Hook / Thesis
News headlines in January 2026 have been brutal: headlines talk about a 68% collapse in 2025 and tariff/macro fears that allegedly kill ad-tech growth. That narrative is louder than the numbers. The Trade Desk (TTD) still grew revenue sequentially through fiscal 2025, holds roughly $1.45B in cash, produces strong operating cash flow, and has materially reduced its share count. At a ~34.36 stock price the market is pricing a much darker outcome than the company’s reported cash-generation and operating margins suggest - that gap creates a tradeable long with well-defined risk control.
In short: the death of TTD's growth is exaggerated. This is a tactical long with a position horizon of months to a couple of quarters (position trade) — buy into stabilization, sell into re-rating or better-than-expected top-line momentum. I outline entry bands, stops, targets and the data that matters.
What The Trade Desk Does and Why the Market Should Care
The Trade Desk provides a self-service demand-side platform that programmatically purchases digital inventory across display, video, audio and connected TV. The platform generates fees as a percentage of clients' ad spend and uses iterative data-driven optimization to improve campaign performance. That makes the business model variable-cost friendly: revenue scales with advertiser spend while the company captures a fee margin and drives high gross margins.
Why the market should care: programmatic ad-buying and addressable CTV remain secular winners for marketers seeking measurable outcomes. If advertiser demand recovers or shifts back into programmatic channels, Trade Desk benefits very directly and without the heavy physical-capex footprint of other tech plays. Management also demonstrates capital stewardship via consistent negative financing cash flows (repurchases) and shrinking diluted shares, which supports EPS even if revenue growth is uneven.
Numbers that Matter - Concrete Evidence
Look at the most recent reported quarters (all amounts USD):
- Q3 FY2025 (ended 09/30/2025): Revenues $739.4M; gross profit $577.3M (gross margin ~78%); operating income $161.2M (operating margin ~21.8%); net income $115.5M.
- Q2 FY2025 (ended 06/30/2025): Revenues $694.0M; operating income $116.8M; operating cash flow $165.0M.
- Q1 FY2025 (ended 03/31/2025): Revenues $616.0M; operating cash flow $291.4M.
Quarter-to-quarter revenue progression for the last three reported quarters (Q1-Q3 FY2025) shows sequential growth from $616M to $694M to $739M. That’s not the profile of a business in terminal decline - it’s sequential recovery and expansion through the year.
Cash flow and balance-sheet highlights:
- Cash balance (Q3 FY2025): $1.445B.
- Net cash from operating activities (Q3 FY2025): $224.7M for the quarter.
- Net cash used in financing activities (Q3 FY2025): -$401.2M, consistent with share repurchases and capital returns in prior quarters (Q1 FY2025 financing -$409.8M, Q2 -$173.6M).
- Diluted average shares in Q3 FY2025: ~492.98M (down from ~502.94M in Q1 FY2025) - showing buyback-driven share reduction.
Valuation snapshot - estimate (transparent arithmetic): last trade around $34.36 (01/21/2026 close in data). Using diluted shares as a proxy for shares outstanding (492.98M), implied market cap is roughly $16.9B (34.36 * 492.98M ≈ $16.94B). Approximate trailing-four-quarter revenue (using the four most recent quarterly revenue figures available in filings: Q3 FY2025 $739.4M + Q2 FY2025 $694.0M + Q1 FY2025 $616.0M + Q3 FY2024 $628.0M) ≈ $2.68B. That implies a market-cap / trailing revenue of roughly 6.3x. This is a rough snapshot - I use the available quarter set as the last twelve months proxy given the reporting cadence.
Why that Valuation Looks Too Cheap - And Why That Matters
A ~6x revenue multiple for a company with 20%-plus operating margins, high gross margins (~78% in Q3 FY2025) and strong operating cash flow is a valuation that assumes prolonged structural deterioration. Put differently, you are paying near-value-for-money multiples for a company that still prints cash, has an effectively shrinking share count, and sits in a secularly attractive part of digital advertising (programmatic and CTV). If top-line growth re-accelerates modestly and sentiment normalizes, re-rating to a mid-teens EV/Revenue multiple or a simple multiple expansion towards historical levels would produce sizable upside from current prices.
Note of caution: the market has punished many ad-tech names in late 2025 due to macro and regulatory headlines, and sentiment can lag fundamentals. This is why the trade is risk-controlled, not a full conviction buy-and-forget.
Trade Plan (Actionable)
- Trade direction: Long
- Time horizon: Position trade (weeks to a few quarters).
- Entry: 32.00 - 36.00 (accumulate in the range; if filled above 36, trim). Current last trade showed ~34.27-34.36 on 01/21/2026.
- Initial stop: 27.00 (about 20% below the mid-entry and below prior intraday swings). Use a hard stop or mental stop depending on risk tolerance.
- Targets (staged):
- Target 1: $45 - tactical upside on sentiment improvement and modest multiple expansion (~30% from mid-entry).
- Target 2: $60 - re-rating + execution tailwind (roughly +75%).
- Target 3: $85 - strong conviction outcome if programmatic/CTV ad spend recovers meaningfully and margins hold (+150%).
- Position sizing / risk framing: risk no more than 2-3% of portfolio on the trade (use stop at $27 to frame max loss). This is not a low-risk trade; it's a value/recovery play executed with disciplined stops.
Catalysts to Watch
- Quarterly revenue beats / re-acceleration - any quarter showing sequential acceleration beyond the recent pace will force reassessment of valuation.
- Improving CTV monetization metrics or new feature rollouts that expand addressable spend.
- Continued or accelerated buybacks / share reductions - financing cash outflows have been significant and are supporting EPS.
- Macro stabilization - advertiser budgets thawing or reallocated to programmatic channels.
Risks and Counterarguments
Be explicit: TTD is not risk-free. The bear case has merit and could persist. Main risks include:
- Macro / advertiser pullback: If advertiser budgets continue to shrink or shift away from programmatic/CTV, revenue could compress further. The business is cyclical with marketing spend.
- Competitive pressure and pricing: Increased competition (from platforms wanting to internalize ad spend) could pressure market share or fees.
- Regulatory / tariff shock: Recent headlines about tariffs and trade risk are creating uncertainty for the ad-tech ecosystem; regulatory changes to data usage or cross-border trade could increase costs or reduce targeting effectiveness.
- Execution risk on product roadmap: The company must continue to convert product investments into measurable advertiser ROI; R&D spend is meaningful (Q3 FY2025 R&D $127.9M) and needs to pay off.
- Sentiment and liquidity: Even if fundamentals stabilize, market sentiment can remain negative for extended periods and the stock can remain range-bound or decline further.
Counterargument: The market's heavy derating could be correct if 2026 brings a protracted ad-spend contraction or if platform-level changes (privacy/regulation) materially raise the cost of customer acquisition and targeting. In that scenario, margins and revenue would both compress and the current multiple could still be too generous.
What Would Change My Mind
I will downgrade the trade thesis if one or more of the following happens:
- Consecutive quarters of revenue decline or margin erosion (two+ sequential quarters of materially lower revenues and operating margin contraction).
- Cash-flow deterioration: operating cash flow turns negative while financing remains negative (i.e., management keeps buying back stock but operating cash generation weakens).
- Material competitive losses evidenced by sustained market-share erosion in core programmatic or CTV segments reported by large advertisers.
Conclusion - Balanced Stance
At roughly $34.35 the market is pricing The Trade Desk like a broken legacy business rather than a still-cash-generative ad-tech platform. Reported sequential revenue growth in FY2025, high gross margins (~78% in Q3 FY2025), strong operating cash flow (Q3 operating cash flow $224.7M) and visible capital returns (financing outflows) argue that downside is already discounted. This is a tactical long: buy in the 32-36 range, limit downside with a stop near $27, and take staged profits at $45, $60 and $85 as catalysts play out.
If you own the stock, treat it like a recovery play and size accordingly. If you are trading options, consider conservative credit spreads or deep-in-the-money calls to reduce time decay risk while keeping an asymmetric upside bias.
Note: I use the company's latest reported quarterly metrics and the most recently observable share-count proxies to frame valuation and risk. Keep an eye on the quarterly earnings cadence and the advertiser-demand commentary; those two items will drive short-term re-rating.
Reference: company website thetradedesk.com. Report filings used are the company's quarterly filings through 11/06/2025 (Q3 FY2025 acceptance 11/06/2025).