The Trade Desk TTD Q2 2020

Trade Desk released earnings and, despite having negative growth (lower revenue than last year), the stock is up, hitting new all time highs over $500/share in the after hours trading

https://investors.thetradedesk.com/news-releases/news-releas…

I’m not sure yet why it’s up, possibly because the earnings per share are nearly as high as they were last year, and apparently both revenue and eps were well above analyst estimates. The Q3 guidance is only about +9% at the midpoint if my math is correct, so that can’t be what is driving the after hours.

Good to see at least one of my companies having a good reaction to earnings this quarter. I’ll be listening to the conference call

-mekong

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3rd Q guidance is for revenues up 28.4%, not 9%.

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3rd Q guidance is for revenues up 28.4%, not 9%.

that would make more sense, considering the after hours rise

I show $164m as their Q3 2019 revenue, and the midpoint of $177-181m guidance range for Q3 2020 of $179m, gets me to 9%

What am I doing wrong? Wouldn’t +28.4% be $210 million?

-mekong

According to the press release this is the guidance:

Q3: “Revenue range between $177 million and $181 million”

https://investors.thetradedesk.com/news-releases/news-releas…

Last year in Q3 they made $164.2 mio.

164.2 to 181 is only 10% growth.

It works out to be 28.4% sequential growth. The midpoint of the range is $179 million, and 179/139.4= 1.284. I haven’t seen the statement where they mention 28.4% growth, so I don’t know if they made it clear that it wasn’t YoY.
– SB

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It works out to be 28.4% sequential growth. The midpoint of the range is $179 million, and 179/139.4= 1.284. I haven’t seen the statement where they mention 28.4% growth, so I don’t know if they made it clear that it wasn’t YoY.

In most cases, unless someone specifies, they are usually speaking to growth vs the equivalent period of the prior year, which is what most companies refer to when they quote growth percentages too.

Sequential growth is a good metric to look at, especially for many of the non-seasonal tech companies we invest in. However, a company that is seasonal, as TTD’s advertising revenue is, especially with a big jump in Q4 for holiday advertising every year, usually followed by a lower revenue Q1 (Q4 most likely also getting an extra election boost this year), sequential growth isn’t particularly meaningful most quarters.

-mekong

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Hi mekong,

Sequential growth is a good metric to look at, especially for many of the non-seasonal tech companies we invest in. However, a company that is seasonal, as TTD’s advertising revenue is, especially with a big jump in Q4 for holiday advertising every year, usually followed by a lower revenue Q1 (Q4 most likely also getting an extra election boost this year), sequential growth isn’t particularly meaningful most quarters.

It is if you are trying to hide your real growth :). So now they are starting to use sequential growth so they can gauge themselves on a poor quarter to make it look like they will do great?

Andy

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So now they are starting to use sequential growth so they can gauge themselves on a poor quarter to make it look like they will do great?

Jeff Green seems to make it work every time for his shareholders. I kept a token 1% allocation which can only be sold upon Green’s departure as CEO

So now they are starting to use sequential growth so they can gauge themselves on a poor quarter to make it look like they will do great?

Andy

They did?!

Where did you see that Andy? In the conference call?

I haven’t gotten a chance to listen to their call yet with so many of my companies announcing yesterday.

We were just talking above about SB’s calculation of growth which turned out to be sequential growth. I would be really surprised if the company was quoting sequential growth numbers anywhere. As I mentioned in my post above, companies usually don’t do that, they typically refer to the same period of the prior year.

Anyway please let me know if that happened or if you just misunderstood the conversation above.

Fortunately TTD and GH are up a bit today at lease offsetting a little bit of the drops in AYX and DDOG in my port.

-mekong

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We were just talking above about SB’s calculation of growth which turned out to be sequential growth. I would be really surprised if the company was quoting sequential growth numbers anywhere. As I mentioned in my post above, companies usually don’t do that, they typically refer to the same period of the prior year.

I apologize Mekong. It was a misunderstanding on my part. I thought you were talking about Revenue.

Thanks,
Andy

In most cases, unless someone specifies, they are usually speaking to growth vs the equivalent period of the prior year, which is what most companies refer to when they quote growth percentages too.

Sequential growth is a good metric to look at, especially for many of the non-seasonal tech companies we invest in. However, a company that is seasonal, as TTD’s advertising revenue is, especially with a big jump in Q4 for holiday advertising every year, usually followed by a lower revenue Q1 (Q4 most likely also getting an extra election boost this year), sequential growth isn’t particularly meaningful most quarters.

-mekong

  1. Absolutely agree; a guidance of percentage increase in quarterly revenue typically refers to its increase over the same quarter of the previous year. That practice seems to be followed in company reports of actual revenue as well as guidance. Posters on this board usually adhere to it. In addition, your original post explicitly referred to negative growth of reported revenue from last year to this year. So, it was odd to see a poster claim that your 9% figure was wrong, and write “3rd Q guidance is for revenues up 28.4%, not 9%.”. Since that didn’t make sense, I set out to find something to which that person could have been referring. I calculated 179/1.284=139.4, so it corresponded to a sequential growth calculation.

  2. I haven’t seen anyone here identifying an announcement from TTD that mentions 28.4% growth (though I could have missed it). The poster may have just calculated the sequential growth themselves. It’s still strange to post that figure without clearly stating that it refers to sequential growth.

  3. I also agree that sequential growth is not the best indicator for TTD whose advertising revenues have substantial systematic variation over seasons (eg holiday advertising in Q4, as you note). That being said, I think that as investors, we can learn something from two consecutive seasons, that are affected by COVID over their entire duration. It would be interesting to compare seasonally adjusted Q3 guidance (and Q3 reported, when it’s released) to seasonally adjusted Q2 reported.

  4. Jeff Green said, in a statement “While the advertising industry hit the pause button early in the second quarter due to uncertainty around the COVID-19 pandemic, we saw substantial improvement in ad spend as the quarter progressed”. With seasonally adjusted numbers, we could track that effect ourselves. I have a pretty good grasp of the statistical theory and models used for seasonal adjustment in time series analysis. However, a good analysis would require data to which I don’t have ready access.

  5. Thank you mekong, for your monthly portfolio updates. I’ve learned much from them, as also from posts by others who take the time to share their knowledge and insights.

–SB

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So now that we’ve machinated over sequential versus annual quarterly growth, what do we think about The Trade Desk, the quarter they reported and chances for alpha over the next few years?

Just posing the question. I sold over half of my position right before earnings and am quite surprised at the market’s positive reaction. That was in an IRA so I don’t mind buying that back if needed and it wouldn’t be the first time I’ve done so with TTD, buying back at a higher price.

I’ll be back for a bit more on the subject but wanted to ask others for thoughts as well.

Standby…
AJ

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So now that we’ve machinated over sequential versus annual quarterly growth, what do we think about The Trade Desk, the quarter they reported and chances for alpha over the next few years?

I definitely feel like The Trade Desk is going to be a long term winner. I haven’t sold any of my shares since early in the pandemic when I feared the olympics cancellation and macro economy would hurt the company more than it did. Fortunately I bought back some of those shares right around $300, but wish I had bought more, in retrospect. I think more and more advertising will move to programatic, and TTD will be as big a beneficiary to that trend as anyone.

Q3 near term might not be spectacular, but the combination of holiday advertising + election ads in Q4 makes me think that will be a huge quarter. Especially with Facebook (and twitter?) saying they will ban political advertising, that makes me believe even more of that money will funnel itself toward TTD’s channels.

And unless I misunderstand exactly how TTD’s business works, I believe once they set up suppliers of ad inventory, and buyers of advertising space, there is really no cost or no touch for TTD as those parties ramp up their activities on The Trade Desk’s platform, but it does continue to drive up TTD’s revenues. Reminds me of a music distribution company I used to work for that was (and still is) incredibly successful, once they put the content into the pipeline and planted it at all of the online music stores and streaming services, you just sit back and let the consumers buy/stream more and more and increase your revenue without much of any additional work. There’s nothing like easy money.

-mekong

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So now that we’ve machinated over sequential versus annual quarterly growth, what do we think about The Trade Desk, the quarter they reported and chances for alpha over the next few years?

AJ, without knowing what alpha you’re talking about, how can one discuss the “chances for alpha”? In a linear regression model for Y, return of TTD over some time period, Y=alpha + beta*X + error, obviously the meaning of alpha and beta depend not only on Y but also the choice of X. Typically X is taken as the return of some market index, such as the S&P 500. Are you thinking of alpha in the regression of Y on the S&P 500 return?

Whichever variable X you mean, why do you care about alpha rather than the return? I realize that one might view alpha as the excess return, the part not “explained” by the rise and fall of X. One problem is that there’s still the error term. Depending on the choice of X, the variance of the error term could be substantial in relation to the “explanatory” part alpha + beta*X. Thus it’s quite possible that even alpha and beta together do not account for a substantial part of the Trade Desk’s return, let alone alpha by itself.

Please do not take this as being critical or nitpicking; I genuinely want to understand your thinking.

–SB

Also hoping for a good Q3 and especially good Q4. As mekong pointed out, election campaign spending should provide a nice bump. BTW, mekong, has Facebook made a definitive statement about banning political ads? All I’ve seen are articles dated July 10th saying that FB was considering a ban on political ads.

I read a Fool article about the Q2 ER that said:
Connected TV (CTV) ad spend jumped 40% year over year, mobile video ad spend rose 15%, and audio spend increased 20%.

I am particularly encouraged by the growth in CTV ad spend, because it happened in a quarter without MLB, and without the NBA and NHL playoffs. There should be some added revenue in the current quarter from the NBA. (I’ve been getting emails from Sling, inviting me to stream the NBA.)

In the long run, if TTD could do this well without professional sports, imagine how they’ll do when they come back in future seasons. It’s not just pro sports, there’s also college football and basketball streaming to look forward to. Here’s “A Programmatic Playbook” from Trade Desk, geared toward sports advertisers describing how Telaria, Sling and TTD can help them:
https://www.thetradedesk.com/assets/general/Telaria-Sling-TT…

–SB

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Just finished reading the earnings transcript. I can’t reconcile the CTV opportunity that Jeff keeps speaking to. Seems like every CTV opportunity he mentions is one that ROKU has ---- and only is a bigger opportunity for ROKU. The rise of CTV streaming ---- AVOD, SVOD, TVOD. All Roku opps ---- given that is their single focus. Jeff spoke to Peacock, Pluto, Vudu, etc., Again, all ROKU opps. Eventually, HBOMax, etc., will all be on ROKU too ---- once the negotiations are complete. 1/3 TVs in the US Roku OS + the millions of Roku sticks, Roku devices connected to TVs.

Note, their their revenue actually picked up significantly starting in June and into July ---- above last year’s pace. That + “the opportunity” is what the Street is hung on ---- and why it didn’t fall off a cliff on Friday. Oh, and Jeff’s salesmanship.

I’m a 14.5% TTD holder and 5.5% ROKU holder. But after reading the report, I think I’ve got that wrong ---- clearly not wrong to this point but I believe wrong on a go forward basis.

Anyone have a different perspective to this?

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Okay, so placing an ad into Hulu via Roku will only place that ad into the “30% of Hulu adspace” on the Roku devices that Roku can sell. Placing an ad into Hulu via Trade Desk can reach across all platforms that have a Hulu app installed.

The biggest advertisers will want to place ads into the full spectrum, most likely. And, over time, if not already, Trade Desk will play the ad rate via Roku’s ad-selling in the Hulu app against the ad rate in Hulu across all platforms for the benefit of their customers, too? It’s about ‘reach’ and how much it costs to access the big reach versus the small reach.

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Okay, so placing an ad into Hulu via Roku will only place that ad into the “30% of Hulu adspace” on the Roku devices that Roku can sell. Placing an ad into Hulu via Trade Desk can reach across all platforms that have a Hulu app installed.

Thanks rtichy, this is very helpful and interesting. Could you please point me to a post or article that delves further into such differences between Roku and TTD?

Also, to follow up on your second paragraph, people have pointed out that the younger generation do much of their viewing on smartphones or laptops, as opposed to TV.

–SB

https://www.theverge.com/2018/7/20/17595384/roku-ceo-anthony…

"So if you’re using an app like Crackle, some of the ads you’ll see are sold by Roku itself. Business Insider recently reported that “in some cases, Roku insists on selling 30 percent of a publisher’s ad inventory for an app if they want to be distributed on Roku devices.”

Netflix, Hulu, and other major streaming services are big enough that they don’t let Roku directly sell ads for their apps, but many smaller players do. “We get a share of their ad inventory. We take all that ad inventory, we aggregate it, and then we sell targeted ads,” Wood said on the Vergecast. “Consumers are shifting to streaming. And as they shift to streaming, advertisers are following them. Building out a big, next-generation TV ad platform is an important part of Roku business.”"

This is from 2018, fwiw. I don’t know whether the ad space in Hulu has a portion reserved for Roku, or not, at this time. I suspect it. Based on the ads I watch in Hulu. I currently view Hulu on Roku and on a XFinity device and I can see differences in the ads even though the same Hulu user is watching episodes of the same series, just different rooms at different times. To me, that suggests that Comcast is placing some of the ads in, Hulu is placing some of the ads in, and that Roku probably gets to place ads in.

(My insight is mostly based on seeing the XFinity box / Hulu app combination “lag” on dovetailing the ads into the stream, and I don’t observe that behavior on the Roku platform / Hulu app combination. Now that could speak to the capabilities of the Roku device+platform vs. the Comcast/Xfinity device, and it could be that the Hulu app on Roku is a ‘better’ app. But seeing ads prefaced by a ‘progress bar’ while they switch the source of the stream suggests to me that Comcast is getting to place some of the ads into the stream?)

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people have pointed out that the younger generation do much of their viewing on smartphones or laptops, as opposed to TV.

Yes, Smorgasbord1 is always quick to point this out. For him, it’s often a point to make regarding Roku’s ad selling being unable to reach those viewers at all. I tend to agree that Roku’s ability to reach ad audiences is smaller, long term as well as short term.

Also, some may want to observe/read this article:
https://www.wired.com/story/can-killing-cookies-save-journal…

It suggests that the targeted ad biz is considerably less effective for ad-supported business than it is for ad platforms.