Trade Desk TTD Q3'24 Earnings

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The Trade Desk released Q3 earnings yesterday. Their performance wasn’t bad, but it wasn’t the big beat that a lot of people (and probably the market) were hoping for.

This morning, the stock is down about -10%, which only brings the shares back to where they were at the beginning of the week before it started to climb in anticipation of the earnings release.

Overall, revenue grew +27%, a small beat of the +25% guidance. And they issued a +25% guide for the Q4 seasonally peak holiday quarter.

Looking at the YoY growth rates by quarter over the last few years:

       Q1    Q2   Q3   Q4
2020   33%  -13%  32%  48%
2021   37%  101%  39%  24%
2022   43%   35%  31%  24%
2023   21%   23%  24%  23%
2024   28%   26%  27%  25%(q4 guide)

And sequential growth (note that Q1 is typically going to be negative sequential growth given the seasonally strong holiday quarter in Q4)

       Q1    Q2   Q3   Q4
2020  -26%  -13%  55%  48%
2021  -31%   27%   8%  31%
2022  -20%   20%   5%  24%
2023  -22%   21%   6%  23%
2024  -19%   19%   7%  20%(q4 guide)

Market Share and Competition

The Trade Desk continues to take market share, as their growth rates significantly exceeded those of Alphabet/Google and Meta/Facebook’s advertising revenues in Q3:

               Q3 YOY      Q3 Sequential
Trade Desk     +27.4%          +7.4%
Google         +10.4%          +1.9%
Facebook       +18.6%          +4.1%

On the earnings call, CEO Jeff Greene said he believes Google will become more cautious in the areas where they compete with TTD due to the Department of Justice scrutiny.

He said it represents a “tremendous opportunity for our (TTD’s) business”

Jeff said TTD estimates that the total advertising market that Trade Desk competes for is about $1 Trillion per year. With about $13-15 billion of annual ads currently going through TTD (gross amount that they sell, not just the commission/take-rate you see in reported revenue), that implies that they currently only have a little over 1% of the market and there is still nearly 99% of the market to expand into.

Connected TV

On the analyst call, Jeff Greene said CTV shows “no signs of slowing down” and they “could not be more excited about the opportunities for growth in the years ahead”

The tone here still sounded very good and that’s important to me as CTV is likely to be the key driver of how the business performs and grows in coming quarters and years.

Political Election Spend

Although the company doesn’t break out specific detailed numbers, four years ago in the last presidential election cycle, they said that election ads added in the “mid single digits” to revenue growth

This is what had many people expecting more of a bump/beat in the Q3 numbers.

Early in the call, Jeff said Q3 and Q4 political spend has been “very strong” and “as expected”

However, they said that in 2024, the election advertising is only adding in the “low single digits” to TTD’s revenue.

I would note that TTD’s revenue in Q3 2024 was almost triple their revenue from Q3 2020, so low single digits in 2024 is probably still a lot more political spend on TTD’s platform than the mid single digits represented in 2020, in terms of dollars spent.

It’s possible that the political spend is still behind the curve focusing more on traditional linear television if the campaigns believed that more potential voters are older and consuming their media through network TV. If the rumors are true, it’s also been reported that a lot of campaign spending this year essentially paid big celebrities to endorse one candidate or another, which wouldn’t result in anything for TTD’s business.

CEO Jeff Greene also said that the election caused some non-political advertisers to postpone some of their spending until after the election because they felt it is a “polarizing environment” and didn’t want their non-election ads to run next to political ads.

In my opinion, I was somewhat relieved to hear that political spending was a smaller portion of their results this quarter. If they had a big election bump of 10% or so and only grew 27%, that would mean that the non-political more regular recurring revenue had dipped below 20%. But since the political spend was only in the low single digits, they are still growing the regular revenue in the mid +20%'s.

Balance Sheet

Cash and Short Term Investments have grown from $1.38 Billion at December 31, 2023 year end to $1.51 Billion at June 30, 2024 last quarter, and now up to $1.71 Billion now at Sept 30, 2024.

Last year, in 2023, TTD did $646 Million of Stock buybacks. This year, they bought back $125 Million in Q1, then paused buybacks not repurchasing any shares in Q2. In Q3, they resumed buying back $52 Million of shares.

They currently have more than half of a Billion authorized and available for stock repurchases and, especially if the stock dips much post-earnings, I could see them using some of that large excess cash to buy back stock a little more agressively than they had been doing earlier this year.

Wrap Up

Using one of my favorite phrases, I would call this another “steady as she goes” quarter. I had hopes that it would be even stronger than that, but ultimately, there’s nothing too bad to worry about in the results.

Hopefully, what Jeff said about many non-political advertisers being wary of runnig ads next to polarizing election ads will prove true and they will concentrate more spending in the next 6 weeks resulting in a big beat in the fourth quarter. We’ll have to wait and see.

This is still a great, really well run company, that continues to take market share, and has a huge runway of potential growth ahead for the coming years. I’m not regretting selling 25%+ of my shares over the past couple of months (to keep the allocation of TTD in my portfolio from becoming too heavy/high)…I was a little nervous that if there was a big pop in stock price after earnings I’d be kicking myself a little wondering why I didn’t wait.

Then again, that selling is in the past regardless and I would have preferred to see the stock up 10% today rather than -10%. But again, the stock price has only fallen back to where it was on Monday, not a big deal and probably a blip on the long term story.

-mekong

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I tend to agree with your analysis, and thank you so much for it. My question, and I realize only I can answer that, is if it’s worth the cost of opportunity on a (momentary) bull market.

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Also, their Adjusted EBITDA percentage of sales is back over 40% for the year. Taking the guide of $363 and the revenue guide of $756 we get 48% for the quarter (Q4 is typically stronger). This puts them up to almost 42% for 2024, and they may even get to over 42% as the beats on EBITDA typically exceed the beats on revenue.

AEBITDA% Mar Jun Sep Dec Year
2015 20.4% 30.7% 32.4% 43.9% 34.5%
2016 14.2% 33.4% 31.3% 39.5% 32.1%
2017 11.7% 34.8% 30.8% 38.5% 31.0%
2018 22.1% 32.8% 30.8% 41.8% 33.4%
2019 20.4% 36.3% 29.1% 38.7% 32.4%
2020 24.3% 10.5% 35.7% 47.8% 33.9%
2021 32.1% 42.1% 40.8% 48.4% 42.0%
2022 38.4% 36.9% 41.3% 49.9% 42.3%
2023 28.4% 38.7% 40.5% 46.8% 39.6%
2024 33.3% 41.4% 40.9% 48.0% 41.7%

At a market cap of $61.5 billion and a forecasted FY’24 sales of about $2.45 billion, we get a multiple of about 25 at the end of the year, which is extremely high. For a company that’s growing less than 30%, the reason that we see this multiple is due to the fact that it’s a very well run, profitable company with predictable growth, a growing TAM and steadily improving margins.

In comparison, Snowflake is growing at about the same rate as The Trade Desk, has a market cap of about $40.2 billion and forecasted FY’24 revenues of about $2.65 billion for a multiple of about 15.

Maybe TTD is way too expensive and SNOW is too cheap. But I’d bet the difference in the multiple is primarily due to the fact that this is still a great, really well run company, that continues to take market share, and has a huge runway of potential growth ahead for the coming years.

DJ

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Did I mishear guidance slightly muted? As in Google being more cautious, Disney and Fox in a “crawl phase”.

I think it’s all good, but that expectations were very high. But, I have only a small position that I don’t track closely enough.

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Hi Smorg

I believe Jeff Greene was saying that the stage of TTD’s new partnerships with most of the big streaming services (including not just Fox and Disney, but also Netflix, Roku, and Spotify) are still very initial/crawl phase and it will probably be later in 2025 at the earliest when Trade Desk will be in a position to start selling significant inventory for them.

I assume there is some kind of systems integration or setup that takes time before their inventories can be available to efficiently buy as part of an advertising campaign through TTD.

"One other thing that also gives me a tremendous amount of optimism for the future is that some of our most significant partnerships, whether that’s Netflix or Disney or Roku or Fox or Spotify are all in what I would call the crawl phase of our partnership. We’ve done some amazing themes with some of those. Others, we’ve always talked about doing amazing things and we’ve done just sort of testing the pipes.

But I think the very best is yet to come in all of those partnerships. And so, in the short term, they’re making small contributions, but I think the very best is yet to come "

Google being cautious, Jeff seemed to be referring to their network business where they compete against TTD on the buy side, suggesting they would focus more on their other businesses in search and Youtube which are more profitable and less exposed to some of the factors that the US Justice system appears to be looking at:

"Google has an incredibly dominant moneymaking business in search and another in YouTube and also have an incredible opportunity in cloud and AI, most notably in Gemini. Because of the AI race in big tech and these opportunities, Google could continue to downgrade their network business to focus on those prospects. After all, they operate at a disadvantage in the large buyers of the buy side of the open Internet to the Trade Desk because Google lacks subjectivity.

If these pressures weren’t enough on Google, they also have a pending antitrust trial that has created massive ripples throughout the global adtech ecosystem. The outcome of the trial itself is less important than the change in behavior that will likely come at Google, no matter what. Whenever the outcome of the trial, I do believe that Google will become more cautious, if not less involved in the part of their business where they compete with us. First off, they are and will remain under tremendous scrutiny in this market, whether it’s from U.S.

regulators or their many equivalents around the world. By contrast, the convoluted role they play, laid out very clearly by the U.S. Department of Justice, in their network business is likely to play more fairly one way or another. I point this out because it presents tremendous opportunity for our business and for the broader adtech ecosystem."

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Keep in mind, that TTD is required under the accounting rules to show their revenue “net” (only the approx 20% commission/take-rate that they keep is shown as revenue). In reality, TTD bills customers and collects cash from them of about five times as much money as is shown in their revenue line on their filings. The other 80% gets passed on to the owners of the ad inventory (e.g. Hulu or other streaming services)

On the other hand, Snowflake uses “gross” revenue, showing the full amounts they bill and collect from customers as revenue, and then they deduct cost of sales further down the statement of operations.

I wouldn not suggest grossing up TTD’s revenue for the comparison, because TTD’s margin on cash collected is very low, only about 20%, while Snowflake’s is very high, so that wouldn’t be a great way to compare them.

I personally prefer to compare gross margin dollars of TTD (which is the same as their revenue) to the gross margin dollars of other “gross” revenue reporting companies.

I know some people have argued in the past that some of the items in TTD’s G&A expense should be considered cost of sales. I generally disagree as I described recently in the “Applovin Crushes Q3…” post this week, for reference.

When comparing the last four quarters of gross margin, I calculate TTD 25x vs SNOW 19x.

Still a higher multiple, but not as drastic

-mekong

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I didn’t get that from listening to the call. Here are just a couple of things that stuck out to me:

  1. Jeff said that in a couple of years we’re going to look back at today and see it as the inflection point for CTV, and CTV is the highest value fastest growing market for digital advertising, because people spend the most time on and are best engaged with the high quality content.

  2. That the next big wave of quality content with respect to digital advertising is going to be podcasts, and TTD is focusing on this and has leading partnerships (Spotify for example) that will help leverage this channel.

I kind of think about TTD as the Shopify of digital advertising. They enable digital advertising, empowering the market to own and leverage their own data in ways that can’t be done with Google, Amazon or Facebook (The Walled Gardens) and provide so much value that it’ll be hard for anyone to come in and compete with what they do.

DJ

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One qualitative point I notice about TTD and both its website and earnings release material is how they are positioning themselves as an “Omnichannel” platform rather than Ads platform.

To me when I hear Omnichannel I think B2B CRM/Multi Channel Marketing. I can’t quite tell yet whether this is just hijacking a catchy term or whether Green is thinking about the platform from a complete omnichannel basis in a B2C sense or whether TTD really is considering B2B omnichannel as well. Something to monitor.

Ant

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@anthonyms
Google’s AI says

" The Trade Desk places ads across a variety of digital environments, including web browsers, mobile web, in-app environments, connected TV (CTV), and even digital out-of-home (DOOH), allowing advertisers to reach audiences across multiple devices and platforms through programmatic buying"

…doesnt; that mean that $TTD is already at least a “Multi Channel” provider? And: what is the difference between “Multi Channel” and “Omnichannel” for $TTD

…does “omnichannel” just mean advertising across some critical number of channels? And/or does it mean the ability to conduct and MEASURE a coordinated campaign across a critical number of channels?

What if someone came to $TTD and said they want a co-ordinated omnichannel campaign that spans Web, Mobile Web, in-App, CTV, DOOH and…email? And that they want to carefully orchestrate and coordinate the campaign across the channels (…lead with email teasers on Wednesday, follow up with DOOH on Thursday, finish with synchronized web/mobile/in-app on Friday? lol I dunno). …is that what they are aspiring to do? e.g. stuff that $CRM currently does?

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