The Trade Desk reported their Q2 earnings on August 8 AH and the stock soared up nearly 37% the following day. The spike was a result of two things, in my opinion. First, a very strong earnings report and Q3 guidance. And secondly, because the stock was so beaten down and expectations were very low, I believe this report caught the market off guard resulting in the stock being quickly rerated. I myself was caught off guard with these numbers as I expected more disappointing growth following the earnings and warnings regarding the advertising market from companies like Snapchat, Roku and Meta. It appears The Trade Desk is a bit more protected and insulated from these macro issues thanks to their dominate position in connected TV (CTV). CTV is quickly becoming the horse that is carrying this company. Three years ago in Q2 2019, video (including CTV) made up approximately 26% of the spend on their platform. Today, that number is just over 40%. It reminds me of Atlas and MongoDB in a way. CTV is their fastest growing segment and it is now also their largest spend by channel. I believe that as CTV continues to make up a greater percentage of their spend, there is a good chance we could see this company reaccelerate growth in 2023.
Here are some of the highlights from the report:
• Revenue was $377M, up 35%, from $280M a year ago. While 35% might not be the sexiest number around these woods, I consider it quite impressive considering the macro environment and results of other ad tech companies and, TTD’s Q2 revenue last year was up 101% YoY so this made for challenging comps.
• Adjusted EBITDA was $139M, up 18%, from $118M a year ago. Adjusted EBITDA margins dropped by roughly 5% YoY to 37% due to the cost of in person events and ramping up investments in S&M and R&D. I like this, while others are slowing down the pace of investment to conserve capital, TTD is in a position to invest and grab land because they have been GAAP profitable for years and are sitting on a pile of cash with no debt ($1.2B to be exact).
• Adjusted EPS was $0.20, increasing from $0.18 a year ago.
• Customer retention was over 95% as it has been for the past eight consecutive years.
I would be remiss if I did not mention a few of my favorite remarks from the call. Jeff Green, along with Matthew Prince, is always a must listen when it comes to earnings calls. These two CEO’s always exude confidence and charisma on their calls and don’t mince words. They call it how they see it, and here is how Green sees things today.
“We outpaced our competitors and continued to gain market share despite some macroeconomic uncertainty. In the first half of the year, marketers shifted to decision data-driven advertising on the open Internet more rapidly than ever. And as a result, The Trade Desk has become increasingly indispensable as the default DSP for the open Internet and connected TV.”
"Many people looking at our results, including those in the advertising industry, are asking how we are winning and growing at this pace in the current environment. There are a few vectors and macro factors that are creating an amazing opportunity for us to grow into a much bigger company and win share regardless of the economic environment… First, there is a secular tailwind that continues to propel us forward, and that’s the worldwide shift to advertising-fueled connected television.
I don’t know that we’ve ever experienced a secular tailwind like this before. CTV is evolving faster than anyone predicted. And if we continue to execute, I believe we will benefit as much as any company in the world from this tailwind… The second macro factor that is helping us grab share is that walled gardens like Google’s ad network are being downgraded in priority."
I liked the first question asked by an analyst as well – essentially how the heck are you guys doing so well when everyone else around you in the industry is struggling?? (which was also addressed above).
“This is now the second quarter in a row where your results and outlook are significantly better than what we’re seeing from other ad-supported companies, especially in the face of a slowing macro… What is driving that outperformance?”
Jeff Green, CEO Answer:
"First, we have an amazing secular tailwind of CTV, arguably the best secular tailwind we’ve ever had. Second, we are, of course, seeing the benefits of Solimar, which we’ve gone to 100%, and it just has all these benefits to our clients. Third, we’ve got this momentum around the joint business plans where we’re just getting closer to brands, and we’re creating better partnerships with each of them…
People look at our performance and say how is this so different than everybody else’s. And what is often happening is we’re winning because of those secular tailwinds and because programmatic is growing share and because digital is growing share."
Me here: This sounds to me like a company reaching the tipping point of a massive shift. That shift of course being connected TV. The Trade Desk is perfectly positioned to capture this market and is starting to see the fruits of their labor. Green has been preaching this for many, many quarters now and things are starting to come to together just as he predicted. As a result, while other ad tech companies are missing and slashing or pulling guidance, The Trade Desk just keeps chugging along, business as usual. CTV is booming, Solimar already has 100% customer adoption and they are continuing to gain traction for UID 2. From my point of view, this company is firing on all cylinders and find themselves in an strong position in a market that is poised to grow for years to come (CTV). I would not be at all surprised to see revenue growth reaccelerate in 2023 if the macro economic environment begins to improve. As advertising budgets begin to grow, The Trade Desk will be there to reap the benefits. With the massive rise in the share price this week, TTD has now grown to my second largest holding behind DDOG at nearly 17% and I have no intentions of trimming this. I think it is one that deserves a deeper look from many on this board.