Hook / Thesis
The Trade Desk (TTD) is no longer the double-digit revenue growth machine it used to be. That is the bad news the market has been digesting all through 2025. The good news — and the reason for this trade idea — is that the business is now demonstrably converting growth into profits and cash flow. Quarterly results show operating income rising sequentially even as top-line growth slows; cash on the balance sheet plus aggressive buybacks mean management is prioritizing return of capital.
Put simply: the hyper-growth era is over, the profit era begins. That’s a structural change investors can trade. I think the stock is a buy from current levels for investors willing to accept execution risk and a jittery ad market in exchange for margin expansion and capital returns. This is a tactical, position-sized long with strict risk controls.
The business and why the market should care
The Trade Desk operates a demand-side platform (DSP) that allows advertisers and agencies to programmatically buy digital inventory across display, video, audio and connected TV (CTV). The company earns revenue largely as a fee tied to advertiser spend. Its economics are typical of a high-utility marketplace: gross margin after pass-through cost of inventory can be high, and scale drives incremental operating leverage.
Why the market cares: programmatic advertising budgets have reallocated toward CTV and data-driven channels, but advertisers are also demanding efficiency. That puts pressure on revenue growth but offers the platform a lever to improve margins by focusing on higher-margin products, tightening costs and returning cash to shareholders. The Trade Desk’s recent numbers show exactly that shift.
What the numbers say
- Revenue trajectory: Quarterly revenues were $616.0M (Q1 2025), $694.0M (Q2 2025) and $739.4M (Q3 2025). Growth is positive but decelerating - Q1->Q2 +12.7% and Q2->Q3 +6.5% (quarter-over-quarter).
- Profit improvement: Operating income moved from $54.5M in Q1 to $116.8M in Q2 and $161.2M in Q3 2025. That implies the company is generating margin expansion even as revenue growth slows. Q3 operating margin was ~21.8% (161.2 / 739.4).
- Net income and EPS: Net income was $50.7M (Q1), $90.1M (Q2) and $115.5M (Q3). Diluted EPS for Q3 was $0.23. Nine-month net income totaled roughly $256.4M; annualized that approximates $342M, implying a forward-ish P/E in the mid-50s on today's market cap (see valuation discussion below).
- Cash flow & capital return: The company produced $224.7M of operating cash flow in Q3 and held $1.445B of cash on the balance sheet at quarter-end. Financing activities show material cash outflow (net cash flow from financing -$401.2M in Q3), consistent with share repurchases and capital return.
- Balance sheet: Total assets were ~$5.94B vs liabilities ~$3.34B, leaving equity of about $2.60B. Accounts payable is large (~$2.76B), which is typical for an adtech business that passes advertiser spend through the platform.
Valuation framing
Using shares outstanding from the most recent quarter (diluted average ~493M) and a market price around $37, implied market capitalization is roughly $18.4B. Annualizing the trailing nine-month net income gives an approximate annual net income of $342M; that implies a price-to-earnings ratio near 54x. That valuation is expensive for a company whose revenue growth has clearly slowed, but it becomes more logical if you believe management can sustain margin expansion and grow free cash flow meaningfully through buybacks and operating leverage.
Historically, The Trade Desk traded at much higher growth multiples during the CTV boom; investors are now demanding evidence that free cash flow and capital return will replace pure top-line expectations. The stock crash of 2025 has partly priced in that shift - the implied multiple is consistent with a software-like growth/quality hybrid rather than a pure growth multiple, but it still requires execution.
Trade idea (actionable)
- Position: Long TTD, initiate a position size appropriate to your portfolio (I recommend 2-4% of portfolio for a typical retail investor willing to take higher risk).
- Entry: $36.00 - $38.50. Current market price is trading in this band and offers a reasonable risk-reward given support around $36 and recent trading range.
- Stop: $32.00. This is a hard stop to limit downside if sentiment continues to deteriorate - roughly 12-15% below the entry band, and below recent intraday lows and the $33 area where momentum has failed previously.
- Targets:
- Target 1 (near-term): $45.00 - a ~20% upside reflecting multiple re-rating on visible margin expansion and stabilization of advertising demand.
- Target 2 (medium-term): $55.00 - a ~50% upside assuming continued buybacks, operating margin improvement toward the mid-20s and modest revenue stabilization.
- Time horizon: Position trade - 3 to 12 months depending on catalyst flow (quarterly results, buyback cadence and CTV demand recovery).
- Risk level: High. This is not a defensive trade; it requires tolerance for continued revenue weakness and macro-driven ad swings.
Catalysts
- Margin expansion evidence from the next 1-2 quarters: continued sequential operating income improvement (management commentary and line-item disclosure on cost control and higher-margin product sales).
- Share repurchase cadence and disclosure: follow-through on the financing outflows already seen - higher buybacks would lift EPS materially given the share count.
- Stabilization or re-acceleration of CTV ad spend: any sign that advertisers return to programmatic CTV in force would re-open the growth story.
- Positive commentary on AI/measurement improvements (better ROI for advertisers) that help re-accelerate client spend without materially increasing cost of goods sold.
Risks and counterarguments
Be explicit: this trade is predicated on the company executing margin expansion and buybacks while the ad market stabilizes. There are straightforward reasons the thesis could fail:
- Ad demand deterioration: A recession or prolonged advertising budget squeeze would hit revenue and could reverse margin trends if the company is forced to match lower spend by customers.
- Competitive pressure and pricing: Large platforms (social, walled gardens) and other DSPs could compress the addressable fee pool; if The Trade Desk cannot price or differentiate, revenue per impression could fall.
- Execution risk on cost control: Margin expansion seen so far could reflect temporary lapping effects. If R&D or sales investments need to resume to defend share, margins could re-compress.
- Regulatory/privacy changes: Additional privacy restrictions or measurement limitations that reduce targeting effectiveness would make buyers less willing to pay premium fees.
Counterargument: The contrarian view is that the stock is already cheap and any resumption of high single- to double-digit revenue growth (driven by CTV and AI-enabled ad products) will drive a near-term re-rating. Given management’s track record of product innovation and a large cash balance, the company could re-enter a higher-growth trajectory faster than the market expects. That makes holding some size through volatility a reasonable alternative.
Conclusion & what would change my mind
I am constructive on TTD from current levels as a tactical long targeting a profit/margin re-rating, not a return to the hyper-growth multiple the company enjoyed earlier in the cycle. The trade assumes management will continue returning capital and that operating leverage can carry EPS and cash-flow growth even as revenue growth decelerates.
I would change my view if any of the following occur:
- Management signals a sustained return to heavy reinvestment that materially slows buybacks and cash returns (I would need to see reallocation of capital to R&D/scale at the cost of buybacks).
- Quarterly operating income reverses materially (two consecutive quarters of operating income decline vs revenue), which would indicate the margin story is breaking down.
- Ad market indicators (industry surveys, client commentary) show structural retraction in programmatic/CTV budgets rather than a cyclical slowdown.
Disclosure: This is a trade idea, not personalized financial advice. Position size, entry and stop should be adjusted to your risk tolerance and portfolio constraints. All price levels are approximate and based on recent market trading.
Published: 01/10/2026