an upbeat quarterly report and outlook.

While analysts had been lowering EPS estimates ahead of the report -- causing TTD to fall into the cellar of the Zacks Rank -- the good news sparked a big short-covering rally.

The upstart digital advertising platform that has been challenging the "walled gardens" of Meta Platforms (META - Free Report) and Alphabet (GOOGL - Free Report) announced increased traction with Disney and Amazon as it becomes the leader in Connected-TV (CTV) advertising.

The Trade Desk continues to gather support for its Unified ID 2.0 (UID2) technology -- which is seen as the alternative to Google cookies and Facebook tracking -- driven by these integrations.  

TTD announced integration with Disney (DIS - Free Report) to power interoperability between Disney's industry-leading Audience Graph and the open-source addressability framework of UID2.

And Amazon's (AMZN - Free Report) cloud division Amazon Web Services (AWS) announced that it will support UID2 on its platform.

Quarter Highlights

Revenues of $377 million also surpassed the Zacks Consensus Estimate by 3.21%. The top line soared 34.6% year over year.

Customer retention remained more than 95% in the reported quarter. At the end of first-quarter 2022, The Trade Desk had more than 1,000 customers.

The Trade Desk witnessed strong momentum in key initiatives like Connected TV, Shopper Data, Unified ID 2.0, OpenPath and new data marketplace.

Analyst Reaction

Oppenheimer analyst Jason Helfstein raised his price target on TTD to $78 from $60 and kept an Outperform rating on the shares.

The analyst noted that the company continues to deliver "best-in-class advertising results," benefiting from the shift to CTV, retail media and privacy-focused advertising. Helfstein wrote that management sees Netflix, HBO, and Disney ad-supported streaming tiers and Disney/Amazon adoption of UID 2.0 as long-term tailwinds.

Valuation remains the main investor concern, as most acknowledge that Trade Desk is the dominant independent DSP (demand-side platform), with changes by Apple and Google driving more share to The Trade Desk platform.

Part of Wednesday's rally in TTD may have also been because Bloomberg reported on Tuesday afternoon that the US DOJ is preparing to sue Google over ad market practices as soon as September. This could force Google to accelerate its retirement of cookie tracking technologies.

Bottom line on TTD: It's a great company with a solid and growing business that allows advertisers incredible flexibility for targeting, automation and access to consumer behavior data on CTV. It's probably a buy on pullbacks into the $60s but we need to see the estimates stop going down and start heading back up. The Zacks Rank will let you know.

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