HSBC Downgrades Trade Desk Rating Amid Deteriorating Agency Relationships and Structural Pressures

Investing.com - HSBC released a research report on Monday, downgrading The Trade Desk’s stock rating from “Hold” to “Reduce,” and lowering the target price from $31 to $20.

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Analyst Mohammed Khallouf pointed out that The Trade Desk’s relationships with major agency partners continue to deteriorate, competitive pressures are intensifying, and AI advertising opportunities have yet to be validated, leaving the company facing its most challenging outlook since going public in 2016.

Khallouf told investors that the company’s second-quarter revenue guidance of only 8% year-over-year growth—its slowest since going public—reflects pressures far beyond previously indicated structural issues.

Khallouf wrote, “What we failed to fully realize at the time was… the additional ripple effects these issues have on TTD’s relationships with global advertising agency partners.” He noted that agency partners contribute over 40% of The Trade Desk’s billings.

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HSBC states that Publicis has decided to cut back on using The Trade Desk platform due to transparency issues, partly because “demand-side platform (DSP) market competition has significantly intensified.”

HSBC added that negotiations between The Trade Desk and agency partners “seem unlikely to be a win-win in our view, as the bargaining power of agencies has clearly strengthened,” and believes that both ad volume and commission rates face increasing downside risks.

Regarding AI opportunities, HSBC pointed out that OpenAI launched a pay-per-click (CPC) bidding self-serve advertising product on May 5, bringing its platform “one step closer to the ‘walled garden’ advertising model of big tech companies,” potentially squeezing the space for substantial cooperation between The Trade Desk and OpenAI.

HSBC lowered its revenue forecasts for The Trade Desk for 2026 and 2027 by 3% to 5%, and its adjusted earnings per share (EPS) forecast by 14% to 17%, valuing its revised 2027 EBITDA forecast of $13.8 billion at a lower multiple of 6.0 times.

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