Advertising software maker The Trade Desk (NASDAQ:TTD) reported second-quarter fiscal 2024 results that beat analysts’ expectations. Revenue rose 25.9% year over year to $584.6 million. The forecast for next quarter’s revenue was also optimistic, averaging $618 million, 2.1% above analyst estimates. Non-GAAP earnings were $0.39 per share, up from earnings of $0.07 per share in the same quarter last year.

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Highlights of The Trade Desk (TTD) in the second quarter of calendar year 2024:

• Revenue: $584.6 million versus analyst estimates of $578.1 million (up 1.1%)

• Earnings per share (non-GAAP): $0.39 versus analyst estimates of $0.36 (9.5% above)

• Sales forecast for the 3rd quarter of the calendar year 2024 is on average 618 million US dollars, above analyst estimates of 605.5 million US dollars

• Gross margin (GAAP): 81.1%, corresponding to the same quarter last year

• Free Cash Flow of $56.68 million, a decrease of 67.8% from the previous quarter

• Market capitalization: 41.53 billion US dollars

“The second quarter was another strong quarter for The Trade Desk, with revenue of $585 million, representing 26% year-over-year growth,” said Jeff Green, co-founder and CEO of The Trade Desk.

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 advertising.

Advertising software

The digital advertising market is large, growing and increasingly diverse in both audiences and media, so there is a growing need for software that enables advertisers to use data to automate and optimize ad placement.

Sales growth

As you can see below, The Trade Desk’s annualized revenue growth of 28.1% over the past three years has been impressive, and revenue this quarter came in at $584.6 million.

This quarter, The Trade Desk’s quarterly revenue again grew by a very solid 25.9% compared to the same period last year. In addition, revenue increased by $93.3 million quarter-on-quarter, a significant improvement from the $114.5 million decline in the first quarter of fiscal 2024. This is a sign of accelerating growth and is very encouraging indeed.

The Trade Desk’s guidance for the next quarter suggests that revenue will increase 25.3% to $618 million, up from 24.9% in the year-ago quarter. Analysts who follow the company had expected revenue to increase 21.1% for the next 12 months before the earnings announcement.

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Money makes the world go round

While earnings undoubtedly play an important role in assessing a company’s performance, we believe cash is the most important thing because accounting profits cannot pay the bills.

The Trade Desk has demonstrated solid cash profitability due to its attractive business model and cost-efficient customer acquisition strategy, which allows the company to invest in new products and services rather than sales and marketing. The company’s free cash flow margin averaged 22.1% last year, which is quite impressive for a software company.

The Trade Desk’s free cash flow for the second quarter was $56.68 million, representing a margin of 9.7%. The company’s cash profitability declined, coming in 15.9 percentage points below the year-ago quarter. However, we would not place too much weight on short-term developments, as capital expenditure needs can be seasonal and cause temporary fluctuations. Long-term trends are more important.

Analysts forecast that The Trade Desk’s cash conversion will improve next year. According to their consensus estimates, the free cash flow margin will increase to 28.6% from 22.1% over the last twelve months, which will give the company more money for investments.

Key takeaways from The Trade Desk’s Q2 results

It was great to see The Trade Desk improve its gross margin this quarter. We were also happy to see revenue guidance for next quarter come in higher than Wall Street estimates. Overall, this quarter was mixed, but with some important positives. The stock rose 5.8% to $93.30 immediately after the report.

The Trade Desk may have had a good quarter, but does that mean you should invest now? When making this decision, it’s important to consider valuation, business qualities, as well as what happened last quarter. We cover that in our actionable full research report, which you can read for free here.