I saw lots to like about Trade Desk’s earnings release and analyst call
As already mentioned above, revenue growth is trending upwards, from 21% in Q1 to 23% in Q2, and with just a small beat in Q3, that growth rate is likely to move up even higher (even despite some midterm election spend in Q3 last year).
Q4 may have a tough comp given that the majority of the midterm election spend probably hit Q4 last year, but that’s normal and comes with the territory of being in the ad business.
Even more importantly, their profitability still looks good and I expect profit and cash flow growth are going to outpace revenue growth in the future, given the nature of their business and how the revenue can grow as buyers and sellers transact directly on TTD’s platform with essentially “no touch” from Trade Desk.
On the call, the CFO confirmed that they expect to need less capex spend next year, than what was spent this year. I think the new platform Kokai was launched this year, so that’s consistent with my expectation that they won’t need to invest as much next year as they did in 2023.
I like that they did $44 million of buybacks, it seems like they are repurchasing in a disciplined way without going overboard. As the following year should generate even more cash flows without a huge amount of new spending, it will free up more cash for buybacks if the price is right, or to use for other business needs, or just to further fill up the coffers.
At one point during the call Jeff said something about a “twenty-ish percent take rate” which caught my attention because TTD hasn’t historically disclosed their take rate (the commission they take on sales…which is all that gets shown in revenue on their income statement, just the commissions they keep). I always assumed it was lower than that, in the mid to high teens. However, I wasn’t paying full attention the call at the time and he had just been speaking about some of the SSP’s (like Magnite and Pubmatic) and he may have been referring to their take rates and not TTD’s. I’ll have to check back on the transcript.
For me, the most intriguing news of the past couple of days was not anything that Trade Desk revealed yesterday, but some of the chatter about Disney’s plans for Disney+. Apparently they have added 3.3 million subscribers to the ad-supported plan since it launched recently, and that 40% of new subscribers are going with the ad-supported plan.
Disney announced that they are going to be increasing the monthly subscription cost for their ad-free plan, but leaving cost of ad-supported plans the same, seemingly to encourage more people to sign up for ad-supported plans. This trend is good overall for the CTV programatic ad market.
Here’s one article that speak to Disney’s news a bit:
Disney+’s ad-free plan will increase from $10.99 to $13.99, Hulu’s ad-free plan will increase from $14.99 to $17.99, and ESPN+ with ads will increase from $9.99 to $10.99.
However, the company is keeping the cost of Disney+ and Hulu standalone ad-supported tiers at $7.99/month each, with the bundle still $9.99/month. Subscribers in the U.S. will also be able to access an ad-free bundled subscription plan featuring Disney+ Premium and Hulu ad-free for $19.99/month on Sept. 6.
Disney+ also announced an ad-supported offering that will be available in select markets across Europe and Canada on Nov. 1. The new ad-supported plans start at £4.99/€5.99 month in EMEA and $7.99/month in Canada.
“We believe in the future of advertising on our streaming platforms, both Disney+ and Hulu, and we’re obviously trying with our pricing strategy to migrate more subs to the advertiser-supported tier,” Iger said during the earnings call, adding, “A substantial amount of new subscribers to Disney+ are signing up for the ad-supported tier, which suggests that pricing is working for us in that regard.”
Like Netflix, Disney is also starting to focus on “account sharing”, which may push some users that were previously sharing someone else’s account for free to sign up and likely go with the least expensive option available (ad-supported) which will be another plus for CTV advertising.
Overall, while it wasn’t a blowout quarter or shocking guidance, things are moving in the right direction. TTD is growing at a MUCH higher rate than the overall advertising industry and continuing to take market share and I expect further good things in the future.
Trade Desk is my largest holding and I don’t see myself selling a very significant chunk of my shares at least until we get into next fall and the presential election cycle advertising starts to heat up. Although I expect TTD will continue to have growing success well beyond next year too.