The Trade Desk Stock Tumbles. Is AppLovin the Culprit?

Green didn’t discuss any competitive threats on the call, and The Trade Desk and other DSPs typically don’t factor into the company’s calculus, as it tends to focus instead on the dominant ad platforms like Alphabet’s Google, Meta Platforms, Amazon, and Apple, which he refers to as walled gardens that he believes will eventually open up to platforms like The Trade Desk.

The Trade Desk had long been the biggest independent DSP on the market, but AppLovin has now taken that crown. AppLovin reported 75% growth in advertising revenue to $3.22 billion for 2024, ahead of The Trade Desk’s $2.44 billion in revenue on 26% growth.

AppLovin and The Trade Desk aren’t close competitors. AppLovin has historically focused on mobile gaming apps and helping developers monetize apps. The Trade Desk, on the other hand, targets big brands and agencies, implementing and optimizing ad campaigns across multiple channels.

As AppLovin has grown, however, it’s focused on new markets to fuel its expansion. It’s expanded to direct-to-consumer (DTC) brands and aims to add more businesses in the digital economy this year. In 2025, it plans to launch a self-service AI dashboard, similar to what The Trade Desk offers, and it aims to “explore” Connected TV (CTV) advertising this year as well. That’s significant, as video, including CTV, now represents nearly 50% of The Trade Desk’s business, and the company sees CTV as a major growth opportunity.

The Trade Desk’s next biggest market is mobile — AppLovin’s base — which accounts for a mid-30% percentage of ad spend on The Trade Desk’s platform.

If Green is correct, his company’s shortfall may owe more to its errors than an outside factor like competition from AppLovin, but AppLovin’s plans for 2025 and its blowout growth indicate that the two adtech platforms are on a collision course.

Businesses often use more than one DSP, so the two companies can both grow by grabbing market share elsewhere and benefiting from a growing pie. But ultimately, they’re fighting for a piece of the same pie, though the advertising market is massive.

Given its stellar track record and Green’s sterling reputation, the company’s reasoning for missing guidance deserves to be taken at face value, and one quarter of results isn’t enough evidence to conclude that something fundamental has changed with The Trade Desk.

The company deserves at least another quarter to get things right, but another guidance miss would crush the stock and indicate that it could be competition that is sapping the company’s growth, rather than internal missteps.

Keep an eye on The Trade Desk’s customer retention numbers as well. The company has reported customer retention of more than 95% every quarter for the past 11 years. If that were to change, that would be a big red flag.

For now, I plan to hold my shares of The Trade Desk, and I think there’s a good opportunity for a recovery, especially with the stock trading at a price-to-earnings ratio of just 50 based on adjusted earnings per share. Keep in mind that 22% is still an excellent revenue growth rate. The Trade Desk just got punished because it missed its guidance. Guidance misses are usually a signal to the market that the stock was already overvalued, and that expectations need to be reset based on updated earnings and guidance from management.

However, with AppLovin surging, there is the risk now that the competitive landscape could be more complex than Green is admitting, and investors shouldn’t ignore that. We should get a clear answer sometime this year.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Jeremy Bowman has positions in Amazon, Meta Platforms, and The Trade Desk. The Motley Fool has positions in and recommends Alphabet, Amazon, AppLovin, Apple, Meta Platforms, and The Trade Desk. The Motley Fool has a disclosure policy.

The Trade Desk Stock Tumbles. Is AppLovin the Culprit? was originally published by The Motley Fool