The Trade Desk (TTD) – Earnings Review – May 9, 2024
Demand
The Trade Desk beat revenue estimates by 2.3% & beat guidance by 2.8%. Its 30.7% 3-year revenue CAGR compares to 23.7% last quarter and 31.7% 2 quarters ago. Gross revenue retention (GRR) has been over 95% for 10 years.
Profits & Margins
- Beat EBITDA estimates by 21.2% & beat guidance by 24.6%.
- Doubled $0.03 GAAP EPS estimates.
- Beat $0.22 EPS estimates by $0.04.
Please note that founder awards for CEO Jeff Green are greatly impacting the GAAP margin comps. Best to focus on EBITDA and non-GAAP net income while this unfolds.
Balance Sheet
- $1.4 billion in cash & equivalents.
- No debt.
- Diluted share count fell a tad Y/Y.
- $575 million left on its current share repurchase plan after buying $125 million in stock during the quarter.
Guidance & Valuation
- Revenue guidance beat by at least 1.4%.
- EBITDA guidance beat by 1.6%.
Call & Release Highlights
Some History & Another Advertising Landscape Transition:
Jeff Green’s prepared remarks are always chalked-full of wisdom about the advertising industry. This quarter was no different. He took us through a history lesson on how the Great Financial Crisis (GFC) and pandemic both created heightened sense of urgency to maximize return on ad spend (ROAS). That, in turn, drove an accelerated shift to programmatic, biddable advertising, which benefits The Trade Desk. Economic and global shocks have a way of pushing the pace of change as companies are forced to do more with less.
And there’s another massive shift currently playing out in the world of advertising. This time, it’s being driven by regulatory crackdowns on “draconian” walled garden tech giant policies. Whether it’s the current Texas Attorney General’s Google lawsuit or the upcoming Department of Justice trial, there’s building scrutiny about how walled gardens control their ecosystems. The added attention here, per Green, has “put the spotlight” on some of the practices from Google specifically. He sees growing awareness around the role walled gardens play in knowingly matching buyers with lower grade inventory; he sees rising pushback against walled gardens routinely placing impressions next to sensitive, low quality user generated content (UGC). This could mean irreparable brand harm as well as poor returns.
While walled gardens still command more ad dollars, consumers spend 60% of their time on the open internet — with better audience authentication, better data leveraging and better ad returns. People are waking up to this reality, and open internet budgets are getting more love.
This reality is what is turbo-charging the current transition that Green spoke on. It’s pushing advertising dollars to the “best of the open internet.”
How The Trade Desk Wins Amid this Shift – Kokai:
There are three main ideas I wanted to cover here for this quarter. There are other factors contributing to TTD’s outperformance vs. everyone else, but these items were the ones focused on this quarter. First is Kokai.
Kokai is TTD’s brand new bidding platform. Kokai emulates the ease of data onboarding, campaign creation and measurement that walled gardens offer… it just does so in a fully open, transparent fashion. Advertisers get the best of both worlds, as Kokai combines convenience with better returns and honest reporting. One interesting innovation coming from Kokai recently is its new approach to audience-based buying. Thanks to seamless first party data onboarding and Kokai, advertisers can get more from their customer profiles. They can take insights from loyal fans, and let TTD create large cohorts of copy-cat customers to go target. Pretty cool. Advertisers are no longer refined to guessing which types of consumers will watch which title. TTD can tell them exactly where their highest-value eyeballs are. Unilever used this for one of its brands in Asia to drive a 229% reach boost with an 81% improvement in conversion rates. Target also used this in Australia to raise its conversion rate by 66% and cut cost per action by 36%.
- A new “AI-fueled” ad performance forecasting tool should further support more outcomes like these.
There’s one more important item to cover within Kokai for this quarter. Walled gardens have always been able to better aggregate demand compared to TTD and others. It’s one thing to offer Fortune 500 brands a few hundred impressions with strong returns. But that’s not needle-moving for them. They need massive, concentrated opportunities. Kokai has a feature called the Sellers and Publishers 500 Plus Index. This collects high quality inventory (thanks partially to TTD’s TV Quality Index) from 500 of the largest open internet players. Whether it’s streaming impressions, Spotify or countless publications, this gives the big boys walled garden-like scale on TTD’s platform.
How The Trade Desk Wins Amid this Shift – UID2:
Kokai tells advertisers who they should target while helping them do so; Unified ID 2.0 (UID2) ensures buyers know exactly where high value customers are. The two complement each other perfectly.
While UID2 is only a couple years old, “ubiquitous” was the term used to describe open internet adoption levels. And if you think about it, that makes sense. 3rd party cookies are (maybe) being deprecated. That means a lack of authentication signal for web-based browsing. Just like with the GFC and pandemic (and also Apple’s data sharing restriction), this forced the industry to rapidly seek a solution. UID2 has been that solution. It replaces cookies, but goes even further than that by bringing precise authentication to all forms of digital content consumption — not just the web.
“We are building the new identity and authentication fabric of the open internet.” – Co-Founder/CEO Jeff Green.
- Unwind Media enjoyed a 47% boost to ad impression value by integrating and tagging their inventory with UID2.
- Disney’s head of addressable sales credited a 3x-4x ad matching rate improvement to UID2, while directly saying it uplifts ad impression value. Funding content costs is not cheap; this is how to make it profitably work.
“I don’t know that I’ve ever seen the industry in such a state of transition. I sense some panic from others about what to do next. For us, this facilitates our recent outperformance and why I’m so confident about 2024 and the years ahead.” – Co-Founder/CEO Jeff Green
Partnerships and CTV Momentum:
- Disney and TTD expanded their partnership to integrate the Disney Real Time Ad Exchange (DRAX) into OpenPath. OpenPath allows publishers to directly connect to TTD demand and to practice their own yield management.
- New Roku partnership to plug data and supply into TTD’s demand network. Roku is expected to integrate with UID2.
- More than 90% of Ad Age’s top 200 advertisers have run a campaign on TTD over the last year.
- NBC will offer Olympics inventory on TTD’s platform for the first time.
- TF1 and M6 (large broadcasters in France) adopted the European version of UID2 called EUID.
- DISH Media adopted UID2 for DISH TV and Sling TV.
TTD doesn’t have access to Amazon Prime Video just yet, but it thinks this will eventually happen. Amazon has the issue of conflict of interest. It’s hard to imagine (I say as a shareholder of both companies) that their impression placement is objective, considering they own a lot of the inventory they’re placing. This is further complicated by its private label business, which also purchases impressions from Amazon Prime Video. Green sees Amazon evolving exactly like we just saw Roku did to embrace open bidding for its impressions. This would dramatically improve impression value by improving the supply/demand dynamic to help fund expensive content costs on that streaming service.
Take
This was an excellent quarter that again shows you why this company deserves to be the most expensive in its space. There’s nothing to pick at. Flawless is the word that comes to mind.
