3 Things That Can Go Wrong for The Trade Desk on Thursday

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It's useless to argue that programmatic advertising doesn't represent the future of marketing, and The Trade Desk (NASDAQ: TTD) has stepped up as the market darling in this promising niche. However, after a huge run -- the stock has nearly tripled since going public at $18 less than two years ago -- and taking a big hit after its previous quarterly report, it's easy to be somewhat concerned as The Trade Desk's upcoming earnings release approaches.

The Trade Desk will announce its fourth-quarter results after the market closes on Thursday, and expectations are high. Analysts see revenue rising 41% to $101.7 million. They're expecting $0.43 per share in earnings, 30% ahead of where it was a year earlier. The Trade Desk is doing things right as it replaces old-school ad buying with data-fueled decisions allocating marketing spend across video, mobile, native, audio, and TV, but there are still a few things that can go wrong when it steps up with its quarterly results this week.

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1. Repeating last quarter's mistakes will hurt

The Trade Desk had a strong third quarter with revenue soaring 50% for the three months ending in September. It also raised its guidance -- something it has typically done in its brief, but lucrative, run as a publicly traded company. Unfortunately for The Trade Desk and its shareholders, it raised its guidance for all of 2017 by less than its third-quarter beat. In other words, The Trade Desk was effectively lowering its guidance for the fourth quarter.

It's hard when a growth stock stumbles the first time, and The Trade Desk shares are trading 15% lower than they were when the the third-quarter bombshell dropped. If people were thinking the last reaction was harsh, it's going to be even uglier if The Trade Desk offers up disappointing guidance in back-to-back quarters.

2. Competition can intensify

The Trade Desk stock took another hit three weeks ago when reports surfaced that AT&T (NYSE: T) was building its own demand-side platform that could eventually fuel other customers to build their own automated advertising solutions. Competition isn't new, and there's plenty of market to go around if an account or two decide to duplicate the process.

Thursday's numbers won't shed any light on the AT&T situation. If AT&T's potential presence does become a factor, it's something that will leave a mark. However, it will be interesting to see, if margins are currently under pressure, if the marketplace is growing more competitive or if markups are being shaved in order to keep the number of players low. The Trade Desk may also be asked about AT&T or any other potential player in this field, and any insight can weigh on the stock one way or another.

3. Retention can be an issue

The Trade Desk prides itself on a happy customer base, and client retention has clocked in at 95% or higher for four years. The rub here is that The Trade Desk's guidance -- calling for 40% top-line growth -- also calls for adjusted EBITDA to grow at half that pace.

If The Trade Desk is thriving and its platform is best of class -- as many analysts believe -- why shouldn't profit margins be improving given the scalable nature of its business? It's highly unlikely that retention is an issue, but between profits failing to keep up with revenue and the AT&T chatter from three weeks ago, investors can't assume that clients are locked in cement shoes at The Trade Desk. Client retention needs to once again clock in north of 95%.

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Rick Munarriz owns shares of AT&T. The Motley Fool owns shares of and recommends The Trade Desk. The Motley Fool has a disclosure policy.