Why The Trade Desk Stock Crashed 40% in February

Shares of The Trade Desk (NASDAQ: TTD) plunged 40.8% lower in February 2025, according to data from S&P Global Market Intelligence. The digital advertising expert's fourth-quarter report fell short of Wall Street's revenue targets on Feb. 12, raising questions about the company's growth prospects.

Q4 results, by the numbers

The Trade Desk was no slouch in Q4 2024. Revenues rose 22% year over year, landing at $741 million. Adjusted earnings jumped 44% higher to $0.59 per diluted share.

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That was still below everyone's expectations, though.

Management's guidance for this period called for revenues of "at least" $756 million. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) was supposed to stop near $363 million. The reported result for that profit metric was $350 million -- another shortfall. The Trade Desk exceeded the average analyst's earnings target of $0.57 per share, but the consensus revenue estimate stood at $759 million.

So the fourth quarter was robust, but not as impressive as expected. Moreover, revenue guidance for the first quarter suggested just 17% of growth from the year-ago period. And it's not a seasonal effect -- The Trade Desk reported 28% revenue growth in the first quarter of 2024.

The stock closed 33% lower the next day, and it continued to slide for the rest of the month.

The Trade Desk is taking action

The management team takes financial forecasting very seriously. On the earnings call, founder and CEO Jeff Green essentially apologized for setting unreachable guidance targets.

"Our success to this point has been fueled at least in part by our ability to win trust with investors, partners, our industry and our customers. There are very few things that rival that in importance to us," Green said. "We stumbled due to a series of small execution missteps, while simultaneously preparing for the future. If this were a sporting event, we'd still have a championship-caliber team. But in this particular game, we turned over the ball too many times."

So the company made some changes in response to the recent underperformance. The role of each sales team was clarified, focusing some on brand campaigns and others on specific media agencies. Operating processes were reviewed and overhauled. The product development department was reorganized into about 100 smaller teams with more specific goals. The overall idea is to make The Trade Desk more agile and effective in a changing ad-tech market.

Some investors might say that The Trade Desk was overvalued before February's price cut, making it a more reasonable investment today. I'd agree with that general sentiment and take it one step further -- The Trade Desk was a good investment in January and a great one in March. I'm tempted to double down on my position at this lower price.

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Anders Bylund has positions in The Trade Desk. The Motley Fool has positions in and recommends The Trade Desk. The Motley Fool has a disclosure policy.