The Trade Desk (TTD)

By both methods, the value today (DCF $30 · Multiples $24) exceeds the market price ($12).

Today — with margin of safety: at $12 trades ~51.2% below its value discounted to today (~$24) — the wide discount we require (≥38%, equivalent to a ~15% annual return); the risk is covered by the margin, not the rate.

At 5 years — Muy infravalorado: the target price ($31) plus dividends yield above the required average return (10%) — the business compounds.

The bridge: the return at 5 years comfortably exceeds the risk-free rate (4.5%) — and the discount reaches the required margin of safety.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($12) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The market discounts less growth (-15.8%/year) than we project (7.6%/year) → if the base case holds, there is margin: perception is more pessimistic than the estimated reality.

That growth implies ~$0.2 bn of owner earnings in year 5 (vs ~$0.6 bn of our base case). It recalculates if the DCF assumptions are edited.

Year-by-year projection of the selected scenario. From each year, two versions of the flow are derived: growth FCF (operating flow − total capex, the cash surplus) and maintenance FCF (the owner earnings: what the business yields if it only sustains its capacity). The flow is returned almost in full (dividend + buyback) or redeployed into the operation, so that EV stays roughly flat and multiples compress because the metric grows, not because of cash accumulation. The valuation is done on EV/NOPAT (owner earnings). In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

Year 0 = TTM to Jun-2026 ($2.990bn), taken directly from XBRL (18-Jul and 8-Jul are discarded: the grid is rolling). Year 1 is not anchored to the historical trajectory (FY23 +23%, FY24 +26%, FY25 +19%, TTM +12%): it is anchored to the guidance in the 8-K of 6-Aug-2026 (§5 R1 prior), which broke that trajectory. The reported quarter (Q2 2026) grew barely 3% year over year against 19% the prior year, with the operating margin falling from 17% to 14% and the adjusted EBITDA margin from 39% to 34%; the Q3 2026 guidance (revenue of at least US$650 million, adjusted EBITDA of approximately US$160 million, a ~25% margin) implies further deceleration — the Chief Executive himself acknowledged that 'this quarter did not meet the standard we set for ourselves'. With those two anchors (guided revenue and profitability) base case year 1 starts at +3% with the operating margin compressed to 13%, well below the historical band — a declared under-start, not a mute one, because it has a name of its own and is verifiable in the release. The shape of the path stops being a monotonic deceleration and becomes a trough with recovery (the R3 rebound exception): growth gradually reaccelerates from +3% to +10% toward year 5 as the base stabilizes and operating leverage recovers, without returning to the +18-25% rates of the peak. The bear case stresses year 1 (−6%, with no margin recovery) and the bull case assumes the platform corrections (the migration to Kokai) work faster (+10% in year 1, faster margin recovery). Share repurchases are material (a net reduction of ~6% over the last 18 months) and are modeled with a declining share path (~3%/year going forward, more conservative than the recent pace) rather than accumulating cash, because over the last twelve months the company returned more cash in buybacks (US$975 million) than the owner-FCF generated (US$863 million), funded partly with balance sheet cash — there is no surplus to accumulate. ΔNWC is normalized to zero: working capital in the half released ~US$127 million from a one-off drop in receivables that is not projected as recurring.

Today's elevated multiple is the price of growth: if the business grows, the entry point cheapens on its own going forward (the metric grows while EV stays roughly flat). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—, so the value curve shows whether value creation is concentrated in the early or the later years. The required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $31 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $12, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $31 in 5 years and a required return of 4.5% annually, the maximum to pay today is $24. Against the current market price ($12), the margin of safety is 51.2% (trades below the maximum → there is margin) and the total return at that price would be 20.6% annually.

• Collapse in the stock. The stock collapsed.
• Exit multiple. Valued near the floor of the ad-platform band (18×-25× EV/NOPAT) due to the recent deterioration in growth and moat.
• Expected return. The base case implies an annual return of +21% against the market price, with a Very undervalued verdict.
• Debt-free balance sheet. Cash and short-term investments above $1,480 million with no financial debt support the value bridge.
• Multiple sensitivity. With the business in a growth trough, the value depends heavily on the multiple not continuing to compress along with the moat.

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✓ ROIC exceeds the cost of capital (~10%)
• ✓ CFROIC backs up the ROIC (102%, cash vs. accruals)
• ✓ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• Return on capital. ROIC on invested capital well above the 10% bar, in an asset-light business.
• Recent margin compression. Operating margin fell from 17% to 14% year over year in the quarter, and Q3 adjusted EBITDA guidance implies a margin of ~25% versus 39% a year earlier.
• Stock-based compensation. Stock-based compensation expense represents 15.1% of revenue and 52.4% of free cash flow — material, and expensed in the valuation metric.
• Cash generation. Operating cash flow positive and growing in absolute terms even in the weak quarter.
• No financial leverage. The company has no financial debt; the balance sheet is entirely cash and short-term investments.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

The central operating driver is volume × fee rate: the gross campaign spend that flows through the platform, multiplied by the effective fee the company charges on that volume plus value-added services. Gross spend grew 11% in 2025 against revenue that grew 18%, evidence of improved mix. Customer retention above 95%, sustained for more than a decade —including the recent stumble quarter—, is the signal that the customer base is not leaving, even though individual spend has moderated sharply.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (30-jun-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Sharp deceleration. Revenue growth fell from +19% (Q2 2025) to +3% (Q2 2026) year over year.
• Q3 2026 guidance. Revenue of at least $650 million, well below the historical trajectory of high-double-digit growth.
• Structural TAM. The global digital advertising market exceeds $700,000 million a year and continues migrating away from traditional formats.
• Connected TV (CTV). Structural growth channel disclosed by the company as part of the migration from linear TV to streaming.
• Gross spend vs. revenue. Gross spend (volume) grew 11% in 2025 while revenue grew 18%, evidence of improved mix and effective rate.

• Volume-based fee model. Revenue tied to gross campaign spend through a fee rate, with no proprietary inventory on the balance sheet.
• Customer retention. Above 95% for more than a decade, sustained even in the quarter of the stumble.
• Short-term contracts. One-year agreements, with no minimum commitment, cancelable with 60 days' notice.
• Customer concentration. Two agency holding companies each individually accounted for more than 10% of gross spend in 2025.
• Single segment. Reports a single consolidated operating segment; there are no business lines of a different nature that require separate valuation.
• Dependence on competing suppliers. Google is at the same time a relevant inventory supplier and a direct competitor.

• ✓Leverage (net debt / EBITDA)Net cash $1.5 bn
• –Interest coverage (EBIT / interest)no data
• –Liquidity (current ratio)no data
• ✓Cash quality (CFROIC vs ROIC)CFROIC backs 102% of ROIC
• ✓Value creation (ROIC − 10% bar)+26pp
• ✓Malinvestment test (capex vs incremental ROIC)Capex/D&A 1.7x
• –Float / working capitalNeutral WC
• !Dilution (SBC % of revenue + shares)SBC 15.1% of revenue

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Cash and short-term investments. More than $1,480 million in cash and liquid investments at the close of the second quarter of 2026.
• Financial debt. No financial debt reported on the balance sheet.
• Operating cash flow. Positive and growing in absolute terms despite the revenue deceleration.
• Buyback funded with balance-sheet cash. Over the last twelve months the buyback ($975 million) exceeded the owner-FCF generated ($863 million), partly funded with balance-sheet cash.

How cash comes in and how it is deployed. In green, the business's own cash (the owner-FCF it generates and reinvests); in gray, the float and credit — customer and funding money, which is not the shareholder's.

Capital is deployed almost entirely between maintenance/growth capex (~18%) and share buybacks (~80%); there is no dividend. Over the last twelve months the buyback ($975 million) exceeded the owner-FCF generated ($863 million) — the difference was funded with balance-sheet cash, an over-distribution pattern that the projection does not extrapolate at the same pace going forward (a more conservative share path is modeled, ~3% annual net reduction). Acquisitions are marginal: practically nil in the reported half-year.

Who owns the shares — the alignment and whether there is a controlling shareholder.

• Acknowledgment of the stumble. The chief executive publicly admitted the quarter fell short of the company's own standard and detailed corrective actions, rather than attributing it solely to external factors.
• Leadership changes. Recent addition of a new chief financial officer and several senior executive roles amid the course correction.
• Buyback at multi-year lows. The company used ~$78 million to repurchase shares in the quarter, with the price at heavily depressed levels.
• No dividend. Does not pay a dividend; capital return is exclusively via buybacks.

• Motivated sellers: the stock missed market expectations in Q2 2026 and Q3 guidance came in materially weaker, triggering a broad sell-off
• Execution restructuring underway: the company acknowledged failures in the migration to its new platform (Kokai) and is taking corrective actions, an identified catalyst, not an absent one
• Short-term noise over a franchise with intact retention: customer retention above 95% did not give way in the same quarter of the stumble
• Possible overreaction: the price collapse is much larger than the margin and retention deterioration observed so far

The catalyst is identified, not absent: the company itself guided to a sharp deceleration and the chief executive acknowledged execution failures — this is a case of motivated sellers (a miss against expectations plus a platform restructuring), not of missing buyers due to lack of coverage or complexity. The open question is whether the market is correctly pricing the magnitude of the problem or overreacting to an execution correction on top of a customer base that, so far, has not moved.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at -1%/year (-4% total): the margin of safety protects the downside. The bull (+35%/year, +346% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Platform execution. The migration to the new platform (Kokai) generated execution failures that the chief executive himself acknowledged as the cause of the quarter's stumble.
• Agency concentration. Two agency holding companies each accounted for more than 10% of 2025 gross spend, with no contractual minimum-spend commitment.
• Erosion of third-party identifiers. The blocking of browser-based third-party identifiers and mobile identifiers by browsers and operating systems pressures targeting and measurement capability.
• Competition with proprietary inventory. Google and Amazon compete with closed platforms of proprietary data and inventory, a model the company cannot replicate by design.
• Privacy regulatory framework. Fragmented and expanding privacy regulation (U.S. states, GDPR) with active litigation over data practices.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  Fails the quality gate: narrow moat, eroding.

• Peter Lynch Growth at a reasonable price (GARP)

  A stalwart growing 8% at a multiple/growth of 1.4 → reasonable for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Earnings yield 14% (EBIT/EV) + ROIC 36% → makes the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts -16% vs our 8%: perception is more pessimistic than reality, with an identified source of the discount.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -1%/yr, bull-scenario ceiling +35%/yr over 5y and a +51% margin → capital protected, asymmetry in your favor.

• Pat Dorsey Moat strength (Five Rules)

  A narrow moat, eroding; sources: intangibles, network effects, switching costs, efficient scale → fails the Five Rules.

• Aswath Damodaran Expectations implied by the price

  Justifying the price requires discounting -16%, within what we project (8%) — the story squares with the numbers.