Advertising software maker The Trade Desk (NASDAQ:TTD) reported Q2 FY2023 results exceeding Wall Street analysts' expectations, with revenue up 23.2% year on year to $464.3 million. The company also expects next quarter's revenue to be around $485 million, slightly above analysts' estimates. The Trade Desk made a GAAP profit of $32.9 million, improving from its loss of $19.1 million in the same quarter last year.
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The Trade Desk (TTD) Q2 FY2023 Highlights:
- Revenue: $464.3 million vs analyst estimates of $455.1 million (2.02% beat)
- EPS (non-GAAP): $0.28 vs analyst estimates of $0.26 (8.51% beat)
- Revenue Guidance for Q3 2023 is $485 million at the midpoint, above analyst estimates of $480.5 million
- Free Cash Flow of $118.7 million, down 32.9% from the previous quarter
- Gross Margin (GAAP): 81.3%, in line with the same quarter last year
“Q2 marked another quarter of outstanding execution and share gains for The Trade Desk, delivering $464 million of revenue and 23% growth. With advances in areas such as CTV, retail and identity, we are helping the world’s largest brands buy media on the open internet with more precision and transparency than ever,” said Jeff Green, Co-founder and CEO of The Trade Desk.
Founded by former Microsoft engineers Jeff Green and Dave Pickles, The Trade Desk (NASDAQ:TTD) offers cloud-based software that uses data to help advertisers better plan, place and target their online ads.
The digital advertising market is large, growing and becoming more diverse, both in terms of audiences and media. This as a result drives a growing need for a software that enables advertisers to use data to automate and optimize ad placements.
Sales Growth
As you can see below, The Trade Desk's revenue growth has been strong over the last two years, growing from $280 million in Q2 FY2021 to $464.3 million this quarter.
This quarter, The Trade Desk's quarterly revenue was once again up a very solid 23.2% year on year. On top of that, its revenue increased $81.5 million quarter on quarter, a strong improvement from the $107.9 million decrease in Q1 2023. This is a sign of acceleration of growth and very nice to see indeed.
Next quarter's guidance suggests that The Trade Desk is expecting revenue to grow 22.9% year on year to $485 million, slowing down from the 31.1% year-on-year increase it recorded in the same quarter last year. Ahead of the earnings results announcement, the analysts covering the company were expecting sales to grow 23.4% over the next 12 months.
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Profitability
What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. The Trade Desk's gross profit margin, an important metric measuring how much money there's left after paying for servers, licenses, technical support, and other necessary running expenses, was 81.3% in Q2.
That means that for every $1 in revenue the company had $0.81 left to spend on developing new products, sales and marketing, and general administrative overhead. Significantly up from the last quarter, The Trade Desk's excellent gross margin allows it to fund large investments in product and sales during periods of rapid growth and achieve profitability when reaching maturity.
Key Takeaways from The Trade Desk's Q2 Results
With a market capitalization of $41.7 billion, a $1.43 billion cash balance, and positive free cash flow over the last 12 months, we're confident that The Trade Desk has the resources needed to pursue a high-growth business strategy.
We were impressed by The Trade Desk's strong gross margin improvement, revenue beat, and EBITDA beat this quarter. We were also glad it raised its revenue and EBITDA guidance for next quarter, topping Wall Street's estimates. Overall, this quarter's results seemed fairly positive and shareholders should feel optimistic. Investors were likely expecting more, however, and the stock is down 6.03% after reporting, trading at $76 per share.
So should you invest in The Trade Desk right now? 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.
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The author has no position in any of the stocks mentioned in this report.
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