Q3 2024 Trade Desk Inc Earnings Call

In This Article:

Participants

Chris Toth; Vice President, Investor Relations; Trade Desk Inc

Jeffrey Green; Chairman of the Board, President, Chief Executive Officer; Trade Desk Inc

Laura Schenkein; Chief Financial Officer; Trade Desk Inc

Shyam Patil; Analyst; Susquehanna Financial Group LLLP

Vasily Karasyov; Analyst; Cannonball Research

Jessica Reif Ehrlich; Analyst; BofA Global Research

Shweta Khajuria; Analyst; Wolfe Research

Laura Martin; Analyst; Needham & Company

Justin Patterson; Analyst; KeyBanc Capital Markets Inc.

Dan Salmon; Analyst; New Street Research LLP

Jason Helfstein; Analyst; Oppenheimer & Co., Inc.

Matthew Swanson; Analyst; RBC Capital Markets

Presentation

Operator

Greetings. Welcome to the Trade Desk third-quarter 2024 earnings conference call. (Operator Instructions) Please note, this conference is being recorded.
I will now turn the conference over to your host. Chris Toth. You may begin.

Chris Toth

Thank you, operator. Hello and good afternoon to everyone. Welcome to The Trade Desk third quarter 2024 earnings conference call.
On the call today are Co-Founder and CEO, Jeff Green; and Chief Financial Officer, Laura Schenkein. And a copy of our earnings press release is available on our website in the Investor Relations section at thetradedesk.com.
Please note that aside from historical information, today's discussion and our responses during the Q&A may include forward-looking statements. These statements are subject to risks and uncertainties and reflect our views and assumptions as of the date such statements are made. Actual results may vary significantly, and we expressly disclaim any obligations to update the forward-looking statements made today.
If any of our beliefs or assumptions prove incorrect, actual financial results that differ materially from our projections are those implied by these forward-looking statements. For a detailed discussion of risks, please refer to the risk factors mentioned in our press release in our most recent SEC filings.
In addition to our GAAP financial results, we present supplemental non-GAAP financial data. A reconciliation of GAAP to non-GAAP measures is available in our earnings press release. We believe that presenting these non-GAAP measures alongside our GAAP results offers a more comprehensive view of the company's operational performance.
With that, I will now turn the call over to Co-Founder and CEO, Jeff Green. Jeff?

Jeffrey Green

Thanks, Chris, and thank you all for joining us today. As you've seen from our press release, we again posted very strong growth in the third quarter.
Our revenue grew 27% compared with Q3 last year, marking strong revenue growth acceleration on both a sequential and year-over-year basis. Quarter after quarter, we continue to gain market share, outpacing the industry and our peers, both large and small.
Even though it is now a considerable part of our business, CTV continues to be our fastest growing channel, and it shows no signs of slowing down. Partners like Disney, NBCU, Walmart, Roku, LG., Netflix, and many others are deepening their relationships with us around the growing CTV opportunity. I could not be more excited about our position in CTV and the size of the growth opportunity for us in the years ahead.
With our leadership in CTV. as well as other areas, such as retail media, identity measurement, and data, we are winning more business with both new and existing customers. We are signing more multi-year joint business plans with leading agencies and brands. In fact, over 40% of our business this year will fall under JVPs, representing spend projections in future years well into the billions of dollars.
I have great optimism that The Trade Desk will continue to outperform the market and gain significant share. Exiting this year, we are set up exceptionally well for 2025 and beyond as we continue to execute in areas such as CTV, retail media, and in markets outside of United States.
I want to start the core of my remarks by explaining why I believe our industry is changing at an unprecedented rate. I believe there is more opportunity for The Trade Desk than ever before. But in order to understand the significance of our opportunity, we have to contextualize the macro changes and their effects on media, ad tech, and the biggest forces in digital advertising.
Let's go through 10 significant landscape changes and why these are creating what we see as sustainable secular tailwinds for The Trade Desk so long as we navigate changing conditions and position ourselves and our clients to benefit from the changes. The first significant landscape vector that is creating a tailwind for The Trade Desk is the macro environment itself that those of you listening or reading this know all too well.
The Fed has been fighting inflation by raising rates. One simple way to frame this relevance to our world is that inflation is measured primarily using price increases implemented by our clients on products we advertise for around the world.
The change in fiscal and monetary policies around the world mean the consumer has been forced to reconsider the cost benefit of every product they buy. Advertising plays a bigger role in establishing which brands and which products win market share and which lose market share.
The second significant macro vector is related, and that's that CMOs have more pressure than ever to produce real growth and prove it with data. While there has been a lot of macro focus on the reduction in inflation rates, historic highs for stock market indices, and growing indications of a soft landing, that's not necessarily translating to consumer confidence, which is why CMOs are becoming much more closely aligned with their CFOs.
CFOs want more evidence than ever that marketing is working. And for CFOs, that doesn't just mean traditional marketing KPIs. It means growing the top-line business. All of our AI and data science injection into Kokai, our latest product release, is encouraging CMOs and CFOs to lean more and more on TTD to deliver real, measured growth.
The third macro tailwind that is setting up The Trade Desk for continued outsized gains is the move to AI. Every company needs an AI strategy. Our AI product, Koa, is a great copilot for traders. But this is only the beginning.
There are endless possibilities for us as we have one of the best data assets on the Internet, the learnings that come from buying the global open Internet outside of walled gardens. To win in this new frontier, we're looking across our entire suite of products, algorithms, and features and asking how they all can be advanced by AI.
We have teams focused on incubation, and we've developed team structures to create checks and balances among our distributed development teams. This way, we know the effect of complex AI product and measure the output and inputs of each of them. We expect to talk about these efforts and their results over the coming quarters and years.
We are positioned to benefit from our objectivity, our focus, our scale, and the loyalty of our buyers. We are already seeing the results of Kokai performance today, but we're just getting started.
The fourth sector that is changing the entire landscape of digital advertising and ad tech are the changes happening at Google. 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 ad tech ecosystem. The outcome of the trial itself is less important than the change in behavior that will likely come at Google, no matter what. Whatever 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 US regulators or their many equivalents around the world. By contrast, the convoluted role they play, laid out very clearly by the US 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 ad tech ecosystem. I have never been more excited about the value of the premium content at scale on the open Internet combined with new approaches to performance efficacy, especially in contrast to the murkiness of cheap reach dynamics within walled gardens such as Google.
The fifth macro vector creating incremental secular tailwinds are changes in the market dynamics of CTV. It's hard not to be bullish about CTV when it's both our largest channel and our fastest growing. Advertisers can see more clearly the contrast of our offering and the role we play with brands and agencies with walled gardens than ever before.
This year, we've really started showcasing the strength of the sellers and publishers available on our platform and on the open Internet. We've even published a list of 100 of the best destinations on the open Internet.
When you contrast the quality of the open Internet with the perils of UGC, it's easy to see that the best of movies, the best of TV, the best of sports, the best of journalism, and the best of music and podcasts represent something more valuable to society and to advertisers than short videos and user-generated content surrounded by comment sections that are often not good for brands.
At the Trade Desk, we've also been talking a lot about the premium open Internet because that is where consumers are increasingly spending most of their time. Companies like Netflix, Roku, NBC, Spotify, Disney Fox, along with many others, have redefined the consumers' Internet experience over the last few years.
They all recognize the power of advertising to fund the amazing content experiences that their consumers have now come to expect, and they are all investing in the capabilities to capitalize on advertiser demand. This point is worth reiterating because of some of the macro inventory dynamics in digital advertising.
You may recall, three or four years ago, I would talk on these calls about inventory scarcity, especially in CTV in the fourth quarter, which was enjoying a significant surge because of people spending more time streaming at home during the global pandemic. As advertisers chased those viewer eyeballs to new streaming platforms, advertising inventory was scarce. And with demand rising, CPMs went up.
But CTV inventory isn't scarce in the same way anymore. Because over the last couple of years, every major media company has launched a streaming service and all of them have embraced advertising as a key way to fund their content and grow.
As inventory scales and scarcity decreases, advertisers have a lot more choice. They also have a harder job, which is assigning value to a lot more inventory. Now, it's about the quality of the inventory as well as the quality of the signal.
You may remember at our last Investor Day that we showed a graph of what our clients were willing to pay for CTV ad impressions on the open market. In many cases, we've been significantly higher than the price that the media companies were negotiating in direct deals.
The content arms race is more intense and more expensive than ever, and media companies need to monetize their content as effectively as possible. Two weeks ago, Variety reported that the top six media companies will increase content spending this year by 9% to a record $126 billion, all of which needs to be funded.
Without the benefit of scarcity, media companies now need to provide advertisers with more insight. What am I buying? Who am I reaching? Tools like UID2 and OpenPath are helping provide that signal.
And it's no surprise that platforms like Fox, who are among the first to embrace these tools, are benefiting the most. One major news publisher who has deployed OpenPath so that they can gain a clear understanding of what our clients are willing to pay saw their fill rate increase by 7x, leading to a revenue increase of more than 25%.
The sixth positive secular force helping The Trade Desk is pressure to make the supply chain better. Advertisers and publishers are two endpoints of the supply chain; and pressure on the edges, meaning the endpoints, means pressure on the whole supply chain.
How is this good for us is perhaps counterintuitive. There are many players in ad tech that are focused on extracting the highest margin possible. In contrast, we have been focused on adding more value than we cost or charge. We do this because it is the right thing to do, but also because it engenders loyalty from our clients and because it is the very essence of economically sustainable.
At this moment, the advertising ecosystem is in the process of refining its supply chain to become definitively more efficient than walled gardens with more objective and independent measurement to prove its efficacy. Companies focused on extraction will likely lose share, while companies focus on adding value will likely gain market share.
There are many in our industry who share the ethos to add value, and we're aiming to partner with nearly all of them. However, there are many that don't, some who take a more short-term approach and are just looking for arbitrage opportunities or places where they can create the quick illusion of value at the expense of agencies, advertisers, or sellers and publishers.
I do believe, like most markets, that ad tech will go through a long arc that will bend toward market efficiency and transparency. It's just a question of how quickly we get there. And in this moment, we have an opportunity to accelerate that progress. There will be more focus than ever on who is adding value and at what cost to advertisers and sellers and publishers.
Continuing the potential prioritization changes happening at Google. In a world where Google is more cautious on the open Internet, a brighter light will shine on the value that everyone provides in the ad tech supply chain. I have long said that everyone in our industry should provide more value to the market than they extract. That's a principle we've always followed.
Advertisers are under more pressure than ever to do more with less. Sellers and publishers, which is, of course, our term for content owners and the companies who own that content, are fighting harder than ever to take home as much of the CPMs as possible and simultaneously increase their fill rates. And they want the advertising ecosystem to be as efficient and transparent as possible.
That's why most are so eager to partner with us on initiatives like UID2 and OpenPath. So they can provide advertisers with as much signal and transparency as possible, and so advertisers can value their ad impressions as accurately as possible in the context of reaching their target audiences.
The seventh macro vector that I want to talk about today are the trends happening in audio. I want to highlight that many have wrongly defined the advertising TAM of audio to some sort of comparison to legacy radio.
Because the biggest players in audio are global and because digital provides potential for far fewer and more relevant ads, I'm convinced if the biggest players move correctly, they can capture one of the biggest opportunities in advertising and media today, which is the delta between time spent in the audio channel and the amount of ad budgets heading to that channel.
Digital audio is at the early stages of its evolution. The channel is in a similar position to where CTV was a few years ago. Consumers in the US spend an average of three hours per day consuming digital audio, up significantly over the last five years. And advertisers are eager to capitalize on this emerging advertising channel.
At the moment, advertisers are looking for clear, trusted signals to inform what they buy. Trust but verify has become a mantra around the open Internet. Just a few weeks ago, media reported on our major expanded partnership with Spotify. They will be deploying both UID2 and OpenPath so that advertisers can find as much addressability and insight as possible for Spotify's high-value ad impressions.
I don't think there's a company in the media universe that's been more successful than Spotify at building a subscription model. In the audio world, Spotify gives us access to almost all of the world's music for a low monthly subscription. In many ways, Spotify has been at the forefront of this mass consumer shift to digital audio.
I think they are in the process of becoming well positioned to get incremental users due to a good ad experience and to get incremental ad budgets for the exact same reason. You only have to listen to their most recent earnings report to understand how seriously they are taking the ad-supported side of their business and building out their programmatic capabilities over the next several years.
We are very excited to partner with them in this work and to help our advertiser clients make the most of this fast-growing channel, where listeners are highly engaged and leaned in. Our partnership with Spotify is one of the inventory partnerships that I'm most optimistic about.
The eighth macro vector aiding in our outsized growth is the massive opportunity around retail media. To summarize this at a high level, Amazon has showcased to retailers around the world the benefit of using retail purchase data to make retail businesses work better.
If advertisers advertise products people like and want and frequently buy at their stores, like Walmart or Target or Albertsons or Dollar General or many, many others, those retailers, of course, will sell more product, so do the company is making and selling the products. The significance of this vector and the role it's played in our success the past few years deserves a much larger space of time, which I expect to do in the coming quarters.
The ninth macro tailwind is the changes happening in live sports. Of course, sports is some of the most premium and most expensive content and media because it is often scarce and often highly sought out by brands and it changes very quickly. It really is built for programmatic advertising.
The best moments in sports are surprises and unpredictable. That's what makes them so exciting. However, it's also what makes them hard to plan around and to price properly. I expect over the coming years to see programmatic spot markets and sports become best friends.
We are enjoying our strongest year-to-date with live sports. As the football season has kicked off here in the United States, we are looking at, on average, 1.5 billion ad impressions per weekend. We have dozens of major brands buying football through our platform for the first time and many others increasing spend in the triple-digit range.
One example is a major quick-serve restaurant chain here in the United States. This client had been advertising on traditional linear television. But with its customer base mostly aged over 45 and restaurant visits among that demographic decreasing, they wanted to expand their customer base to reach younger adults and young families using CTV.
Working with their agency, Happy Cog; and their partner, [Clever], this restaurant chain worked with us to target their audience with a specific focus on live football opportunities on CTV, followed up with online video and display, all in an omnichannel approach. Our platform enabled the restaurant to target their audiences with precision and use new measurement tools to understand the impact of those ads on brand intent.
As a result, this client saw a 15% increase in brand awareness among their target audience and a 9% increase in mobile transactions where CTV was the first ad served. This is a great example of how programmatic on our platform is driving high-value business results.
The tenth macro trend helping us grow is this net effect of all of these changes at once. I've said publicly a few times that the biggest thing Google has going for it in its defense against the Department of Justice is complexity. It's hard to make sense of this industry and all of the forces changing it so rapidly.
Our clients need help. They are navigating unprecedented change and unprecedented pressure. Fortunately, our buy-side focus and our objectivity aligns our interest with our clients and positions us to stand with agencies and brands shoulder to shoulder as we face supply chain changes that ultimately benefit the open Internet and the market, but will require adjustments across the ecosystem.
We're here to help and have proven ourselves to be one of the leaders of the open Internet. All of these 10 macro forces, when joined with our amazing team, our global footprint, our buy-side focus, and our amazing product, including the recent platform overhaul found in Kokai, are showing the early signs of the future promise of our innovations, our objectivity, our AI, and our company.
Clients are seeing performance upgrades around the world, many of whom are embracing new approaches to the objective data-driven measurement The Trade Desk offers. So as we exit 2024 and look forward to 2025, The Trade Desk is better positioned than we have ever been. 2024 has been a banner year for CTV, and we have further cemented our position as the first choice platform to help leading brands as they continue to shift their budgets from linear TV and UGC into CTV.
Retail Media has rapidly become one of the fastest-growing areas of our business, a trend we expect to accelerate through 2025. Retail data on our platform is transforming how many CPG advertisers approach measurement and attribution.
Innovations in Kokai are helping advertisers identify and target new potential customers with much greater precision. Data elements per impression continued to increase, resulting in significantly better performance, helping unlock budgets and win new business.
Our premium content partnerships activated through supply path innovations, such as OpenPath and the Sellers and Publishers 500+ marketplace, are helping advertisers value and select ad impressions with more objectivity than ever. Innovations like UID2, which has reached critical mass, are helping advertisers pioneer better approaches to addressability in a changing identity environment. And our investments in new measurement capabilities, from the TV Quality Index to our growing network of retail data partners, are helping advertisers prove the efficacy of their campaigns in new objective ways.
Let me conclude by underlining that taken together, these initiatives, along with many others, position The Trade Desk very well for market-leading growth in the years ahead. I believe it is worth noting again, we continue to significantly gain market share. I believe our level of relative outperformance, 27% revenue growth in the third quarter, is indicative of the value we are delivering to our clients as they deal with an uncertain consumer environment.
We continue to sign JVPs with brands and their agencies at a very strong pace, with billions of dollars transacted through these partnerships each year now. I believe we will look back on 2024 as an inflection point in terms of how advertisers value the premium open Internet driven by CTV and digital audio as a compelling alternative to walled gardens. And I expect advertisers will emerge in 2025 more empowered than ever to drive data-driven precision. As a result, we will continue to gain share.
And with that, I'll hand it over to Laura to cover our financials.