AdTech Stock Reaches New Highs: Should You Buy on the Pullback?

Key Points

• Trade Desk is the world’s largest independent demand-side AdTech platform for advertisers, making it a barometer of the health of the advertising market.
• Trade Desk shares hit new 52-week highs on July 10, 2024.
• Over the past 12 months, Ad Age Magazine's Top 200 Advertisers in the World have used Trade Desk’s platform.

Digital advertising has rebounded from the doldrums of 2022, powered by the growth of connected TV (CTV) and ad-supported video on demand (AVOD). This is exemplified by the surge to 52-week highs for the largest independent demand-side advertising technology (AdTech) platform provider,  The Trade Desk Inc. NASDAQ: TTD. Shares may be ripe for a pullback as a daily rising wedge reversal pattern shapes up in the candlestick chart.

The Trade Desk operates in the computer and technology sector. It competes with other AdTech providers, including Alphabet Inc. NASDAQ: GOOGL, Google Ads, Meta Platforms Inc. NASDAQ: META, Facebook Ads, and Amazon.Com, Inc. NASDAQ: AMZN, Amazon Ads.

What are CTV, AVOD, and a DSP?

CTV, AVOD, and DSP may not be familiar terms to you, but if you’ve ever streamed an ad-supported (AVOD) program or movie on a smart TV, you’re in the loop.

CTV refers to a delivery method that focuses on delivering video content through an internet-connected device. These devices include Roku Inc. NASDAQ: ROKU smart TVs, Apple Inc. NASDAQ: AAPL Apple TV set-top boxes, streaming sticks like Amazon Firestick, and gaming consoles like the Sony Co. NYSE: SNE PlayStation and Microsoft Co. NASDAQ: MSFT Xbox.

DSP refers to a platform that connects advertisers with ad inventory. Advertisers include brands and advertising agencies seeking to purchase advertising space across the internet, including videos, websites, mobile apps, and digital channels. The Trade Desk utilizes artificial intelligence (AI) and machine learning (ML) algorithms to generate data-driven targeting. This helps advertisers target their ads to specific audiences based on various factors, including online behavior, interests, and demographics. It also enables real-time automated bidding on a programmatic basis on ad impressions.

The Trade Desk: Expanding the Definition of AVOD

While AVOD traditionally refers to videos with ads, they also refer to the ad-support tiers with a discounted fee but aren’t free. Most of the largest paid streaming services, including Netflix Inc. NASDAQ: NFLX, The Walt Disney Co. NYSE: DIS Disney+ and Warner Bros. Discovery Inc. NASDAQ: WBD MAX have an ad-supported lower-priced subscription tier. Bundled services also tend to include the ad-support versions of the respective services, which helps the channels get more eyeballs and potential conversions to their premium-priced ad-free tiers.

TTD Stock Sets Up a Rising Wedge Pattern

The daily candlestick chart on TTD illustrates a classic rising wedge pattern. This is a reversal pattern comprised of converging upper and lower trendlines as they both make higher highs in a narrowing channel. Eventually, the stock may break down under the lower trendline to trigger a reversal. The daily relative strength index (RSI) has been chopping between the 70 and 50-band channels. This can indicate divergence as the RSI should rise when TTD makes a new high. The divergence is also an early sign of a potential price reversal. Pullback support levels are at $94.00, $90.76, $85.68, and $76.12.

The Trade Desk Signals the Rebounding Ad Market 

In its Q1 2024 earnings report, The Trade Desk beat consensus estimates by 4 cents, generating EPS of 26 cents. Revenues surged 28.3% YoY to $491.25 million, beating $480 million estimates. They provided upside revenue guidance for Q2 2024 of at least $575 million versus $566.83 million consensus estimates. Adjusted EBITDA is expected to be around $223 million.

Ad Age’s Top 200 Advertisers in the World Use The Trade Desk Platform

CEO Jeff Green noted that its platform is used by Ad Age’s top 200 global advertisers. They have used The Trade Desk platform over the last 12 months. CTV is still expanding rapidly, “Even with its considerable size, CTV continues to be our fastest-growing channel. Over the past few months, industry giants like Disney, NBCU, Walmart, Amazon, and now Roku, and LG Electronics have all made deeper pivots into CTV, many of them in partnership with us, bringing more opportunity for advertisers.”

With shares making 52-week highs ahead of earnings, expectations are elevated. Sentiment is very bullish, so the company must not only beat but continue to raise forward guidance to keep its momentum going. Otherwise, it will face a sell-the-news reaction after Q2 2024 earnings and release in early August 2024.

The Trade Desk analyst ratings and price targets are at MarketBeat.