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Internal glitches or emerging competition may be to blame for companies missing earnings estimates. Common reasons include poor execution, low customer demand, macroeconomic challenges, or shifts in the competitive landscape. Green attributed the disappointing results to subpar execution, emphasizing that the setback was not due to a smaller market opportunity or increased competition. Rather, he pointed to a series of minor execution missteps while also preparing for the future.
One of these missteps was the delayed rollout of Kokai, AppLovin’s new artificial intelligence-based platform for customers. Despite this setback, management aims to migrate all customers from Solimar to Kokai by the end of the year. Additionally, a major reorganization in December and strategic decisions favoring long-term growth over immediate revenue may have contributed to the slowdown.
Is AppLovin a potential threat? Green did not address competitive risks during the call, focusing more on major advertising platforms like Google, Meta Platforms, Amazon, and Apple. However, AppLovin, known for its focus on mobile gaming apps and app monetization, has surpassed The Trade Desk as the largest independent DSP with a substantial revenue increase.
While AppLovin and The Trade Desk serve different markets, AppLovin’s expansion into new sectors poses a challenge. The company plans to tap into the direct-to-consumer market, introduce a self-service AI dashboard, and explore Connected TV advertising this year. As The Trade Desk’s significant growth comes from video advertising, particularly CTV, these developments may impact its market position.
Green believes that The Trade Desk’s recent performance is more attributed to internal missteps than external factors like competition from AppLovin. However, with AppLovin’s ambitious plans for 2025 and impressive growth, it’s evident that both platforms are heading for a collision course. While businesses often utilize multiple DSPs, the competition between these two giants may intensify as they vie for market share in the expansive advertising industry.
Despite The Trade Desk’s strong reputation, further scrutiny is needed to evaluate the company’s recent guidance miss. It’s premature to draw conclusions based on one quarter’s results, and the evolving landscape warrants continued observation of how these industry leaders navigate the changing dynamics.
Give it just another quarter to set things right, yet another miss in guidance could deal a heavy blow to the stock, suggesting that it might be competition rather than internal errors hindering the company’s growth. Keep a close watch on The Trade Desk’s customer retention figures as well. For the past 11 years, the company has consistently reported customer retention rates exceeding 95% each quarter. A deviation from this trend would raise a significant red flag.
As of now, my intention is to retain my shares in The Trade Desk, seeing a favorable opportunity for recovery, particularly with the stock trading at a price-to-earnings ratio of just 50 based on adjusted earnings per share. It is important to note that a revenue growth rate of 22% remains quite impressive. The recent setback experienced by The Trade Desk stemmed from a guidance miss. Typically, such occurrences signal to the market that the stock may have been previously overvalued, necessitating a reassessment of expectations based on updated earnings and guidance from management.
Nevertheless, with the remarkable surge of AppLovin, there is now a looming risk that the competitive landscape may be more intricate than what Green is acknowledging, and investors should not overlook this aspect. We anticipate receiving a clear resolution on this matter at some point during this year.
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John Mackey, the former CEO of Whole Foods Market, an Amazon subsidiary, sits on The Motley Fool’s board of directors. Randi Zuckerberg, the ex-director of market development and spokesperson for Facebook, and sister to Meta Platforms CEO Mark Zuckerberg, is also a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, holds a seat on The Motley Fool’s board of directors. Jeremy Bowman holds positions in Amazon, Meta Platforms, and The Trade Desk. The Motley Fool holds positions in and recommends Alphabet, Amazon, AppLovin, Apple, Meta Platforms, and
