I debated posting this since rev growth is slower than our other companies, and TTD is perhaps less popular - hopefully people find this useful that I revisited our old friend The Trade Desk.
If you factor in the $1 trillion TAM and the fact that it is much more profitable than our other companies, I am perhaps seeing reasons to keep it somewhere in my portfolio.
Q4 (due out on 2/18/2021) should be solid due to normal seasonality and the added benefits of an election year.
Worth keeping in mind, the market is valuing TTD at a P/S of 56, not far off from CRWD (65) or NET (63), despite both of them growing much faster.
In their latest earnings report from November 6 2020, more interesting tidbits are that they have a new upgrade coming out this year called solomar. Their last upgrade was in 2018 which boosted their business.
Also interesting is that China is their fastest growing segment. My own personal opinion is that relying on China for future growth is a risk more so than a benefit. And finally, they addressed concerns about IDFA - Jeff is not overly worried about it.
So here are the highlights from the quarter:
healthy growth in the third quarter, up 32% year over year <\b>
In this environment, marketers have come to more fully appreciate the power of data-driven advertising. And as that happens, we are becoming indispensable
we continue to see rapid growth in key channels, such as Connected TV, which grew more than 100% year over year.
ExponentialDave<\b>: this is impressive sounding, but just as a quick aside it’s worth noting that this is just one piece of revenue growth.
Advertising is an engine of economic growth and our customers know that their campaigns can fuel growth and drive market share gains for their brands.
And because of that, during times of uncertainty, they become much more deliberate.
Since April, we have been focused on understanding where we are on the economic recovery curve. Some industries, such as CPG, pharma and healthcare, were on the leading edge of that curve as we would expect. In fact, some companies in those industries never fully shut down their digital advertising campaigns. Others are a little farther back.
Restaurants and retailers, for example. They needed to advertise that they were open and message what their new normal looked like in terms of pickup and delivery services. However, their businesses have not yet completely returned to normal. And then further down the curve, of course, you have other industries like auto and airlines and hospitality that remain in various early stages of recovery.
We’ve spoken in the past about a 95%-plus retention rate, and we’re seeing no deviation from that. <\b>
Now, national brand campaigns had to be complemented by highly local campaigns, specific to the circumstances in a particular region or state. But there was a much greater focus on reaching specific audiences with specific messages
Combine those two factors, the need for new kinds of agility and the need to prove ROI, and you can recognize how marketers today need to not only be much more deliberate, but also much more data driven
We recently surveyed more than 200 top advertisers. Around 85% of them said they are under new pressure from CFOs to justify marketing spend and to measure against business goals. 50% are now having their typical measurement techniques in question.
As a result, almost all of them intend to adopt data-driven measurement strategies. This shift to being more deliberate has been a major driver of our growth this year, but we also see it play out in terms of business performance for those companies that prioritize data-driven advertising.
According to eMarketer, 77.6 million U.S. households will have cable TV packages this year, down about 7.5% year over year. That is a rapid acceleration from the 3% decline that they had been predicting at the beginning of the year. In addition, CNBC recently reported that at least three large U.S.
media companies expect the number of U.S. households that subscribe to linear TV bundles will fall to about 50 million in the next five years. That is about a 40% drop from here. At the same time, advertisers will be able to reach more than 80 million U.S. households via CTV on our platform this year.
Another reason I’m so bullish for our future is product. In 2021, we will launch one of the biggest upgrades to our system in company history. The release is called Solomar. As some of you saw in 2018, we delivered a massive upgrade to our platform, which accelerated our market share gains. <\b>
That one was called Next Wave. We are still relentlessly committed to innovating and staying on the leading edge of our industry. We never take leadership for granted, and we are always looking to improve our platform and deepen our relationships with our customers. Solomar will include a better user interface, one that brings all of our customers buying and planning tools together for greater ease of use.
We’re also making it easier than ever to onboard and deploy their first-party data. We’re improving data management. We’ll continue to expand our identity products around the world. We’ll make planning on our platform even better, with a focus on ingesting and achieving customer-specific goals and we’ll release a meaningful integrated upgrade to Koa, the machine learning and AI engine that is always powering campaigns even if users are away from their keyboards.
Finally, this launch will include a new measurement marketplace that provides advertisers with more transparent reporting. This represents an even more compelling measurement alternative to the walled gardens who continue to grade their own homework. Everything about this release points to the primacy of first-party data and the ability to unlock the value of that data in an ad campaign, especially in Connected TV.
ExponentialDave<\b>: Solomar sounds exciting, but it falls under the “hopes and dreams” category. As in, we can only guess at what degree this will help or hurt their revenues. I am optimistic since I have some trust in management but that’s as much as we can say from an unbiased perspective.
For Q3, revenue was $216 million, representing an increase of 32% year over year. This represented a 45-percentage-point acceleration from Q2. We benefited from several trends that helped us significantly exceed our expectations. One, existing advertisers shifted more spend to our platform during the quarter.
This included CTV, which offers the ability for advertisers to apply data to their TV ad campaigns in ways that are simply not possible with linear. Two, we won a significant amount of new business from our competition, enabling us to gain share; and three, political spend steadily ramped up throughout the quarter and was particularly strong in the month of September. <\b> With the strong top-line performance in Q3, we generated $77 million in adjusted EBITDA or about 36% of revenue. As you have seen historically, when we outperform on the top line, we often see that outperformance drop down to EBITDA, which it did in Q3.
Sequential Rev growth by quarter (most recent Q3 first):55%, -13%, -26%, 32%, 3%, 32%, -24%, 34%
Geographically in Q3, similar to last quarter, North America represented 88% of spend and international represented 12% of spend. <\b> All of our major regions, North America, APAC, and Europe grew spend well into the double digits year over year in Q3.
…However, it is fair to assume that we will still end 2020 as we had previously indicated, with political spend representing a mid-single-digit share as a percent of our spend. <\b>
Operating expenses were $173 million in Q3, up 22% year over year.
We estimate Q4 revenue to be between $287 million and $291 million, which would represent growth of between 33% to 35% on a year-over-year basis, a modest acceleration from our Q3 results.
Under this assumption, we estimate adjusted EBITDA to be at least $115 million in Q4 <\b>
And I think it’s difficult to argue that we didn’t benefit from the struggle that live sports has had in 2020.
When we asked in a survey, what was the No. 1 reason that people hung on to cable? 60% of consumers said the reason for hanging on to it was live sports. And we think that that’s the reason why when we ask them about cord-cutting, that they’re doing now at between 2.5 and 4 times the rate that they’ve been doing that in the past. <\b>
ExponentialDave: based on this kind of stuff, I am surprised TTD did not benefit more than they did. Perhaps this kind of thing takes more time to play out and really hit their revenues.
Michael Levine – Pivotal Trade Group – Analyst
Just some initial thoughts, just how investors could think about the opportunity for CTV in 2021.
Jeff Green – Founder and Chief Executive Officer
Yeah. Absolutely. So the first is just to touch on a little bit, the upfront. So this year, the upfronts, which is a way that a lot of advertising spend in TV gets allocated, was especially weak because just a lot of the decisions and meeting take place in last week in March and first week in April, that was the moment that perhaps was the most amount of uncertainty in the global economy and certainly in the media landscape. <\b>
ExponentialDave: This is the kind of stuff that creates a drag on metrics such as YoY revenue growth. You trip up in one quarter, and it affects YoY numbers for the next 3 quarters. This is why I’m growing to like sequential numbers more so than yearly numbers. Seasonality makes sequential numbers harder to compare though.
I think most people – part of the reason why I quoted Marc Pritchard on that really bold statement that he made, that they plan to skip out on upfronts going forward, is in part because of the amount of uncertainty that the media landscape faces continuing going into 2021. What I think all of that means is the way to make television work and scale is going to be to move more to connected TV.
I think it means that there’s going to be more sold in what is effectively a spot market instead of on upfronts and all of that bodes well for us
…So about 10% of our spend uses IDFA. And because we’ve had limited targeting on that 10% for quite a long time, continuing to limit it or limited in a new way, doesn’t have a material impact to our business. Because we’re looking at roughly 12 million ads every single second, when you take 1 million-ish of those and say, we’re going to allow less data to be used on those. We just look more carefully for gems in the other 11 million. <\b>
Jeff Green – Founder and Chief Executive Officer
I’ll just add for 30 seconds. I was on the phone with some of our team in China this morning just talking about how they are leading the world in global growth for us, they’re back to the offices and sort of business as usual and having a phenomenal year for us. I definitely want to make investments there.
-------big but good explanation of Unified ID 2.0 - feel free to skip if not interested in technicalities---------
Jeff Green – Founder and Chief Executive Officer
Yeah. So this is a complicated question. So in the third-party cookie universe, there is all this thinking that has to happen. So if one company, let’s just say, Google has a cookie that says – and they identify a user as user ABC.
And then Facebook has a cookie, and they identify that user as 123. In order for them to have a common understanding of the user, they have to ping each other. And so what you see on the bottom of your browser, all the pixels loading constantly. It’s all these companies syncing with each other so that they have a common understanding of the user and create a currency around the Internet.
What Unified ID 2.0 does is it replaces that where there’s constantly pings happening and syncing so that there’s a common understanding of the user and replaces it with a standard that we all have. And this effectively creates a currency for the Internet. It doesn’t mean that we aggregate all the data. In fact, it’s deliberately designed to avoid that.
There is this ID where there’s no data per se attach to it. And then the individual companies themselves that have in proper ways gained insight or data then can use that in their own four walls without having to send the data to all different places. Because everybody has an interest in creating this understanding, so we can stop syncing and have a better system, we basically took a recipe from the IAB, where the IAB had said, this is what the best solution should look like. And we just went one click down on fleshing that out.
And then we sent it out to partners like Criteo and like, which incidentally is a competitor in a lot of levels. But we felt like it was very important to start there so that we were signifying to the industry that this was a collaboration, even though we compete. Then we did the exact same thing with LiveRamp to just make certain that it was interoperable. So you asked whether it was about interoperability or about collaboration.
It is about both. But we took something to them that was mostly baked and said, what do we need to modify to get you to adopt it and make it interoperable with your solutions? And that’s where we are with all of them. You mentioned measurement, you’re absolutely right that one of the things that, I think, Facebook and Google have done really well in becoming as big as they are in advertising, is that they have done a good job of taking credit for what happens in all of advertising because they touch so many conversions when they sell something, they are effectively providing analytics to say, yes, we touched it. You sold that product because of us.
———- end of section about unified ID 2.0 ————
… I’ll just reiterate. China is leading the world right now for us in terms of growth rate. <\b> The green shoots are really remarkable in 2020. I don’t know that I would have pointed to the green shoots in years before this year, but they’re really remarkable.
We continue to just build out the team and build out the products that we need. Our vision is to do for the Chinese speaking world, what we’ve done for the English-speaking world.
…Yeah. So I could not agree more with the premise of the question, which is that SMBs and mid-market advertisers have been driver of digital, especially for companies like Google and Facebook. We, of course, have done much better among the premium brands. And deliberately started there, and that continues to be the core of the market that we service.
But we fully acknowledge, when we talk about $1 trillion TAM, and we talk about being focused on the demand side so that we can appeal to everybody, that objectivity and that TAM has to include advertisers of smaller sizes. <\b> The way that we service those today is largely through agencies and other tech providers that are very focused on servicing those advertisers today. There might be a time down the road that we do some of that ourselves without trying to disintermediate any of them, would be the hope. But there’s a lot to consider there.
You asked what are the considerations. You have to have a relationship that is almost like a B2C relationship in order to service those, which I think is just really important for us to think about as we continue to expand. So those things are not lost on us. We’re spending a lot of time trying to learn more about that market, but we continue to be focused on that $1 trillion TAM, and no, we can’t ignore it.