Earnings Labs

The Trade Desk, Inc. (TTD)

Q1 2021 Earnings Call· Mon, May 10, 2021

$23.26

+0.54%

Key Takeaways · AI generated
AI summary not yet generated for this transcript. Generation in progress for older transcripts; check back soon, or browse the full transcript below.

Same-Day

+5.07%

1 Week

+3.68%

1 Month

+20.57%

vs S&P

+19.60%

Transcript

Operator

Operator

Good day, ladies and gentlemen, and welcome to the Trade Desk First Quarter 2021 Earnings Conference Call. At this time, all participants have been placed on a listen-only mode and the floor will be opened for your questions and comments following the presentation. It is now my pleasure to turn the floor over to your host, Chris Toth. Sir, the floor is yours.

Chris Toth

Management

Thank you, operator. Hello and good afternoon to everyone. Welcome to The Trade Desk first quarter 2021 earnings conference call. On the call today are our Founder and CEO, Jeff Green; and Chief Financial Officer, Blake Grayson. A copy of our earnings press release can be found on our website at thetradedesk.com in the Investor Relations section. Before we begin, I would like to remind you that except for historical information, some of the discussion and our responses in Q&A may contain forward-looking statements, which are dependent upon certain risks and uncertainties. In particular, our expectations around the impact of the COVID-19 pandemic on our business and results of our operations are subject to change. So any of these risks materialize or should our assumptions prove to be incorrect, actual financial results could differ materially from our projections or those implied by these forward-looking statements. I encourage you to refer to the risk factors referenced in our press release and included in our most recent SEC filings. In addition to reporting our GAAP financial results, we also present supplemental non-GAAP financial data. A reconciliation of the GAAP to non-GAAP measures can be found in our earnings press release. We believe that providing non-GAAP measures, combined with our GAAP results, provides a more meaningful representation of the Company's operational performance. I will now turn the call over to Founder and CEO, Jeff Green. Jeff?

Jeff Green

Management

Thanks, Chris, and thank you all for joining us today. As you can see from our earnings press release, The Trade Desk reported a very strong first quarter this year. This performance is especially encouraging because annual advertising budgets are often being reset and reconsidered in Q1, making them historically harder to predict. And this year, it was especially challenging because of the global pandemic. The unique worldwide business environment helped accelerate digital advertising in most parts of the world as we exited 2020. However, several verticals are still to come as we all march up and out of the recovery curve. For the quarter, we exceeded our own expectations, and this is another positive sign that The Trade Desk has emerged as the default demand-side platform for the open Internet. A steady stream of new brands and agencies started to work with us for the first time in Q1, and we continue to win additional spend from existing customers. Industry momentum around key drivers such as CTV and UID 2.0 could not be stronger. The challenges of the past year have only served to focus our attention on how we can drive real business value for our customers and partners. And that has enabled us to forge closer relationships with the biggest brands in the world. As a result, revenue was $219.8 million, an increase of 37% compared with a year ago. Adjusted EBITDA increased to a Q1 record of $70.5 million. This Q1 record is on both an absolute basis and the percentage of revenue basis. As we continue to grow and represent more and more large brands and a larger percentage of ad agencies brands, we will continue to become a more accurate bellwether for the open Internet and advertising spend. When you consider our performance in…

Blake Grayson

Management

Thank you, Jeff, and good afternoon, everyone. As you have seen in our results, 2021 has started out strong, despite the lingering challenges faced around the world. Q1 revenue was $220 million, a 37% increase from a year ago. Excluding political spend related to the U.S. elections last year, which represented a mid-single-digit percent share of our business in Q1 of 2020, revenue increased around 42% year-over-year in Q1 of this year. This represents a material acceleration on a sequential basis from Q4 of 2020 after excluding election spend. In Q1, we benefited from continued improvement in the digital advertising environment from both agencies and brands. Growth was broad-based across all regions and channels, with particular strength from CTV, which again led our growth from a channel perspective. Our year-over-year revenue growth also benefited from lapping COVID-related headwinds that we experienced toward the end of March last year. With the continued strong top line performance in Q1, we generated $70.5 million in adjusted EBITDA or about 32% of revenue. EBITDA continues to benefit from temporarily lower-than-expected operating expenses, partly driven by the virtual environment. This includes items such as travel and live company events that have not yet started to resume. Even recognizing that, I'm proud of our continued ability to consistently grow our top line revenue while generating meaningfully positive EBITDA and cash flow. From the channel perspective, video, audio, mobile and display all grew well into the double digits in Q1. Video, which includes CTV, again, led our growth during the quarter followed by audio. Geographically, North America represented 87% of spend, and international represented 13% of spend. International's overall share grew slightly from Q4 and the prior year due to faster growth in APAC and Europe relative to North America. That said, spend growth accelerated in all…

Operator

Operator

Certainly, ladies and gentlemen, the floor is now open for question. [Operator Instructions] And the first question is coming from Shyam Patil from SIG. Shyam, your line is live.

Shyam Patil

Analyst

Nice job on the continued execution. I just had one question. When we look at the year, it seems like there are a lot of moving parts with comps and seasonality kind of as you talked about, Blake. But you guys also have Solimar, you have shopper marketing going live. You have continued momentum with TTV. I was just wondering, if you could talk a little bit more about how you're thinking about the business and the growth when you take all these things into account for the rest of the year?

Jeff Green

Management

Yes. Thanks, Shyam. And I also appreciate the kind words. Yes, there is so much that I'm excited about for this year. And I think it's fair to say that I've never been more bullish on our business and especially, I have never been more -- or more bullish about CTV in our business. The CTV in Q1, once again, more than doubled spend compared to Q1 of last year. So once again, the trend just highlighting just how impressive the trends in CTV actually are, of course, the move to CTV away from linear or traditional television just continues to accelerate. Blake will talk in just a second. In fact, I'll let him add some color on this question relating to what that means when you extract political. But to me, the macro trend is the thing to focus on most, which is COVID and the quarantine made everybody stay at home and stream more television and also put pressure on the consumer so that they're looking at their entire TV experience and essentially, looking for value and looking for things to cut. And that has meant that cord cutting in linear cable television has accelerated, and that people are looking more and more at Internet fuel TV. Because there are also more apps than there have ever been, content discovery is tougher in CTV than it's ever been. Is it on that app? Or is it on that other app? That's a harder question than it's ever been. And it's also harder for AVOD companies to actually become SVOD companies. So they, in fact, need to sell ads and they need them to be relevant in order to be highly effective. What that means is that AVOD is accelerating more than any other part of CTV. And it means that a platform that sits in the middle, like ours does looking across all these different apps and channels. So that we can help advertisers manage reach and frequency, help them shop for value and being one of the, if not the largest source of demand for all these quality content owners means that our future has never been more bright in CTV, which is the part of our business that I'm most excited about. I imagine we'll get a chance to talk more about UID in a second. I'll talk about some of the momentum there. But our overall business stays strong. I'm sure I've left off some highlights. Blake, what would you add?

Blake Grayson

Management

Sure. Thanks, Jeff. And thanks, Shyam, for the question. I just would reiterate what Jeff said, the fundamentals of the business are really quite strong, in my opinion. The thing to keep in mind, like you said, with all the quarterly comparisons, against last year when we benefited from that U.S. political spend. Q1 accelerated not only year-over-year, but on a sequential basis from Q4, once you exclude political. In the prepared remarks, I think I mentioned that you would take the Q1 growth rate of 37% in revenue, that's more like 42% when you exclude political, and then that's comparing really to like a mid-30s growth rate in Q4 of 2020. So that's super optimistic that we can see that acceleration once you exclude that kind of noise we had a bit from the political side. And then as we look at into Q2, reflected in that guidance of the 86% to 88% year-over-year growth that also reflects an acceleration on a two-year stack basis versus Q1. So that trend also is something that makes us super optimistic. So with all of that seeing reasonable acceleration this year on a full year basis gets me really excited, comfortable about the business and where things are in 2021, but the momentum that we've got from all the things like in CTV and the other areas that we've talked about, a number of times gives us really optimism for momentum, not just in 2021, but into 2022 and beyond as well.

Operator

Operator

Thank you. And the next question is coming from Vasily Karasyov from Cannonball Research. Vasily, your line is live.

Vasily Karasyov

Analyst

Jeff, I know you covered the Unified ID 2.0 quite extensively. The question I get from investors is where we are in terms of the scale of adoption and where do we need to be for it to be sort of a seamless transition from third-party Chrome cookies to Unified ID 2.0 world? And then another quick question on Unified ID is you talked about DEP, and I think, at least I got a little more confused about Unified ID. Can you please remind us in layman terms, how it works?

Jeff Green

Management

Absolutely and very much appreciate the question because there's so much that has been said, so much that needs to be said about this. And despite our best efforts, I still think there's a lot that can be said to provide clarity. So let me start by just saying Unified ID is a privacy-first initiative that is -- was initially started by The Trade Desk, but it is something that is a movement among the entire open Internet. And it's so much bigger than our company at this point with hundreds of companies working on this at this point, in part because of our efforts to open source it and get the entire community involved. And because of the fact that it, by itself is encrypted as well as it comes with terms of service, it is a substantial upgrade to cookies and creates a better Internet for everybody. And that's one of the things that I think is just a little bit different about what we're doing here is that we're trying to create a better Internet for everybody. We're not just trying to protect ourselves, which I think there are a lot of tech companies that that's their primary focus, and we're trying to create a better Internet. Because that's been our focus, when we go talk to major publishers and content owners and advertisers about joining this movement and they realize the way the tech works as well as what we're after, it's really easy for them to get on board. Now, of course, you have to understand the technology, which is somewhat esoteric. But because of the fact that we've gotten so much support from companies like Criteo and from LiveRamp, from Nielsen from the Washington Post, and industry initiatives like -- or bodies like Prebid…

Operator

Operator

And the next question is coming from Tim Nollen from Macquarie. Tim, your line is live.

Tim Nollen

Analyst

Jeff, can I come back to your comments on CTV, particularly in the upfront markets, which you're just getting underway right now, and give us a bit more color really on what you're doing there with networks and with advertisers? And part of the question is, if the upfront is a futures market, programmatic is to-date has been largely a scatter market. I just -- if you maybe help us understand, how does programmatic work its way into the upfront itself? How do things like guarantees work and delivery of that? Just any more color you can give us on really how your role, The Trade Desk's role and programmatic buying would work in the upfront market? Thanks very much.

Jeff Green

Management

Absolutely. So first, big picture on CTV, just want to underline that our CTV spend more than doubled in Q1, which just gives us a tremendous amount of momentum. And that's why we're just merely breaking ground on improving the upfront process. So upfronts are, as you highlight, a form of a forward market or buying in advance, but it's a little bit different than what's happened inside of programmatic, where with programmatic, we bring so much more data to the table than what's been used to transact television for the last many decades. That programmatic can be way more effective. It's what enables content owners to have fewer ads than a commercial break, and it's what enables them to get CPMs that are multiples higher than what they can get in traditional television. So running an upfront in traditional television with lower CPMs, while running a scatter or spot market with higher CPMs, is a bit counterintuitive to the way that TV has historically worked, where you're paying a little bit extra for the assurance of it running and buying an advance, which benefits both sides. So in order for -- we think the upfront market to evolve, you have to create a new marketplace where you layer more data on top of it so that you can get those same premiums. And we think that there is no way for that to exist at any scale without us being actively involved, which is why we highlighted in our prepared remarks that we're working with some of the biggest names in television to make that a reality, and really excited about a new structure for a forward market that just enables more data to be brought to the table. In the meantime, irrespective of those engineering efforts because of the lack of predictability partly because of COVID and just the state of the world in the future, but also because cord cutting is accelerated because television is just a little bit harder to predict in and of itself. There are more dollars that are sort of sitting on the sidelines of the upfronts as well as looking for things in programmatic to buy on an always-on basis instead of having to make really huge commitments at a moment where you have less visibility. So you put all that together, we're in a phenomenal position. We're taking incremental dollars that are coming from upfront into digital and programmatic, and we expect, as we continue to roll out, this long-term effort to revamp the upfront with a forward market -- a programmatic forward market that will move more and more dollars in years to come, so a ton of bullishness on what's happening in CTV and the upfronts specifically.

Operator

Operator

And the next question is coming from David Beckel from Berenberg David. David, your line is live.

David Beckel

Analyst

I have two on UID 2.0. It sounds like there's been significant progress on authenticated users, mentioning multiples of the 50% that was previously reported. But I did pick up on a comment, Jeff that you made about, they're not needing to be a magic number of authenticated users, if I'm interpreting that right, to be sort of on par with the efficacy of cookies. I'm wondering if you could just expand on that a little bit because I think there was some confusion among investors exactly how many people need to be signed up to replicate that effectiveness, but it sounds to me like you're saying that's not even the right way to look at things necessarily? That's the first question. And then second, just on some of the larger platforms, Google, obviously, and Apple have sort of cast dispersions about the acceptance of ash e-mail identifiers like presumably UID 2.0. Do you anticipate a reconciliation at some point with those platforms to get them on board to the way that you look at privacy through UID 2.0?

Jeff Green

Management

Awesome. Thank you very much. So first, Let me talk a little bit about why there is no need for the sort of magic number. So there's a couple of reasons why we frame it that way. And I think you're right that it is a different paradigm that's required. So we're in this really phenomenal position, which is we essentially get to listen and an opportunity to buy roughly 12 million ads every single second on the Internet. It's just a massive amount of volume of ads that are available across the entire open Internet every second and every day, all day. And so when you get to listen and look at that many impressions and then choose which ones you want to bid on, as long as you have insight on a good portion of those, you're in the phenomenal position to pick ones that you know will be effective. And so whether that's on 71% of ads or on 63% of ads is less important than do you have enough critical mass that you can apply data on those where it's present? And then do you have a common understanding of the user with the supply chain, which UID does a way better job of creating a common understanding than cookies ever did. I also think it's really important to think about it differently because we are not trying to build an SSO. So some people have sort of wrongly thought that UID is us, one by one knocking on consumers' virtual doors trying to get to a $2 billion number like a Gmail or Facebook users or something like that. And that's not the case at all. And instead, what we do is we partner with consumer-facing brands that are part of the open Internet, which…

Operator

Operator

Thank you. And the next question is coming from Brian Fitzgerald from Wells Fargo. Brian, your line is live.

Brian Fitzgerald

Analyst

Jeff, we got an update from Google recently on FLoC. And since then, the waters have even been muddied a bit, quite frankly. It's not clear if FLoC will be workable under EU. And then there's some broader concerns about whether FLoC would enable discrimination and adds for things like housing and mortgages. So I want to know if you had any high-level thoughts on what Google is doing, what clients and potential clients are saying about it. And how you think that impacts the dynamics in terms of DSP share going forward? And then a quick addendum to that would be, is the pace of share gains you were seeing versus Google, is that accelerating versus what you saw previously in the wake of double-click ID deprecation

Jeff Green

Management

Great. So In the first part of your question, let me just start by saying, sometimes we talk about Google like there's a collective mind that Google and there isn't. And I think it's fair to say that the way that Sundar and the executive team have managed this is to empower each of the local departments or each of the different apartments at Google to make their own decisions and act in their own interest. And so if you talk to people at Chrome, as we have, they have a very different position than the people in ads or a double click. And they have a very different position from the people in Android. So there's a lot of different opinions at Google and sometimes those that make it into a blog post or things like that or into the public arena are not representative of thousands of people at Google that have a different position. And maybe there's nowhere that that's more apparent in this discussion than with FLoCs. So there has been a lot of question made about FLoC. I do think that's part of the reason why Google has said, if we do end up using them, we won't use them in Europe. And they've also acknowledged that if they do end up using those as a replacement to cookies and not using things like Unified ID that DV360 will be operating at a disadvantage and that they will be operating at a substantial disadvantage in connected TV, and they will also be operating at a substantial disadvantage in Europe. So you can understand why that would inspire some parts of Google to say, we really need to rethink FLoCs And there are those that look at FLoCs and say, they're actually more -- they create…

Operator

Operator

Thank you. And the next question is coming from Mark Zgutowicz from Rosenblatt Securities. Mark, your line is live.

Mark Zgutowicz

Analyst

Jeff, I'm just curious, is the elephant in the room here really can set rates, and I'm just curious how you see the levels of consent rates today coming in, I think, well below most expectations. And if we kind of fast forward to Android ID sort of following in Apple's footsteps, how does that sort of affect the rollout of UID 2.0?

Jeff Green

Management

You bet. So I do think that consent is at the core of the discussion that's happening inside of identity. And it's -- our big tech companies going to make the decision for consumers? Are -- you're seeing this a little bit in the tug a board that's happening between Apple and Facebook. It is about where does consent come from. And what we're asking the Internet to do is do a better job of explaining the quid pro quo of the Internet and then empower consumers. Make it simpler, easier and more consistent but for them to understand the quid pro quo. Okay, I'm sharing some amount of data and insight so that you can show me relevant ads. And for that, I get free content. We just think that quid pro quo of the Internet has never been explained very well. We can all look at what companies -- some of the big tech companies are doing on that front and have our complaints and whatnot. But overall, we're all moving towards in the same direction, which is giving consumers more control and more ability to create consent. And it's forcing content owners to better explain that quid pro quo of the Internet. What I just want to make sure happens is that consumers do have the ability to weigh in and preserve the competitive nature of the Internet rather than companies, especially those that are very big and maybe focused on protecting themselves more than the Internet can disrupt that, even if it's just a speed bump, which I do think anything any single company does is just a speed bump because I don't think you can disrupt that quid pro quo of the internet in any long term.

Mark Zgutowicz

Analyst

Yes. And I respect that, I guess -- but I mean, it's Apple and Google that are sort of controlling privacy policy, I guess, much more so than GDPR and CCPA. So if we think about the fact that hash e-mails, which is obviously the underlying protocol of UID, does not have the ability to function because there are low consent rates. Doesn't that sort of mitigate your ability to drive scale with your UID effort?

Jeff Green

Management

So I guess I just disagree with the premise of the question that there's low consent rates, that's not the case. And I think some are maybe misapplying IDFA opt-ins, which have numbers that have been shown all over the place. It depends on who your sources are in terms of what the opt-in rates are in terms of IDFA. But what I predict is that long term that people are going to opt in, especially for things like Facebook and Twitter and these apps that have been staples. They will better explain the quid pro quo of the Internet and then consumers are going to opt in. In fact, to our business as it relates to the IDFA changes, we have seen no material change in spend as the result of the IDFA changes. And that's in part because of what I was saying before, which is we have the ability to look at 12 million ads per second, If you change slightly, which apps get consent and which don't. But that often continues to happen, that we then just choose from a different set of impressions, which ones are the most effective for our advertisers. But we've not seen any material change. We do expect that we will continue to get consent through our hash e-mail approach and through Unified ID. Incidentally, every one of the big tech companies that you're talking about, like Apple, I just signed in my Apple ID two minutes before this call. It was based on an e-mail address incidentally. It was based on a Gmail address. Google's IDs and their footprint for providing targeted advertising are extremely dependent on e-mail addresses, it's one of the reasons that Gmail is such a valuable asset for Google. So the idea that an e-mail-based approach to managing consent and opt-in and privacy is somehow in question when those companies are leveraging the exact same approach or something very similar, which is based on e-mail address. I think gives strong evidence that there's a way to do it right, and we're convinced that we're doing it right. And Paul, we have time for one more question.

Operator

Operator

Okay. The final question will be coming from Tom White from D.A. Davidson. Tom, your line is live.

Tom White

Analyst

Maybe just a follow-up on UID 2.0 and then one on Solimar. Jeff, you referenced UID 2.0's ability to enable better cross-channel measurement and attribution than what's available for cookies. Can you dig into -- is there any way you can kind of maybe quantify the benefit to efficacy or targeting? And maybe the extent to which that could act as a tailwind to spend in kind of the initial weeks or months of the transition? And then just on Solimar how should we think about its impact to the business relative to, say, the next wave rollout, which seem to correspond to a nice spike in spend moving over to the platform?

Jeff Green

Management

Yes, fantastic. I'm really glad you asked about the better cross-channel measurement. And it speaks to why one of the very first partners that we went public with was Nielsen. Nielsen has been the gold standard of measurement in TV for decades. And they, of course, recognize that the world is changing as it moves -- as television moves to the Internet and connected TV. And that means that measurement has to change. So they made very clear in our initial discussions that we need a currency of measurement for the open Internet, which, by the way, CTV is all open Internet or nearly all open Internet. And so it becomes extremely important that, that gets measured in a ubiquitous way. So unlike cookies, where there's constantly this sinking where you're trying to get one cookie ID to match another one. So Trade Desk, for instance, would have cookie ABC that we then had to sync with Google to be cookie XYZ. So that we both understood that ABC and XYZ were the same. So when Google's Ad Exchange sense has a bid request, we could understand -- have a common understanding of the user and whether that was based on our ID or their ID. It didn't matter. We had to have a common understanding user. By using a similar system that requires both encryption as well as terms of service, that makes it so that, for instance, and the example I just gave, us and Nielsen no longer have to do a bunch of sinking to have a common understanding of the user. This makes measurement better. And in places like TV, where it's pretty fragmented and nobody has a large market share, like there's nobody that has as much of the content on TV, as, for instance,…

Operator

Operator

Thank you. I would now like to hand the call back over to The Trade Desk for final remarks.

Chris Toth

Management

Thanks, everyone, for joining. I know we ran a few minutes over the top of the hour, but again, really good questions, and I hope everyone appreciated the change of time of the call. The numbers on the call are much greater. So we appreciate the feedback that we've received and look forward to speaking with everyone over the remainder of the quarter. So have a good afternoon, everyone.

Jeff Green

Management

Thanks everyone.

Operator

Operator

Thank you, ladies and gentlemen. This does conclude today's conference. You may disconnect your lines at this time, and have a wonderful day. Thank you for your participation.