TTD - Comparatively Speaking

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Hello everyone,

I found this board about 8 months ago and have finally taken the time to dig into the financials of all of the companies I own going back 8 quarters or so to see how the businesses are really doing. I should have done this 8 months ago, I KNOW.

I own TTD (8% position), as well as every other name I will mention, so this post is to get feedback on what I am seeing in the financials compared to other businesses we follow, not to knock TTD in any way.

When I look at the numbers, many of the financials for TTD seem to be headed in the wrong direction for the last couple of quarters at least, especially compared to MDB, TWLO, AYX, ZS, OKTA, SQ, and ABMD (which all seem to have just about everything headed in the right direction) though not as much with SQ and ABMD. Growth Rate, Gross Margin, Platform Operations, R&D, OpEx as a whole, and Operating Margins all seem to be headed in the wrong direction on a YoY basis for the last few quarters. The only thing that looks to be headed in the right direction is their net income and adj net income (and S&M expenses).

Can you help me understand why everyone seems to invest in this company besides the story of it and Jeff Green (which I love the story and Jeff Green as well) when things don’t seem to be going so well financially? Or am I looking at this completely wrong? Again, I am comparing TTD to the other names I mentioned so that might not be a good idea. Maybe it is better to look at it on its own.

I simply am trying to understand better if I should be looking at different things in the financials or in a different way.

Thanks for any help you can give,
Daniel

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Perhaps post the numbers you have compiled to show the extent of the “wrong direction”?

I remember reading an article with Jeff Green saying he wanted to prove the advertising business can be a healthy and profitable business for a few quarters and then he wanted to forego short term profit and start investing aggressively for growth.

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I honestly dont know what you dislike about 50%+ y/y growth that compares favorably to ayx mdb zs okta and others while actually turning a profit and nearing the half-billion revenue mark for full 2019.

For y/y growth and free cash flow, it is hard to find companies better than TTD.

They are flat out executing and have done a beat and raise every Q this year too.

And they have a more reasonable P/S than all those stocks currently.

Dreamer

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Platform Ops and Technology and Development both increased year over year as a percent of revenue. Sales & Marketing went down.

But who cares? To Dreamer’s point, TTD is growing in the 50% range and is profitable to boot. TTM EPS which is rarely discussed any longer is $2.13. They actually have a PE ratio.

TTD is innovating which is a likely reason we see the slight increase in costs in the aforementioned categories. There are plenty of ‘greenfield’ opportunities for them.

I would not be too concerned about the ever so slight increase in costs last quarter.

A.J.

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Hi Daniel, For the life of me, I can’t imagine what you are looking at. Last quarter their revenue was up 50% (which most companies would die for), their earnings per share were up 86% from 35 cents to 65 cents, they have substantial EPS in fact with trailing earnings of $2.13, their net profit went from $10.2 million to $20.3 million, up just about 100%, but much more importantly their adjusted net profit was also up almost 100%, their adjusted EBITDA was up 50%, and was 31% of revenue, their conference call was euphoric, and they are on their way to take over the world of advertising placement. What in the world are you unhappy about? Read their earnings press release! Read the transcript of the Conference Call! Read their recent news announcements! Then come back and tell us what’s making you so unhappy.
Saul

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TTD Revenue growth

3Q 2018 50%
2Q 2018 54%
1Q 2018 61%
4Q 2017 42%
3Q 2017 50%
2Q 2017 54%

Earnings and cash flow growth good. Where’s a developing problem?

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Hello again,

I will show you the numbers I am looking at, however it seems that maybe I am looking at or being concerned with the wrong numbers.

Growth:
4Q 2018 43% (Guidance)
3Q 2018 50%
2Q 2018 54%
1Q 2018 61%

Gross Margin:
3Q 2018 75% (YoY down)
2Q 2018 76% (YoY down)
1Q 2018 73% (YoY down)
4Q 2017 79% (YoY down)
3Q 2017 78%
2Q 2017 79%
1Q 2017 77%
4Q 2016 82%

Platform Operations:
3Q 2018 25% of revenue (YoY up)
2Q 2018 24% of revenue (YoY up)
1Q 2018 27% of revenue (YoY up)
4Q 2017 21% of revenue (YoY up)
3Q 2017 22% of revenue
2Q 2017 21% of revenue
1Q 2017 23% of revenue
4Q 2016 18% of revenue

R&D:
3Q 2018 19% of revenue (YoY up)
2Q 2018 21% of revenue (YoY up)
1Q 2018 17% of revenue (YoY up)
4Q 2017 17% of revenue (YoY up)
3Q 2017 17% of revenue
2Q 2017 17% of revenue
1Q 2017 20% of revenue
4Q 2016 13% of revenue

Operating Expenses:
3Q 2018 81% of revenue (YoY up)
2Q 2018 77% of revenue (YoY up)
1Q 2018 88% of revenue (YoY down)
4Q 2017 71% of revenue (YoY up)
3Q 2017 77% of revenue
2Q 2017 73% of revenue
1Q 2017 96% of revenue
4Q 2016 67% of revenue

Operating Margins:
3Q 2018 19% of revenue (YoY down)
2Q 2018 23% of revenue (YoY down)
1Q 2018 12% of revenue (YoY up)
4Q 2017 29% of revenue (YoY down)
3Q 2017 23% of revenue
2Q 2017 27% of revenue
1Q 2017 4% of revenue
4Q 2016 33% of revenue

Dreamer, I am definitely not disputing that they are profitable and doing a great job of many parts of the business. Also, not saying that they are not better than most businesses out there. I have an 8% position which is not tiny and it was as much as 11%.

I completely agree with you Saul, Darth and Dreamer that they are growing fast and I am definitely happy with TTD. I was simply concerned about some of the financials I was looking at compared to the other stocks I mentioned. Growth slowing from 61% to 43% in less than a year. This is me digging into the numbers and trying to do what you guys do. I see you throw out the numbers and I love the ones I see. But when I went to look myself to not rely on this board so much and take it for granted that you are right, but to do my own work, I found some things that were different when I compared them to the other stocks. AYX, revenue increasing the last 3 quarters. MDB, increasing for guidance next quarter. SQ, increasing the last several quarters. TWLO, increasing the last 4 quarters. ZS, increasing the last 3 quarters. Again, this was all comparing.

Moving on, gross margin seemed to be going the wrong direction. Yes, 75% Gross Margin is HIGH! Simply concerned but maybe I shouldn’t be. AYX, increasing YoY AND sequentially the last 3 quarters. OKTA, increasing YoY the last 4 quarters. SQ, increasing YoY the last 4 quarters. TWLO, increasing sequentially the last 4 quarters and increased the most recent quarter YoY. ZS, increasing YoY the last 4 quarters.

Platform Operations, going up. Maybe I shouldn’t be concerned as Phoolio stated. AYX, Cost of Product has been decreasing YoY AND sequentially the last 4 quarters. MDB, has been decreasing sequentially the last 2 quarters and YoY the most recent quarter. OKTA, has been decreasing YoY the last 4 quarters. SQ, has been decreasing YoY the last 4 quarters. TWLO, has been decreasing sequentially the last 4 quarters and YoY the most recent quarter. ZS, has been decreasing YoY the last 4 quarters.

R&D, going up. Maybe I shouldn’t be concerned as MacInTheBox hinted at. I do seem to remember hearing that is how Jeff Green wanted to do it. ABMD, R&D has been decreasing YoY the last 4 quarters. AYX, has been decreasing YoY the last 2 quarters. MDB, has been decreasing YoY the last 4 quarters. OKTA, same. TWLO, same. ZS, same.

Operating Expenses are mostly going up. Maybe this is normal, it just seem that way compared to the other stocks.

Operating Margins seem to be going down. Again, this is not like the other stocks I mentioned so I was a little concerned. ABMD, going up YoY the last 4 quarters. AYX, MDB, OKTA, ZS, same.

Yes, the conference call was euphoric, as I listened to it the day of, and that is why I was having trouble with the numbers (especially when they break the revenue down and give this list of all of this super high growth of Audio, Video, CTV and the rest). It is a great story and Jeff Green presents it so well. I love the story, the story makes sense. They are taking over. They are helping to grow the industry with the Unified ID. China, Next Wave product, etc!

I did read their earnings press release. I did read the transcript of the Conference Call and listed to it the day of. I do read their recent news announcements. ALL GREAT! Thus why I have the position I have and NOT unhappy.

Most of the time, I hear story story story and I wanted to make sure it matched up with the not highlighted numbers.

Clearly, I must have been looking at or been concerned with the wrong numbers or should not be comparing TTD to the other stocks in the way that I am.

I apologize if I have offended anyone or made you think that I was not happy about TTD. Hopefully I have shown you that I am happy with TTD, just had some things I thought some of you could look at and let me know your thoughts. I will go back to trying to learn more on my own.

Truly, thank you for the posts. I don’t want to be a follower. I want to learn and be helpful and supportive.

Daniel

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Dan, nothing wrong w your digging and presenting. In fact that is what we do here!

Oneconcern of mine, well two, are (1) CTV inventory growing 10x yoy. We have been here before, from what? W MDB we know the numbers for Atlas because they give it to us. W TTD, like w TLND we are constantly fed this huge growth (in inventory - not revenues to TTD) but not given specifics. Why? Clearly this number is no secret as it is not proprietary to TTD, and since all competitors know the number because they all sell from the same inventory, why not give the number to us? Or at least some insight. Talend did a similar thing as quarter after quarter nothe cloud grew more than 100% for Talend but they would never give us the number. Why? Because the number was too tiny to support the stock price - revealed of course, only after the fact when the rest of the business hit a wall.

(2) China. A lot of TTD’s narrative involves China as well as each of its baseof 10x of what. offices like Berlin or Thailand growing like mad. Yet again no numbers given other than China is still nominal but w largest potential thus creating this narrative.

Reality is that international is still, almost everywhere, still quite small so that 200% growth in office Madrid or whatever may not mean much.

Thus, like w Talend, the key component of the narrative cannot be proven by numbers but only speculation of 10x from what base, or 200% from what base in Madrid?

It enables a narrative w out numbers to support it. Thus reasons to question. But also reasons to inquire further as to the cause of their success as well.

It would be nice to know what bass this wild growth is coming from.

Here are two recent news stories on TTD touting international growth and China, as if it were material. Yet we know that TTD presently has near zero revenue in China. Certainly would not know that reviewing the second article.

https://www.reuters.com/article/us-trade-desk-results/ad-tec…

https://www.businesswire.com/news/home/20181113005428/en/Tra…

Connects global brands to more than 700 million Chinese consumers! Except, well, few if any of these 700 million to date.

I have no information on TTD’s international sales numbers as they will not tell us. But they will put out news headlines like these two that are not untrue but clearly misleading.

Since CTV and International are the two largest elements of the investing hypothesis, it be nice to have some inkling of a number. None is given other than headline grabbing stories w no numbers to support them.

Therefore, you are right to question. When reality and narrative diverge that can be a red flag. Particularly when the core investing elements are hyped, but no numbers given as to how the core investment elements are actually doing.

Tinker

Yes, I own quite a bit of TTD, but good to get this issue out. Why no numbers given to support the hype and enthusiasm? I want to know why anyways.

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Dan, thanks for posting that info. On the forecast revenue growth of 43%. Note Q3 2018 growth rate equaled growth rate of Q3 2017. 43% is actually higher than the 42% growth rate achieved in the year prior Q4. That is considered an acceleration of comparable quarter.

One thing about Small Caps. A little beat or a little miss can drastically changing rates. Forecast is $147M. Year ago was $102.6. A beat by $5M gives 48% growth and a miss of $5M would pull it down to 38%. TTDs track record is to beat.

As far as spending, they are spending on growth. They launched “The next wave” in the last quarter which is a huge enhancement to their platform and they are setting up shop in new markets around the world and on new and growing channels. I would expect margin pressure and to be honest their margins have barely budged despite all the above.

Here’s what they say about those platform fees.

The increase in platform operations expense for the three months ended September 30, 2018, compared to the same prior year period, was primarily due to increases of $9.1 million in hosting costs and $1.4 million in personnel costs, including $0.4 million of stock-based compensation. The increase in hosting costs was due to the increased use of our platform by our clients. The increase in personnel costs was primarily due to an increase in headcount for our client support team

We expect platform operations expenses to increase in absolute dollars in future periods as we continue to experience increased volumes of transactions through our platform and hire additional personnel to support our clients.

This is good news. TTDs customers are increasing their use of the platform, TTD is growing and they expect growth to continue. Again we’re only talking very small changes in percentages here. It’s not in danger of running the tables on us here. Notice too that they say “increase in absolute dollars” not necessarily increase in percentage of revenue. I do not consider this a problem at all.

Throughout the conference call management claims they expect the next year to accelerate growth, so we’ll see. Q4 guidance kicked that off albeit just a wee bit.

Tinker, you’re not going to get the specific revenue on CTV spend anytime soon I predict. No matter, management severely thinks this is the most important thing for TTD’s future. They are not ambiguous in the slightest.

So, we’ve never seen it an opportunity like CTV before and I don’t think we’ll ever see one like it, again. It is the biggest opportunity we’ve ever seen probably ever will. Thanks.

I guess they could be being disingenuous, but I have no evidence leading down that path.

You are right that a few quarters ago TTD called out Inventory not spend for CTV, however the previous two quarters it is Spend that has increased 10x.

You Bet. So first let me just give everybody a little bit of context for Connected TV. So you may recall that in Q1, I said the most bullish thing I’m reporting in this report is that inventory for Connected TV went up by a 1000%, went up by 10x. And then the next quarter, I said the most bullish thing that we’ve said year-to-date, even more bullish than the thing I said last quarter is that our Connected TV spend went up by 1000%. And when I said that, I never anticipated that when we are giving our Q3 results as we just said, that I would once again say that Connected TV spend went up by 10x quarter-over-quarter Q3 2018 over Q3 2017.

Reread the conference call to help reply to the concerns. It is hard to find a management team more bullish on their companies short and long term opportunities than TTD.

Darth

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Daniel -

Your post is much appreciated and questioning is always welcome. Like you, I’m somewhat new to crunching numbers. Also like you (and many others I’d guess), the recent downturn has made me double check where I’ve put my money. FWIW here’s my read on some of TTD’s figures:

Revenue (note Q4 and FY based on guidance)


Revenue							% YoY					
	Q1	Q2	Q3	Q4	YR			Q1	Q2	Q3	Q4	YR
2016	$30.40	$47.20	$53.00	$72.40	$202.90		2016					0
2017	$53.40	$72.80	$79.40	$102.60	$308.20		2017	75.7%	54.2%	49.8%	41.7%	51.9%
2018	$85.70	$112.30	$118.80	$147.00	$463.80		2018	60.5%	54.3%	49.6%	43.3%	50.5%

What I’m seeing: TTD continues to show strong revenue rates. They held their YoY growth each of the last 2 Q’s and are still pushing 50%. While Q4 guidance is down sequentially, I also notice it would be an accelerating rate vs Q417 and keep their annual growth >50% for the second year in a row. Any kind of beat would only magnify this. The company is excited about the early adoption of their Next Wave product and we’re already seeing positive accolades for their brand new Unified ID program. Given the current beat/raise environment and their enthusiasm on the last call, I like our chances of seeing that revenue acceleration become reality.

Operating Expenses


Op Expenses							% YoY					
	Q1	Q2	Q3	Q4	YR			Q1	Q2	Q3	Q4	YR
2016	$26.98	$32.15	$37.91	$48.37	$145.41		2016					0
2017	$51.42	$53.11	$61.01	$73.33	$238.86		2017	90.6%	65.2%	60.9%	51.6%	64.3%
2018	$75.74	$86.17	$96.56				2018	47.3%	62.3%	58.3%

What I’m seeing: I didn’t get as granular as you in this area. I just took total Op Ex. While the percentages are high, there is actually a slight contraction YoY despite the fact they have repeatedly said they are committed to growing as fast as they can. Granted that contraction isn’t much, but it appears they are funding their expansion efforts through the normal course of business rather than taking on debt. To my admittedly less-practiced eye they’re being both measured and reasonable in what they are doing.

I’m going to group three more items together before commenting next:

EBITDA


Non-GAAP Adj EBITDA							% YoY					
	Q1	Q2	Q3	Q4	YR			Q1	Q2	Q3	Q4	YR
2016	$4.33	$15.75	$16.58	$28.57	$65.22		2016					0
2017	$6.26	$25.27	$24.43	$39.50	$95.47		2017	44.7%	60.5%	47.3%	38.3%	46.4%
2018	$18.92	$36.90	$36.56	$53.00	$145.39		2018	202.1%	46.0%	49.7%	34.2%	52.3%

Net Income


non-GAAP Net Income							Net Income % YoY					
	Q1	Q2	Q3	Q4	YR			Q1	Q2	Q3	Q4	YR
2016	$3.50	$8.25	$9.40	$14.20	$35.35		2016					0
2017	$7.85	$23.02	$15.28	$24.20	$70.40		2017	124.2%	179.1%	62.5%	70.4%	99.2%
2018	$15.33	$27.24	$30.18				2018	95.3%	18.3%	97.6%

and finally EPS


non-GAAP Diluted EPS							% YoY					
	Q1	Q2	Q3	Q4	YR			Q1	Q2	Q3	Q4	YR
2016	$0.09	$0.22	$0.24	$0.33	$0.89		2016					0
2017	$0.18	$0.52	$0.35	$0.54	$1.60		2017	100.0%	136.4%	45.8%	63.6%	79.8%
2018	$0.34	$0.60	$0.65				2018	88.9%	15.4%	85.7%

What I’m seeing: This is the one thing I didn’t see you mention in your post: TTD is actually making money. While it’s important to assess the top line, none of that matters if it never sees the bottom line. TTD is not only generating earnings, but doing it at very strong rates. I’ve never quite been able to figure out what looks like an outlier spike in Q217 (Anyone? Bueller?), but TTD continues to make money even as it’s stressing growth. That’s very unusual for companies we generally talk about on this board. We sometimes see the Rule of 40 used to assess these companies since they don’t make a profit. Jeff Green made the comment TTD is on pace to hit 80% in this metric even though they are investing in the business as fast as they can. Even if he’s cherry picking some facts here, that sounds good to me.

In considering the landscape going forward:

  • TTD is seeing strong business growth in all their channels (notwithstanding Tinker’s very valid questions about the CTV base).
  • They ranked 3rd behind AMZN and GOOG in demand side platform usage last year. So basically outside the behemoth category they lead the market.
  • Their platform protects customer anonymity, which complies with ever-increasing privacy rules particularly internationally.
  • They are beginning to see companies use their platform directly rather than going through ad agencies, therefore lessening TTD’s reliance on a middleman to conduct business.
  • They have early partnerships in China that seem to match advertisers without putting TTD’s core IP at stake to access the market (someone please feel free to correct me here).
  • They’ve had 95% customer retention rates for 19 consecutive Q’s.
  • They have $166M in cash with no debt.

In the end I’m no expert. I’m just here trying to learn like everyone else. Keeping it as simple as possible, I try to wade through the numbers best I can and supplement that by collecting whatever positive or negative bullet points I come across for the companies I’m invested in. As examples, this process made me sell NVDA and has me holding my medium-sized NTNX position. My TTD result thus far has been a fully built-out core position. Time will tell if that was a good decision.

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* They ranked 3rd behind AMZN and GOOG in demand side platform usage last year. So basically outside the behemoth category they lead the market.

This part I find particularly important. It is not easy to obtain the actual marketshare numbers and I think it is very important in an investment in a disruptive company to obtain the real and true disruptor and to those trying to keep up in its wake.

TTD being the true marketshare leader over the rest of the web is a very big thing. like MIPS to ARM, or AMD to NVDA, you do not (except in trading opportunities) want to be invested in #2, or a #1 that is quickly losing marketshare.

Tinker

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It is hard to find a management team more bullish on their companies short and long term opportunities than TTD.

Not a good reason to invest in a high-growth stock, as 99.99% of such mgmt are super bullish on their opportunities on their own conf calls.

Go to some of the analyst conferences sometime where they often give a much more nuanced story.

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Listed in the most recent 10-Q are Billings broken out by US and Int’l.
Appears Billings are right around 16% of the business.

That doesn’t equate exactly to revenue as take rates may differ, but it is one data point.

AJ

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