The Trade Desk (NASDAQ:TTD) Surprises With Q3 Sales But Stock Drops
Digital advertising platform The Trade Desk (NASDAQ:TTD) reported Q3 CY2025 results exceeding the market’s revenue expectations , with sales up 17.7% year on year to $739.4 million. Guidance for next quarter’s revenue was better than expected at $840 million at the midpoint, 1% above analysts’ estimates. Its non-GAAP profit of $0.45 per share was in line with analysts’ consensus estimates.
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Revenue: $739.4 million vs analyst estimates of $719.4 million (17.7% year-on-year growth, 2.8% beat)
Adjusted EPS: $0.45 vs analyst estimates of $0.44 (in line)
Adjusted EBITDA: $317.5 million vs analyst estimates of $278.8 million (42.9% margin, 13.9% beat)
Revenue Guidance for Q4 CY2025 is $840 million at the midpoint, above analyst estimates of $831.6 million
EBITDA guidance for Q4 CY2025 is $375 million at the midpoint, above analyst estimates of $367.6 million
Operating Margin: 21.8%, up from 17.3% in the same quarter last year
Free Cash Flow Margin: 21%, up from 16.8% in the previous quarter
Market Capitalization: $23.32 billion
“Q3 was another strong quarter for The Trade Desk, with revenue growing to $739 million, representing 18% year-over-year growth,” said Jeff Green, CEO and Co-Founder of The Trade Desk.
Built as an alternative to “walled garden” advertising ecosystems, The Trade Desk (NASDAQ:TTD) provides a cloud-based platform that helps advertisers and agencies plan, manage, and optimize digital advertising campaigns across multiple channels and devices.
A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Luckily, The Trade Desk’s sales grew at an impressive 30.7% compounded annual growth rate over the last five years. Its growth surpassed the average software company and shows its offerings resonate with customers, a great starting point for our analysis.
The Trade Desk Quarterly Revenue
We at StockStory place the most emphasis on long-term growth, but within software, a half-decade historical view may miss recent innovations or disruptive industry trends. The Trade Desk’s annualized revenue growth of 23.4% over the last two years is below its five-year trend, but we still think the results suggest healthy demand.
The Trade Desk Year-On-Year Revenue Growth
This quarter, The Trade Desk reported year-on-year revenue growth of 17.7%, and its $739.4 million of revenue exceeded Wall Street’s estimates by 2.8%. Company management is currently guiding for a 13.4% year-on-year increase in sales next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 14.1% over the next 12 months, a deceleration versus the last two years. This projection doesn’t excite us and suggests its products and services will face some demand challenges. At least the company is tracking well in other measures of financial health.
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The customer acquisition cost (CAC) payback period represents the months required to recover the cost of acquiring a new customer. Essentially, it’s the break-even point for sales and marketing investments. A shorter CAC payback period is ideal, as it implies better returns on investment and business scalability.
The Trade Desk is extremely efficient at acquiring new customers, and its CAC payback period checked in at 5.2 months this quarter. The company’s rapid recovery of its customer acquisition costs indicates it has a highly differentiated product offering and a strong brand reputation. These dynamics give The Trade Desk more resources to pursue new product initiatives while maintaining the flexibility to increase its sales and marketing investments.
We were impressed by how significantly The Trade Desk blew past analysts’ revenue and EBITDA expectations this quarter. We were also glad its revenue and EBITDA guidance for next quarter exceeded Wall Street’s estimates. Between July and October, the company repurchased $370 milion of stock, maxing out its share repurchase program, and the board subsequently authorized an additional $500 million of repurchases. A blemish was a sizeable step-up in capital expenditures: in Q1 and Q2, capex collectively clocked in at $110 million; in this quarter alone, that figure hit $70 million. Overall, we think this was a solid quarter with many key metrics above expectations, but investors are likely punishing the company for its capital intensity. Shares traded down 7.4% to $42.48 immediately following the results.
So do we think The Trade Desk is an attractive buy at the current price? When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free for active Edge members.
