Long time lurker here. After Saul posted the letter to his daughter and his notes on ZS I decided I was way past due to try to spend my time actually learning about the companies I owned rather than just checking the performance of my portfolio every 20 minutes. I decided to start with TTD as it has been very good to me over the past 2 years. I realized if I had really been paying attention I would not have waited 16 months to make a second purchase of shares….lesson learned. So like many others I have narrowed the portfolio down to just over a dozen stocks. Anyway, I noticed that only one single post was made in reference to the investor day presentation so I thought I would share my notes from the presentation and then a couple thoughts. Hopefully they can be of some value to this board. I didn’t take notes on the technology presentation because it is way out of my league, or during the Q&A at the end because most of the questions just asked for a little more detail/clarification. I also didn’t include much about financials which are available and others have already discussed.
Investor Day ‘19- https://edge.media-server.com/m6/p/v6zmpbr9
Jeff Green- Strategy and Vision:
Industry Current $725Billion, $1Trillion in 8 years- about 4% a year growth. Digital continues to grow as a % of the total. Programatic is $33Billion (5% of total). He believes that nearly 100% will eventually be programmatic.
Macro —Zuckerberg in front of Congress changed everything for advertising….privacy issues, PII, DII. Changed the strategies for FB and Google. They are no longer trying to monetize the rest of the internet. ATT buys AppNexus…OpenX does layoffs(SSP) fragmentation of sell side…Google removes the ID (unable to compare them to the rest of the internet) google is grading their own homework….Disney buys Fox …total control over Hulu…wants to be Netflix, Direct to consumer is king. TTD is a programmatic partner with Disney.
Micro-- 55% revenue growth yoy……bought a fraud prevention company to stop advertising fraud(distributed non human), not just tax fraud (makes digital advertising(the supply chain) more efficient)…Acquired AdBrain 20x ROI……Megagon adoption over 75% (new user experience success)…CTV CAGR 600% since 2016 launch….partner with TVB partnership (the major HK media provider), case study in OTT on demand success….non US revenue grows from 6.6% to 14% 2015-18….success with NextWave…. Optimized to culture rather than to growth (maintain the focus on their vision rather than just growth)…
The Future-- Why is TTD leading: 1) we care 2) our employees matter and believe it 3) interests are aligned with clients…help agencies level up their business model. TTD is not a disrupter, but an enabler….SaaS like company pointed at data and advertising, not a media company; more profitable business model than SaaS…focus on client retention, profitability and predictability; not about subscription. Focus on creating value for the client so they continue the partnership.
Foundational Tenets of Strategy - Price discovery is foundational to healthy markets - Data driven is better than guessing - Programmatic will eventually power all global spend - Buy side is forever in a power position (wide view of data)- Decisioning is where the money is - Sell Side fragments (narrow view of data) - Sum of tech take rate is 25-30%- Buy side aggregates around 3-10 players
TTD is not competing with Google and Facebook, Media is. TTD is trying to be really good at buying media objectively on the rest of the internet.
Help monetize non owned sites
Objectivity matters more as time goes on. Business model was built to be objective so there is TRUST.
Amazon is good at monetizing their own site. But they compete with the other advertisers.
5 year Goals- CTV and video will be the largest channel. They will account for half of global spend. - China will become a top 3 market for TTD . Baidu, Tencent, Alibaba own more of that market than FB, GOOG, AMZN do of the NA market. No real spend for China so far, has all been beta testing. Launched in March 2019. Years of preparation are coming to fruition- The ID footprint will be bigger than any one company (Unified ID)…FB reaches 2.2B people, YouTube reaches 1.8B people, TTD reaches 3.5B people….helping to monetize the rest of the internet. - Data will grow at double the pace of media. Data usage is just better. - TTD will change media planning. DATA is better.
TTD has the ability to build 8 next waves (the last major products(s) release). Resources and focus. This ability to innovate will be a competitive advantage.
Plans to grow to a $100B company…. Focus on culture and employees. Career planning for all. 9 years to go from 0 to 1000 employees, Aiming to go from 1000 to 2000 in 3.
Investment Strategy: Focus on the Kingpin to knock down all the pins. Hiring and most importantly CTV. Traditional TV has reach, common experience, scale and efficacy. OTT/CTV has reach, customized experience, higher CPMs and fewer ads, higher content costs.
China spend is not material yet.
Long term target EBITDA of 40%, Not a focus during growth phase.
FInal Slide/Thoughts: TTD is an investment in programmatic advertising for the whole internet. 1) We are a self service, omnichannel software platform. 2) 95% of our spend is coming through MSAs and is reasonably predictable. 3) Our tech is measurably better at decisioning. (one of the products in next wave reduced CPMs by 20%) 4) We are objective and align our interests with media buyers (their clients). 5) We havee a massive TAM. 6) Best positioned to capture massive CTV and international growth opportunities. 7) Delivering BOTH revenue growth and profitability. 8) We’ve been profitable since 2013
Brian Stempeck, Chief Strategy Officer:
Customers- 60% large agencies, 40% midsize agencies and direct API clients
Example of growth of use by a large agency client- 2011/ 6 users for the agency…2018/1253 users for the agency….shows programmatic is growing at the agencies.
Programmatic is now accounting for the majority (55%) of spend at these agencies. TTD is forming relationships deeper into the agencies, not just the traders; all the way up to VP of media.
Brands are growing globally as is TTD, many of TTD’s competitors are not international.
Are Brands taking programmatic ‘in house’? Not really, only about 10% are not actually using an agency. Netflix does all theirs in house. Reasons for ‘in house’: Transparency, Custom Insights, Better Performance, Tech Integration, Rapid Response Marketing
Various engagement models….but most are agencies that have contract with TTD and manage campaigns.
Adding more levels of staffing….many custom technology adds for clients.- makes TTD stickier
TTD helps measure results- Currently Gross Rating Point, Viewability, Click through Rate, On Target %, Reach……but TTD can help with measuring with Sales, Foot Traffic, Media mix MOdel/ econometrics, Awareness/Launch/Consideration……helping to tie results to the plan.
CTV- why is it resonating with advertisers.- leaving off CTV is like not advertising to the big 3 networks during the 70’s. 75% of US households have some sort of OTT device….Cable is declining, and the pace is increasing….CTV usage is 1 in 5 hours per household, estimate by 2021 that will be 2 in 5 hours…. Aggregating a very fragmented (media) world….Data from Nielsen indicated CTV ads were able to reach 41% of unique individuals/households that were not reached by linear TV.
CTV is more expensive but with CTV you don’t just get reach but you get data driven targeting. 2X higher on target percentage. Linear TV has 4X the frequency per household, CTV can limit views per OTT device/household. The efficiency makes it actually cheaper. Offline measurement of CTV ads based on sales.
2019 Actuals … seeing more brands demand some of their budget is used for programmatic. Last year CTV spend increased 9X
Susan Vobejda- Chief Marketing Officer:
Linear TV in decline-- by the end of 2019 estimated 30 million households will have cut the cord and by 2022 that number will be at 65mil in addition to nearly 40 million households that will have formed that never subscribed to cable in their lives.
Over 80% of mobile time is made with apps. In app revenue for TTD one of the fastest growing segments up 100% yoy
150% growth in new MSAs from 2017-18. 90% of brands work through an agency
TTD Brand- brand awareness on the rise as a DSP…#3 behind amazon and google… overall, marketers, brands
NPS of 35….tied for #1 among DSPs
Tim Simms -Inventory Partnerships:
Goal- Every impression on every screen, everywhere in the world.
Move fast, be first. Proactive search for inventory.
CTV- somehow connected to the internet. Currently 80million households and 120million devices.
Brands spend a lot of time trying to understand their customer and for the first time in history they can advertise to that exact customer.
CTV is still small-
Reach is one thing…inventory is another. Inventory: where are people watching 1)Smart TV; streaming service- hulu, crackle, vudu, vevo, tubeitv 2) OTT devices; Direct to consumer- ESPN, ABC, FOX….networks 3) Gaming Consoles; vMVPDs (virtual multi chanel video programming distributor) - Sling , DirecTV Now
Content owners negotiates ad sales rights similar to a carriage deal.
TTD partners with every layer of distribution…app, device, content owner/provider….when purchased from content owner/provide ad can be shown on any device/service.
The Guaranteed Market will evolve- the majority of TV is transacted this way. Agencies and Brands make commitments and guarantees to publishers and content owners- backbone of media industry. Programmatic makes that process a little bit/a lot better. Much like a financial portfolio, TTD helps to allocate resources to where they will be the most effective at meeting the client’s goals.
The Future- Live TV, International growth- in the last decade in China 750mil people got access to the internet.
Paul Ross CFO- Financial update:
Programmatic is only 3-4% penetrated. Based on Magna Global: TTD has gained market share of programmatic market every year
Customer growth- 2016: 566 clients/28000 advertisers, 2017: 656 clients/37000 advertisers, 2018: 742 clients/46000 advertisers.
“95% of revenues come from MSAs and 95% of clients are self service.TTD is the tech layer only, not the service layer. This is especially key to operating leverage that TTD enjoys”
Long term financial targets: Platform operations expense 21%, S&M 18%, Tech&Dev 16%, G&A 10%. Operating margin 35%. Adjusted EBITDA 40%.
Take rate expected to remain 15-20%. Currently $207mil in cash and no debt
**Overall I am very optimistic about the enormous TAM and the long runway of growth that lay ahead. Given that 1) they actually just starting running campaigns in China as of March ‘19, 2) the size of the Chinese Market, 3) partnerships with media providers in China that are already in place, 4) the past fast adoption of technology/CTV by the Asian market, and finally 5) the continued transition to CTV from linear tv in the US/ growth of programmatic in the US. Heck, my in-laws cut the cord just this week.
A lot hinges on the ability of their tech to continue to create value for brands/agencies and any tech is susceptible to be usurped. There is currently a lot of DSP competition out there but it seems like TTD has a ‘first mover’ advantage and a lot of scale at this time.
As Austin said in his last post about Jeff Green “Jeff Green is very optimistic but he’s not the rah rah, put on a show optimistic. When he talks, I believe he comes from a place of research, experience, and humility.” And after watching him I totally agree. He believes in TTD and the value they can create for clients and expresses that without ‘pitching’. I am also encouraged by his comments about career planning for employees. I will probably summarize it poorly, but it seems like the steps they have taken to prepare for continued growth help to mitigate risk that employees will rise to a level that they do not wish to be at or worse still cannot effectively operate at. He indicated he would rather see people who are content and well suited to be individual contributors continue to progress in that path. His comments on how he values the current culture at the company and is attempting to address how to maintain that during the current growth are encouraging. To measure his success I plan to keep an eye on the Glassdoor Rating which is currently at 91%.
While currently shares are quite expensive I think in a 2-3 years the current price will be well justified.