The Trade Desk

The Trade Desk shares are selling off by over 20% after reporting continued deceleration in growth during the second quarter. Third-quarter guidance is extremely weak, indicating a 12% year-over-year revenue decline and lower operating margins.

Why it matters: Our measurements show that growth in the overall advertising market is reaccelerating, yet it continues to move away from The Trade Desk. The Trade Desk’s slowdown and an artificial intelligence-driven advertising supply chain that favors proprietary data (where The Trade Desk remains underresourced) give us limited confidence in a near-term turnaround. Quarter after quarter, management states that its value proposition of independence (no inventory ownership) will deliver results as advertisers question the performance of closed ecosystems like Meta, Google, and Amazon. We aren’t seeing that in the data. We estimate the three ad giants have gained 250 basis points of market share over the past two years to 82%. We believe TTD is at a structural disadvantage because it operates only on the demand side of the advertising supply chain. In contrast, the ad giants and AppLovin operate as closed-loop platforms, with ownership over proprietary conversion data. Performance differences are likely to widen.

The bottom line: We reduce our fair value estimate to $16 from $21, reflecting a decrease in our forecast of average annual growth over the next five years to 4% from 9%. This better reflects our view that pure-play demand-side platforms face a data ceiling on model improvements. Beyond lower growth expectations, tension with its largest customers, and significant senior management turnover, we struggle to endorse a company with large, persistent transfers of wealth from shareholders to employees via massive stock-based compensation. SBC has averaged roughly $500 million per year since 2022, yet the company’s largest annual GAAP net income was around $440 million in 2025.

Management blamed a poor economic environment for dragging overall advertising spend. While we see some validity to uneven consumer health, we view this more as an excuse for poor execution, even as other advertising platforms are growing impressively.

Our $16 fair value estimate implies an enterprise value equal to 6 times our 2026 adjusted EBITDA estimate.

We project The Trade Desk's sales growth to slow substantially, from nearly 20% or more each year throughout its history, to low to mid-single digits over the course of our forecast. We expect it to lose share in the rapidly growing digital advertising market while also realizing lower take rates. We believe the firm accounts for just under 2% of the digital advertising spending, and we expect this to slowly decrease to approximately 1.2% penetration by 2035.

As a software solution, TTD enjoys operating leverage on almost every major cost line item. The firm’s highest costs, like salaries, do not increase 1-for-1 with increases in revenue. As TTD increases revenue, it can theoretically spread this revenue across a fixed-cost base, becoming more profitable over time, but we expect some platform operations expenses, such as providing technical support to clients, to remain relatively sticky. Also, rising competition may require some pricing concessions to maintain client satisfaction, offsetting operating leverage elsewhere.

Taken together, we expect gross margin to normalize in the 70-75% range over the next 10 years, down from more than 80% historically. We project the operating margin to rise slightly over time, from 20% in 2025 to 23% by 2035, with operating leverage slightly more than offsetting the gross margin pressure.

We assign The Trade Desk a Morningstar Economic Moat Rating of none, as it lacks a durable competitive advantage.

Competitive pressure is rising as Amazon becomes a strong alternative. With its extensive scale and valuable consumer behavior data, Amazon is likely to challenge TTD’s growth and profit margins. The emergence of text-based, agentic workflows and the growing customer demand for outcome-oriented, low-touch optimization tools are making TTD’s user interface less sticky. Considering these factors, we believe The Trade Desk is unlikely to develop a moat in the future.

TTD enables advertising clients to establish parameters by adjusting targeting factors, such as ideal demographics and location, to algorithmically value ad inventory as it becomes available. We believe this deep control over campaign targeting and decisioning is valuable to the largest brands (about half of the $800 billion digital advertising market) that assign considerable portions of their budgets to ad agencies. However, demand is increasingly shifting to lower-touch, highly automated advertising campaign tools, such as those available on search, social, and retail platforms (Google, Meta, Amazon) and even AppLovin’s black-box optimizer, AXON 2.

Building low-touch automated tools is expensive to develop, and they require ownership of deep consumer behavior data. Competitors like Google have this data from its workplace productivity suite, YouTube data, and search preferences. Meta has it from Reels viewership, conversion metrics, and Facebook profile history. Amazon has it from marketplace habits and prime viewership history. AppLovin has 13 years of gaming data and application download history. TTD instead primarily relies on reselling third-party data and orchestrating client data, but the lack of true ownership reduces differentiation and barriers to replication, ultimately calling into question the future excess returns on capital.

While TTD’s models can optimize campaign performance by analyzing past bid outcomes and developing a probabilistic view of campaign success, it is the advertising networks that own the supply and auction mechanics that have the more deterministic, and thus higher-quality, targeting, conversion, and attribution models. We are seeing this probabilistic-versus-deterministic discrepancy play out in Amazon's emergence as a viable competitor.

We believe Amazon is directly stealing business from TTD, primarily through free head-to-head DSP testing, which launched aggressively in 2025. Major ad agencies, traditionally TTD's largest customers, are increasingly shifting advertising budgets from TTD’s platform to Amazon’s due to lower take rates. Accordingly, gross ad spending growth on TTD’s network is shrinking, while Amazon’s advertising revenues are growing at increasingly higher rates. We estimate that TTD lost market share for the first time ever in 2025. We believe TTD’s relatively high take rate of 20%-21% will come under pressure as it attempts to retain business.

There is value in TTD’s independence. Since it doesn’t own inventory, advertising clients don’t need to worry about the same conflicts of interest that come with advertising on Amazon’s, Google’s, or Meta’s ad networks. However, other independent DSPs have echoed this same point and still struggle to grow. MediaMath went bankrupt in 2023. StackAdapt is small and misses out on large ad budgets from major ad agencies and big advertisers. Adform is strong in Europe but weak elsewhere. The shift in agency budgets from TTD to Amazon shows that this independence story is overwhelmed by who can offer the lowest take rates and, ultimately, the highest return on ad spending. When take rate and return-on-ad-spending concerns play out, TTD loses to its bigger competitors, notably Amazon.

TTD's proprietary algorithms for identification and real-time ad bidding are viable solutions in an advertising environment that prioritizes adjustment and optimization campaigns.

As an unbiased advocate for advertiser budgets, TTD has a compelling message relative to less transparent ad giants like Google, Meta, and Amazon.

If the firm can get widespread adoption of its solutions that simplify the advertising supply chain, it will foster unmatched publisher dependence.

Most advertising dollars are routed to the ad giants. Firms like Google and Meta have no incentive to work with TTD, since it would compress their ad revenue.

Digital advertisers' demand is increasingly shifting to lower-touch, highly automated advertising campaign tools, opposite of The Trade Desk's higher-touch model.

Amazon's demand-side platform directly targets TTD's advertising space on the open internet, and its scale allows it to outcompete on price, pressuring TTD's margins.