Earnings Conference Call Overview:

Diving into Financial Performance:

Prepared Remarks:

Operator:

Greetings. Welcome to The Trade Desk’s second quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation.

[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 — Vice President, Investor Relations

Thank you, operator. Hello, and good afternoon to everyone. Welcome to The Trade Desk’s second quarter 2024 earnings conference call. We achieved strong growth in the second quarter, with revenue up by 26% to $585 million. This growth rate has consistently outpaced the digital marketing industry over the last few years.

CEO Jeff Green emphasized the importance of sustained revenue growth, positioning The Trade Desk as a market share leader. The company’s commitment to innovation and value has been instrumental in its success, enabling it to outperform peers in the industry.

Green’s optimistic outlook extends to the future, particularly in the realm of connected TV, where The Trade Desk continues to excel. The company’s performance underscores positive trends in advertising, with accelerated growth in connected TV observed in the first half of this year compared to the same period last year.

Market Dynamics and Strategic Insights:

Green’s insights from engagements with global CMOs shed light on the industry’s evolving landscape. Amid economic uncertainties and shifting consumer behaviors post-pandemic, marketers seek innovative solutions to drive growth and navigate challenges. The necessity for accountability in marketing effectiveness has propelled the demand for data-driven, programmatic advertising.

The Evolution of Data-Driven Buying in Programmatic Advertising

Embracing Data for Success

As CMOs and agencies navigate a swiftly changing landscape, the imperative to adopt data-driven buying has emerged as the most fitting response. In steering toward a robust and competitive global economy, the path forward unmistakably points to scaled programmatic advertising. This trajectory bodes auspiciously for the enduring prosperity of a significant player in the domain – The Trade Desk.

The Unfolding Bifurcation in Market Dynamics

Leading CMOs today find themselves at a crossroads where the market is cleaving in twain. This schism is propelled by the surging efficacy of novel channels like CTV, the advent of fresh conversion data such as retail insights, the accentuated emphasis on premium inventory, and the rapid evolution characterizing our industry’s innovation landscape.

Redefining Efficacy Amidst Walled Gardens

Within the competitive arena, a constant battle against walled gardens ensues. These tech behemoths offer an enticing ease of access to colossal ad impressions, ostensibly promising wide-reaching campaigns. However, they often wield control over the narrative, attributing successes solely to last-touch or last-click metrics, thus overshadowing the broader marketing funnel. Yet, discerning CMOs have begun questioning the efficacy of this approach due to several critical shortcomings.

A Shift Towards Greater Efficacy

The allure of mass scale rooted in inexpensive, user-generated content has begun to pall. Marketers now realize the inherent risks and deficiencies inherent in this strategy. The magnification of this inadequacy over time has unraveled the artifice of cheap reach, leading to a disconnect between touted marketing triumphs and tangible business outcomes, ultimately eroding CMO tenure.

Unlocking Effectiveness Through Programmatic Innovations

In veering away from the quagmire of cheap reach, leading CMOs are turning towards alternatives that promise heightened efficacy and a tangible correlation with business metrics. The renaissance of TV advertising, particularly in the realm of streaming platforms targeting authenticated users, casts a luminous beacon. Augmenting this luminary path are insights from burgeoning data avenues such as retail analytics, offering a clearer lens into consumer behavior and campaign impact.

Case Studies in Efficacy

The success stories of industry giants such as HP and Rossmann exemplify the transformative potential of CTV advertising and data-driven strategies. Through collaborative efforts with The Trade Desk, these companies witnessed remarkable improvements in reach, sales conversions, and return on ad spend, underscoring the palpable shift towards more effective marketing modalities.

Emergence of the Premium Open Internet

The dawn of the open premium Internet era signifies a seismic shift in consumer behavior and ad expenditure trends. Driven by the ascendance of channels like CTV and digital audio, consumers now devote a substantial portion of their digital hours to engaging content, eclipsing the dominance of walled gardens. The strategic placement of brands amidst premium content ensures heightened audience engagement and enhanced campaign performance metrics, heralding a new frontier in advertising efficacy.

The Trade Desk: Shaping the Future of Digital Advertising

Redefining Digital Audio Advertising

Every day, millions of individuals immerse themselves in digital audio content, from music to podcasts, yet the advertising demand in this realm remains disproportionately low. However, winds of change are blowing, especially with key players like Spotify spearheading investments in programmatic and automated buying, as evidenced in their recent earnings call.

The Evolution of Identity Frameworks

The landscape of digital advertising is constantly evolving, and a pivotal aspect of this evolution is the widespread acceptance of frameworks like UID2. Embraced across the digital advertising spectrum, UID2 is particularly gaining traction in channels that never relied on traditional cookies, notably in the realm of Connected TV (CTV).

UID2: A Game-Changer in Digital Advertising

UID2 is not merely a cookie replacement; it represents a revolutionary approach to building an identity framework that transcends the limitations of cookies. Offering increased ubiquity and functionality across all digital advertising channels, UID2 redistributes control among multiple stakeholders, ensuring consumer privacy while preserving the fundamental value exchange of relevant advertising for free content.

The Unfolding Google Saga

Google’s recent about-turn on the annulment of third-party cookies underscores the complex dynamics at play in the digital advertising realm. The fluctuating narrative from cookie deprecation to Privacy Sandbox and back underscores the challenge of reconciling privacy concerns with sustaining ad demand, particularly in core platforms such as YouTube derived from search.

Crafting a Bright Future with Innovation

Amidst the industry’s rapid transformation, The Trade Desk has unveiled a groundbreaking platform called Kokai, aimed at revolutionizing how advertisers perceive efficacy and engage with the open Internet. Leveraging AI and a wealth of data, Kokai empowers clients to unlock new audiences and drive enhanced performance, heralding a paradigm shift in ad spend optimization.

Building Bridges to a $1 Trillion TAM

As the digital advertising landscape hurtles towards a trillion-dollar Total Addressable Market (TAM), The Trade Desk remains at the vanguard of data-driven precision and programmatic innovation. By fostering partnerships with visionary marketers and offering a compelling alternative to walled garden approaches, the company is primed to capture a significant share of this burgeoning market.

Embracing the Open Internet Ecosystem

The Trade Desk’s strategic collaborations with leading streaming TV and digital audio platforms, coupled with its role in fortifying the open Internet ecosystem, underscore its position as a premier Digital Service Provider (DSP). By enabling advertisers to harness the full potential of their data and AI capabilities, The Trade Desk is delivering unparalleled value to its clients, solidifying its standing as an industry frontrunner.

A Vision for Sustainable Growth

With a steadfast commitment to innovation and client-centricity, The Trade Desk is well-poised to navigate the transformative currents of the digital advertising landscape. By offering a potent alternative to conventional advertising paradigms and perpetually seeking ways to enhance value for its stakeholders, the company is paving the way for a future defined by ingenuity and sustainable growth.

The Trade Desk: Resilience and Reinvention in the Financial Landscape

Amidst the tumultuous tides of the digital advertising realm, The Trade Desk emerges as a stalwart vessel, navigating the industry’s choppy waters with finesse and vigor. In the second quarter, the company showcased its mettle, reporting a robust revenue of $585 million, marking a remarkable 26% surge from the previous year.

Market Share Ascension

One of the pivotal catalysts propelling The Trade Desk’s ascent is its unwavering foothold in the digital advertising domain. The company’s expansive roster of prominent advertisers and diverse vertical markets served as a linchpin for its triumphant trajectory. Bolstered by an augmented access to premium inventory, including premier platforms like Roku and Netflix, The Trade Desk fortified its position for prolonged endurance and prosperity.

Strategic Growth Drivers

Embracing a future-focused ethos, The Trade Desk’s strategic investments in Critical areas have laid the foundation for future expansion. The prominence of Connected TV (CTV) as a prime growth conduit underscores the company’s prescient discernment of industry trends. Additionally, the burgeoning resonance of video, encompassing CTV, accentuates a burgeoning facet of their operational mix, heralding further growth prospects.

Geographical and Vertical Expansion

Demonstrating a global footprint, The Trade Desk’s North America foothold constitutes a formidable 88% of its business frontier, with international operations representing the balance share. Noteworthy is the conspicuous outpacing of international growth vis-à-vis North America for the sixth consecutive quarter, with CTV emerging as a linchpin for global expansion.

Financial Fortitude and Strategic Vision

Unwavering in its financial resilience, The Trade Desk’s rigorous fiscal management is underscored by its exponential growth in adjusted EBITDA, constituting 41% of revenue in Q2. Augmented by prudent operational expenses augmentation, the company remains attuned to fortifying its platform resilience and technological prowess to outpace competitors.

Charting a Prosperous Future

Peering into the horizon, The Trade Desk’s outlook for the third quarter brims with optimism, driven by robust spend in pivotal domains such as CTV and retail media. With an estimated revenue buoyancy of at least $618 million in Q3, the company remains galvanized by an unswerving commitment to innovation, growth, and market dominance.

In summation, The Trade Desk’s resounding success in the second quarter and steadfast progression bode well for its future trajectory. Anchored by robust fundamentals and an astute strategic vision, the company surges ahead with unwavering resolve, poised to etch a formidable legacy in the annals of the financial landscape.

Analyzing the Current Landscape in CTV Advertising

Pressure Points and Buyer’s Market

The role of Chief Marketing Officers (CMOs) is facing intensified scrutiny due to prevailing economic conditions like inflation, consumer weakness, and higher interest rates. However, these challenges are birthing a more favorable macro environment. The amalgamation of these factors, alongside sell-side pressures, has birthed a market ripe with opportunities for buyers.

Data-Driven Decision Making

The current scenario demands CMOs to engage in data-centric, logical buying practices. They are seeking assistance in leveraging their data resources effectively to make well-informed choices under tighter budgetary constraints. This spirit of frugality is prompting them to explore avenues for optimizing return on investment (ROI).

Riding the Wave of Change

Recognizing the changing tides, companies are embracing adaptable models to thrive amidst macro upheavals. By focusing on catering to the buying side of the spectrum in this buyer’s market, they are poised to enhance their market share and fortify their positions.

Embracing Competition and Evolution in CTV

Within the realm of Connected TV (CTV) advertising, a dynamic competitive landscape is unfolding. The burgeoning presence of entities like Amazon Prime Video in the ad sector is reshaping industry dynamics. Factors such as pricing fluctuations and shifts in ad budgets are influencing the competitive terrain.

Market Dynamics and Strategic Alliances

Recent months have witnessed a flurry of activity in the CTV space, with strategic partnerships and technological advancements reshaping the field. Notable collaborations and adoptions such as UID2 integration and OpenPass implementation are propelling the industry forward.

Objectivity Over Ownership

The critical importance of objectivity in decision-making processes is accentuated in the context of CTV advertising. Players who maintain unbiased stances by steering clear of media ownership have a unique vantage point in guiding major brands towards optimized media acquisitions.

Adaptation in Privacy-Centric Environments

The transition away from traditional tracking technologies like cookies signifies a fundamental shift in the digital advertising realm. With the implementation of more privacy-centric protocols, strategies revolving around Universal ID 2.0 (UID2) are becoming paramount for forward-thinking companies.

Embarking on the Calm Seas of Digital Advertising

Redefining Identity Beyond the Cookie

Despite the haphazard slumping of millions, the labyrinthine web weaving through digital landscapes reveals a tale of UID2, not just a measly cookie replacement but a towering colossus intent on outlasting giants like Google or Apple. The skepticism that blanketed its inception now gives way to an era where reliance on tech titans feels fragile, almost like balancing an egg atop a spire.

Strategic Maneuvers in the Realm of Premium Content

The tides of change have not just shifted, they have surged, sweeping along a changing vanguard that sees The Trade Desk poised atop a cresting wave of opportunity. No longer are the digital splendors monopolized by Google and Facebook – the era of premium content beckons, a siren song for the elite brands seeking the gold of the ad world.

A Vision of the Future: Crafting a Symphony of Advertising

The murmur of change crescendos into a symphony of the future, where premium content flows like a river, and advertising dances in harmonious synchrony. Jeff Green’s fervor is palpable – the era of effective television advertising is nigh, where programs are pillars, and ads mold the modern Colossus of Rhodes.

Industry Shakeup: Navigation Through Regulatory Waters and Competitive Terrain

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Maintaining Steady Course Amidst Industry Evolution

Amidst the shifting tides of the digital advertising realm, one company stands resolute, steering through regulatory tempests and competitive headwinds without faltering. The Founder and Chief Executive Officer, Jeff Green, recently shed light on the industry dynamics during a quarterly call, revealing insights that underscore the significant transformations underway.

Regulatory Winds of Change

Green acknowledged the regulatory upheaval, highlighting the Department of Justice’s recent legal triumph against Google in a lawsuit concerning anticompetitive conduct in the ad tech sector. This victory has paved the way for a forthcoming trial in September, which is anticipated to bring further scrutiny to Google’s practices.

With a keen eye on the evolving landscape, Green emphasized the complexity of the ad tech case, pointing to critical issues surrounding partnerships, including Google’s dealings with Apple and Facebook. These partnerships, deemed questionable, have raised concerns about market competition and the necessity for a level playing field.

Navigating Competitive Waters

As Google reallocates its focus towards areas like Gemini, cloud services, AI, search, and YouTube, the once-prominent network and open Internet segment face diminishing priority. Green astutely noted the implications of Google’s strategic realignment, foreseeing an opportunity for his company to excel in serving the open Internet.

Reflecting on the competitive landscape, Green humorously remarked on the downgraded status of his company’s position in Google’s hierarchy, exemplifying a significant shift in the market dynamics. Despite the challenges posed by the ongoing trial and the uncertainties it brings, Green remains optimistic about capitalizing on the evolving environment.

Partnerships and Potential

Green’s discussion extended to strategic partnerships, with a particular focus on the eagerly anticipated collaboration with Netflix. Expressing enthusiasm about the partnership’s potential, Green highlighted the pivotal role of Netflix’s rational approach and digital-first mindset in fostering a fruitful alliance.

While acknowledging the initial testing phase, Green outlined a timeline for scaling up the partnership, projecting significant contributions in the coming years. Moreover, Green emphasized the rising prominence of Trade Desk among advertisers, attributing this shift to factors such as ROI, premium content offerings, and enhanced data utilization.

Forecasting Future Success

As the industry landscape continues to evolve, Green remains resolute in his conviction that adaptability and strategic positioning will drive success in the face of regulatory challenges and evolving competition. With a keen eye on industry trends and a proactive approach to partnerships, Green’s company remains poised to navigate the changing digital advertising terrain with confidence.

The Evolution of Programmatic Advertising in CTV Industry

Riding the Wave: Embracing Biddable Programmatic in CTV

In the realm of television advertising, the winds of change have been blowing unabated, shifting the landscape from traditional linear TV ads to the burgeoning realm of Connected TV (CTV). The prevalence of CTV ads on major platforms like Amazon Prime, Netflix, and Roku is a testament to the industry’s eager embrace of programmatic advertising.

Historically, TV ad transactions were sealed over leisurely martini lunches, accompanied by handshakes and elaborate parties at the annual upfronts. However, the tide is turning towards a more data-driven approach through biddable programmatic tools. This shift promises not only enhanced efficiency but also superior targeting capabilities for content owners, translating into higher CPMs (Cost Per Mille).

As the industry pivots towards biddable programmatic advertising, a paradigm shift is underway, driven by both buyers and sellers. The allure of data-driven decision-making and improved ROI is propelling stakeholders to move away from the traditional broadcast model towards a more agile and targeted future.

A Glimpse into the Future: The Rise of Retail Media and Identity Strategies

While CTV has been a trailblazer in disrupting the traditional TV ad ecosystem, the retail media sector is emerging as another frontier for innovation. The ability to track ad performance all the way to purchase in retail environments offers unprecedented insights and accountability, challenging the status quo of walled gardens.

Partnerships with retail giants like Walgreens, Walmart, and Target are just the tip of the iceberg, signaling the vast potential of retail media. By bridging the gap between ads and actual consumer behavior, this sector not only benefits advertisers but also empowers retailers to compete effectively in the digital realm.

Moreover, in a digital landscape where data privacy and identity authentication are paramount, having a robust identity strategy is crucial for both advertisers and publishers. The shift towards user consent, authentication, and personalized content is reshaping the advertising ecosystem, urging stakeholders to adapt to a more consumer-centric and data-driven approach.

As the industry hurtles towards a data-centric future, those who fail to adapt run the risk of being left behind. The pace of change is relentless, but with innovation and strategic foresight, opportunities abound for those willing to navigate the evolving terrain.