Chapter 3

Stock Comp and Cash

The cash-generative profile that makes The Trade Desk look cheap rests partly on a non-cash cost. Stock-based compensation was $491 million in 2025 — 111% of net income, 17% of revenue, and half of operating cash flow [1]. Charge that comp as the real economic cost it is, and the "12x free cash flow" headline moves closer to 32x. And $2.3 billion of buybacks since 2023 has shrunk the share count by only about 3%, mostly recycling shares that equity comp put back into the float.

The size of the number

Stock-based compensation is not a rounding item at The Trade Desk. Reported SBC has sat near $490–500 million for four straight years — $491.6M in 2023, $494.7M in 2024, $490.6M in 2025 — even as revenue grew from $1.9B to $2.9B [2]. In every one of those years the company paid its people more in stock than it earned in GAAP profit.

Source: FY2025 Form 10-K, Note 10 Stock-Based Compensation and Consolidated Statements of Cash Flows [3] [4].

Source: SBC per FY2023 and FY2025 Form 10-K Statements of Cash Flows; net income as reported [5] [6].

The largest single ongoing bucket is technology and development — $163 million of the 2025 total — with sales-and-marketing next at $113 million; both are recurring costs of running and building the platform, not one-off grants [7]. Management itself describes SBC as a "recurring expense and a key part of our compensation strategy" that "will continue for the foreseeable future" [8].

What it does to the cash-flow multiple

The Trade Desk's free cash flow is real cash, but it is calculated after adding SBC back to profit. Operating cash flow was $993 million in 2025; nearly half of that add-back — $491 million — is stock compensation [9]. Reported free cash flow of $796 million (operating cash flow less $197 million of property and equipment) is genuine, but it flatters the underlying economics because it treats a $491 million compensation cost as free.

Treat SBC as the recurring expense it is — subtract it from free cash flow — and the picture changes materially.

Source: derived from FY2025 Form 10-K Statements of Cash Flows — free cash flow $796M less SBC $491M [10].

Source: derived from reported FY2025 financials against the ~$9.6B market capitalization discussed in The Business (close of $19.53 on 2026-07-10) [11].

At the roughly $9.6 billion market value established in The Business, reported free cash flow of $796 million is about 12x earnings-power and an 8% yield. Deduct the $491 million of stock comp and the same company trades near 32x free cash flow, a yield closer to 3%. Neither figure is the "true" number — the honest read sits between them, because some SBC is a cost the company would bear in cash under a different pay mix and some is genuine upside-sharing — but the reframing is the point: the multiple that makes the stock look inexpensive depends heavily on how a reader treats stock compensation.

The buyback treadmill

The Trade Desk has spent heavily on buybacks, which in principle should convert that cash generation into a shrinking share count. The record is more modest. Across 2023–2025 the company repurchased $2.26 billion of Class A stock — $646.6M, $234.8M, then $1,380.4M [12]. That bought back 38.8 million shares. But equity compensation issued 24.3 million new shares over the same three years, so the net reduction was just 14.5 million — the share base fell only from 490.5 million at the end of 2022 to 475.9 million at the end of 2025, roughly 3% [13].

Source: FY2025 Form 10-K Statements of Cash Flows (buyback dollars) and Statements of Stockholders' Equity (share activity) [14] [15].

About 63% of the shares repurchased went to offsetting comp issuance rather than shrinking the float. The 2025 buyback was the first large enough to bite — 26.2 million shares retired against 6.0 million issued — helped by a depressed price that let the company retire more shares per dollar [16]. Read fairly, the buyback is doing two jobs at once: neutralizing dilution and, only recently, reducing the count. A reader should not assume the reported per-share figures carry a steady tailwind from repurchases; for most of the period they carried a headwind from issuance instead.

Two things that soften the read

The bear case on SBC has real limits, and the filings show both.

First, the burden is falling relative to sales. SBC held near $490 million while revenue grew about 85% since 2022, so stock comp has dropped from 32% of revenue to 17% [17]. A company that grows into a fixed comp pool is diluting shareholders more slowly each year, not faster.

Source: derived from FY2023 and FY2025 Form 10-K — SBC divided by revenue [18] [19].

Second, a large slice of historical SBC is a one-off that is rolling off. The 2021 CEO Performance Option — a 17.8 million-share grant to Jeff Green — carried $262 million of expense in 2022, $198 million in 2023, $128 million in 2024, and $67 million in 2025, with only $5 million left to recognize by the first quarter of 2026 [20] [21]. Strip it out and the flat headline hides a rising trend underneath: core employee SBC grew from about $294 million in 2023 to $424 million in 2025, up 44%.

Source: FY2025 Form 10-K Note 10; CEO Performance Option expense per Note 10, core is the residual [22] [23].

The two effects cut in opposite directions. As the CEO option finishes, roughly $67 million of expense disappears, which should let reported SBC drift down or stay flat even as headcount grows — a genuine tailwind to margins and to per-share cash. Against that, the underlying employee grant pool is still compounding at a mid-teens rate, so the fixed-pool comfort only holds while revenue keeps outgrowing it. If growth continues to decelerate — it fell to 12% in the first quarter of 2026 — the "SBC shrinking as a share of sales" argument weakens exactly when it is most needed.

What the depressed price is hiding

One quieter point sits in the earnings-per-share math. Because the stock traded at $19.53 — far below the $47.09 weighted-average strike on outstanding options — 22.7 million equity awards were anti-dilutive in 2025 and excluded from diluted share count, against just 0.3 million a year earlier [24] [25]. The 17.8 million-share CEO option is likewise entirely out of the money, with zero intrinsic value at year-end [26]. The low share price is temporarily suppressing the reported diluted count; a recovery toward prior levels brings a meaningful block of those awards back into the denominator. Dilution deferred by a weak stock is not dilution avoided.

The judgment

The Trade Desk's cash generation is real, but its reported profitability and free cash flow lean on stock compensation to a degree that a professional investor should net out before calling the stock cheap. The strongest fact for the company is that the burden is shrinking against revenue and that a $67 million CEO-option drag is about to roll off; the strongest fact against it is that core employee SBC is still growing 44% over two years and that $2.3 billion of buybacks has bought only a 3% smaller share count. On balance, the "12x free cash flow" framing overstates the value — the SBC-adjusted figure near 32x is the more conservative anchor. What would change the read: sustained shrinkage in absolute SBC as the CEO option ends, and a buyback that visibly reduces the diluted count in 2026 rather than merely offsetting new grants.