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It has been a brutal year so far for the Trade Desk (Nasdaq: TTD) as its stock price has tanked about 61% year-to-date. It has been the worst performer on the S&P 500 and the Nasdaq 100 this year.

Since it went public in 2016, the stock that has been a stellar performer since it went public in 2016. It has an average annualized return since then of more than 30%, rising to $128 per share in November 2024. But since then, the stock has been in freefall, down to its current $46 per share price.

Why the Trade Desk stock is tanking

The Trade Desk offers its clients a cloud-based platform on which to handle its digital advertising, so its clients include large advertisers, like Walmart, Samsung, Toyota, and Cigna to name a few. They also include major advertising agencies, networks and media companies, and streaming platforms like Roku, Disney, Netflix, Paramount, and others.

There are several reasons why the stock has been plummeting. Part of it is the macroeconomic environment.

The economic slowdown, particularly in the first part of the year, caused a lot of advertisers to scale back on their budgets. This has led to slowing growth and missed earnings estimates in the second quarter. While revenue grew 19% in the latest quarter, that disappointed investors who had become accustomed to larger revenue gains.

In Q3, the firm anticipates solid revenue growth of 14%, but that is well short of the 27% revenue growth it saw a year ago.

There are also concerns about increased competition in this space, including large tech companies like Amazon that are running their own advertising ecosystems. Just recently, Netflix signed an agreement with Amazon to use its ads platform.

The other issues stems from its ridiculously high valuation. The success that Trade Desk had since its IPO had skyrocketed its P/E ratio to over 200 this time last year. The stock is now trading at 56 times earnings and 34 times forward earnings. That’s certainly more reasonable, but still high.

What do analysts think?

Analysts generally see the Trade Desk stock as a buy after its rapid decline. The median price target is $75 per share, which suggests 60% upside. The high end of estimates target a $135 per share price target.

However, in recent weeks, both Citi and Morgan Stanley lowered their price targets for Trade Desk to $50 per share, which would be roughly 8% growth. That’s not terrible, but they don’t see huge returns due to increased competition and softness in the connected TV market.

With the Trade Desk, it might be a question of tempering expectations as it enters its next phase of growth. While there are some headwinds, the year-over-year results should start to look better as expectations reset. But its still a little too pricey, so I’d tend to side with Citi’s and Morgan Stanley’s targets.

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