Trade Desk shares fall 17% on lower guidance

Shares of digital ad company The Trade Desk fell 17% Friday, a day after the company reported third-quarter results and issued weak revenue guidance.

The company estimates revenue of at least $580 million during the fourth quarter, but analysts were looking for $610 million, according to LSEG, formerly known as Refinitiv.

The Trade Desk's third-quarter earnings beat analysts' expectations both in earnings and revenue. It posted adjusted earnings of 33 cents per share, beating the LSEG estimate of 29 cents. Revenue totaled $493 million, beating the $487.04 million expectation.

Analysts keyed in on the likelihood of softer ad spending in the December quarter. The company said it has seen cautiousness from advertisers in the auto and entertainment industries, both of which have been affected by recent strikes.

"Despite being a market leader as the largest independent demand-side platform (DSP), we believe TTD is not immune to a downturn in advertising spend," said analysts at Wolfe Research in a note to investors.

The Trade Desk is one of many companies that have cited weaker ad spending as a reason to exercise caution or temper expectations for the fourth quarter. Meta, Pinterest and Snap all expressed concern over disrupted ad spending due to the Israel-Hamas war.

Wolfe Research analysts are concerned over the sustainability of The Trade Desk's growth in connected TV, which is a significant contributor to the company's revenue.

"It is unclear whether CTV can sustain the high growth it has realized in the medium term, which in our view poses a risk to TTD top-line growth which has been driven by both the broad strength of CTV and TTD's share gains within the CTV channel," the Wolfe Research analysts wrote.

Analysts at Needham say the dip is a buying opportunity.

Needham analysts said in a note to investors that The Trade Desk typically over-delivers on guidance and its fourth-quarter fundamentals don't "threaten TTD's winner-take-most strategic position, deep moats, or its pricing power, we are buyers on weakness."

"For investors who 'missed' TTD, today you can buy the AdTech industry leader at a discount," they said.