The Trade Desk’s stock price has taken a beating over the past six months, shedding 47.4% of its value and falling to $56.86 per share. This was partly due to its softer quarterly results and may have investors wondering how to approach the situation.

Following the drawdown, is now the time to buy TTD? Find out in our full research report, it’s free.

Why Is TTD a Good Business?

Founded by former Microsoft engineers Jeff Green and Dave Pickles, The Trade Desk (NASDAQ:TTD) offers cloud-based software that uses data to help advertisers better plan, place, and target their online ads.

1. Billings Surge, Boosting Cash On Hand

Billings is a non-GAAP metric that is often called “cash revenue” because it shows how much money the company has collected from customers in a certain period. This is different from revenue, which must be recognized in pieces over the length of a contract.

The Trade Desk’s billings punched in at $3.73 billion in Q4, and over the last four quarters, its year-on-year growth averaged 27.4%. This performance was fantastic, indicating robust customer demand. The high level of cash collected from customers also enhances liquidity and provides a solid foundation for future investments and growth.

2. Customer Acquisition Costs Are Recovered in Record Time

The customer acquisition cost (CAC) payback period measures the months a company needs to recoup the money spent on acquiring a new customer. This metric helps assess how quickly a business can break even on its sales and marketing investments.

The Trade Desk is extremely efficient at acquiring new customers, and its CAC payback period checked in at 4.2 months this quarter. The company’s rapid recovery of its customer acquisition costs indicates it has a highly differentiated product offering and a strong brand reputation. These dynamics give The Trade Desk more resources to pursue new product initiatives while maintaining the flexibility to increase its sales and marketing investments.

3. Operating Margin Reveals a Well-Run Organization

Many software businesses adjust their profits for stock-based compensation (SBC), but we prioritize GAAP operating margin because SBC is a real expense used to attract and retain engineering and sales talent. This is one of the best measures of profitability because it shows how much money a company takes home after developing, marketing, and selling its products.

The Trade Desk has been a well-oiled machine over the last year. It demonstrated elite profitability for a software business, boasting an average operating margin of 17.5%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Final Judgment

These are just a few reasons why we think The Trade Desk is a great business. After the recent drawdown, the stock trades at 9.9× forward price-to-sales (or $56.86 per share). Is now the right time to buy? See for yourself in our full research report, it’s free.

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