Q3 2019 Earnings Call
You, Chris you may begin.
Thank you operator, Hello, and welcome to the trade <unk> third quarter 2019 earnings Conference call.
Our call today is taking place from our Ventura headquarters.
And today is our founder and CEO , Jeff Green and Chief Financial Officer, Paul right.
A copy of our earnings press release can be done or web site <unk>, the trade dot dot com and Investor Relations section.
Before we begin I'd like to remind you that except for historical information the matters that will be describing what these forward looking statements, which are dependent upon certain risks and uncertainties.
I encourage you to refer to the risks doctors referenced in our press release included in our most recent Sep pilot.
In addition to reporting our GAAP financial results, we present supplemental non-GAAP financial data.
Reconciliations to GAAP to non-GAAP measures can be down in our earnings press release, we believe that providing nongaap measures combined with our GAAP results provide a more meaningful representations other companies operational performance.
I will now turn the call over to founder and CEO , Jeff Green jobs.
We covered the highlights the third quarter, but then I wanted to dig a little deeper into a couple key areas that are rapidly coming into you in our industry.
Provide parts for our performance this quarter, but just as importantly for our confidence in the fourth quarter and moving forward into next year.
Once again in Q3, we executed well and exceeded our expectations.
You saw revenue growth, 38% year over year revenue was 164.2 million, surpassing our guidance of 163 million.
Generally I would frame of reference for that growth remember that Magna global estimate.
Programmatic advertising market is growing at around 20% this year and the overall advertising industry is growing at 4%. According to how you see so when the fastest growing segment had an industry that is expected to reach a tam one trillion dollars in the next decade, we are significantly outperforming.
Well once again growing at about double the pace of the industry.
Outpace growth and market share gain or the result of investments we've made in Q channels and markets. It's also because of our commitment to objectivity and independents.
The work, we do across the industry with partners and standards bodies to me, that's an industry that advertisers and content providers Trust.
No one of those major investment area to see TV spend on our platform in connected TV was up 145% from Q3 of last year, we've seen strong growth in available ctb inventory, especially in light of that.
We're especially excited about the upside potential for live events in 2020, including major sporting events and the U.S. election.
For multiple years of triple and even quadruple digit growth since he TV.
Your three year over year, Brlseven hundred and 45% is definitely one of the biggest bright spot in our business.
CTV. It is the most strategically important focus of our business going into 2020.
We invested early in our CTV infrastructure and in the supplier ecosystem.
We're seeing the pay off those investments accelerate I'll say more about that's a bit later.
But the growth is not just in CTV audio spend was up a stunning hundred at 62% year over year like say TV audio is a large and growing market about $3 billion. According to Pwc digital radio estimates in terms of pure percentage growth. It continues to be one of our fastest growing channels.
Audio is highly attractive to our customers because it regularly delivers high performance metrics such as completion rates. We continue to integrate new sources of audio inventory worldwide and expect to see broader adoption of this channel by advertisers in the years to call music dominates audio today, but I just.
Bullish on other nascent audio opportunities such as podcasting in our future.
If you believe is argued that seem to be in audio are two of them. Most effective forms of advertising because of high audience engagement. This means that TCV is growing fastest in the forms of advertising how the most staying power the most advocacy not just driving clicks.
And more and more of the way the world access the Internet is through mobile devices. This is especially true in the high growth markets of Asia, where the largest middle class in history as emerging.
In Q3, almost half our revenue.
Okay from add on mobile devices, which includes mobile video mobile in App spend increased about 58% from Q3 of last year.
Three the move to mobile help fuel our Asia growth spend in our offices in Seoul, and in Tokyo grew 166% at 65%, respectively. Our souls office achieved record spend we added more major advertisers and more accounts grew their spend with us we're seeing similar trends.
In Europe , where spend growth in our offices in Madrid, and Paris grew 75% and 57% and in China. We continue to see very promising signs we hired a new country General manager a Calvin channel who was previously the CEO that master one of the leading AD Tech companies in China, you can think about them at the local.
I want to double click covered already portion a new partnership with little media.
One of the largest Chinese media agencies, they see the value in working with us to help their advertisers top into our global footprint as Chinese companies look to leverage data driven advertising to market directly to consumers, both within and outside of China.
There are a few major agencies that they turned to and Blue media is one of the largest.
Media is partnering with us not only because of the benefits of our platform.
But also because of all the work we've done to build the right local ecosystem, including partnerships with Baidu, Alibaba I Ci and 10 cents.
The field is important because Lou media is one of the local programmatic pioneers in China.
In many emerging markets much of our go to market strategy focuses on educating brands and agencies about the benefits of programmatic. We're taking this next level in China with the launch of a new iteration of training Academy.
Called the trade up edge.
I'm going to be in Hong Kong in China, and the next couple of weeks to report new courses that are specific to the China market.
Participating on these sessions will be many of China's marketing leaders from brand agencies on standards groups.
Robin has been instrumental and getting all of this work in motion.
This work, we're laying the foundation for long term success and trying to 2019 has already been a year of significant progress. We are bill any early stages, but I'm very optimistic about our ability to drive significant growth and what will be the world's largest middle class in the years ahead, we continue to invest in place that's on China.
And we're convinced that we can help Chinese companies grow.
Regardless of channel or region, one underlying constant as the importance of data.
As you'll recall last year, we revamped our entire platform to put data front and center and the user experience in Q3 data was up 63% year over here in the last four quarters that stopped launch date to spend increased about 80% on a year over year basis.
We've seen similar gains in cross device spent with cross device advertisers can target across a range of devices. A consumer uses in a way that drives a more pleasant integrated advertising experience advertisers have embraced our cross device solution and spend is up 132% year over year.
Advertisers become more comfortable with programmatic advertising and the power of data and driving greater precision.
Our expanding the types of data, they use and becoming more sophisticated and how they apply it.
Procter and Gamble, one of our bigger customers summed it up well when they're cheap ran officer with asks about the power of data driven advertising.
He said and I quote.
Moving from out of glass being to mass reach one to one precision has helped us get substantial efficiencies and media, which then allows us to grow that's helped us in the cycle you raised the bar and superiority you find ways to get more productive then you reinvest back into very already reached more people tend to cycle continues.
That kind of growing awareness of the power of programmatic that helped us I'm, many new m. assays with some of the world's top global advertisers in the quarter.
Among Mel where a large entertainment company, a global consulting business multinational beverage company, a major insurance firms and a global travel marketing company.
As they always do these new customers have started relatively small as they test the platform and then they grow exponentially into 2020.
When we sign many large brands on our platform in second half of 2017 and 2018, they to begin with small campaigns through their agencies. When they saw measurable results. They increased their spend in some cases within just two quarters. These brands have increased their spending on our platform nearly 800%.
These large advertisers were a key factor in driving our 40% year over year revenue growth through the first three quarters I'm 2019.
We expect similar result from our new advertisers among those existing advertisers who are increasing spend with us a major auto manufacturer reallocated significance spend to programmatic on our platform and we want a multimillion dollar incremental spend from a global restaurant brand.
That had previously were like mostly on one of the walled garden for some of their stuff.
These dynamics position us very well for continued growth not only in Q4, but also in 2020.
We are more confident than ever in our ability to aggressively grow our business more rapidly and profitably than our peers.
I like that I wanted to dig a little deeper to provide you more context for that confidence.
I believe we are well positioned to take advantage of significant shifts in the advertising industry, which makes us as competitive as anyone for the next advertising dollar.
[noise] nowhere is this more apparent then connected TV as we've discussed in the past the nature of TV viewing and TV advertising is changing right before our eyes.
This is significant because in many ways TB is the most important frontier and digital advertising.
For many of our customers such as major Cpgs retailers and automakers TV represent the largest piece of their massive AD campaigns until now they've only been able to run those TV campaigns based on the very broad demos on linear TV.
They have very little detailed feedback on how these campaigns perform.
Connected TV is changing all of that as more viewers access TV content via connected devices and smart Tvs and there's more content providers build and launch new streaming platforms advertisers can apply data to their TV campaigns for the first time, it's a game changer.
And as I said two years ago companies like Kulu, ATM, T., and Spotify, where pioneers of out of funded streaming revolution.
And that they were what I call tea leaf companies. If you watch when they do you can predict and know what others are going to do.
They developed new TV and audio revenue models, they took strong positions on AD supported options.
In some cases, they offer premium offerings with no ads and another's they offered a discounted offering.
With targeted ads.
These tea leaf companies prove to the model and most consumers chose the add funded models.
As a result, most of those companies ultimately you've laid out strategies. The win all in on programmatic cat weather any individual tea leaves company executes well is less important satellites acute and some allow.
Well, it's undeniable and that these companies have changed the game and streaming content and programmatic advertising.
They were the pioneers, but now it's a movement ATM cheese Hbr matches planning then our funded tier when NBC launches. Its Peacock service next year. There are reports that it will be entirely out of funded when Disney launches its Disney plus subscription service soon it will sit alongside their out of funded options for properties such as E.
S. P M ABT National Geographic FX Disney also onto the which of course has an AD founded here I Miss them, leaving the fusion of programmatic AD M.C. TV these companies and others aren't giving consumers various ways to pay for the access their content and in doing so our maximizing their revenue but.
Central.
I believe 29 team as the year that CTV proved that its future will mostly be add funded.
Given the current economics and the current state of competition in the TV industry.
All providers will have to explore add funded CTV models on the linear side figures from Lichtman Research group showed that the entire traditional linear TV industry lost about 1.53 million subscribers in Q2 2019.
Linear broadcasters are fighting for fewer viewers well content costs are going up that's a ticking time bomb for advertisers that means they're out of your ratio is worse than ever until recently, there's been a sense that they have nowhere else to go.
Now they do.
But as more provider ship content to streaming platforms competition among them is becoming more intense.
As we have seen platform such as not what's our fighting tooth and nail core subscriber growth.
Well I want to issuing new debt just to keep pace and the war for premium content.
Theres only so much subscription demand and there are new competitors every month with massive establish content libraries at all points to grow and have funded models and I firmly believe that even Netflix will start to experiment with AD supported services in the future.
I believe will eventually adopt what others are giving consumers the choice to anymore and avoid all adds or pay well, let's see a few highly relevant ads.
As content providers create and launched their streaming services almost all of them are working with us to figure out how to optimize for programmatic demand.
Since we last reported earnings we announced a detailed I'm a private marketplace agreement with Amazon.
This deal is a game changer for the industry and represents another tea leaf offering.
We are now one of the preferred Dsps for third party premium content and their fire TV marketplace, we have access to all their premium content inventory not the remnants.
And at Amazon publish our services Hps stated when we announced this deal they are coming to us in order to maximize demand to ensure feed transparency for the advertisers they are trying to attract and to improve our frequency for consumers.
You may effort. We have also started to work with Disney as a preferred partner.
As they start to stream more of their premium costs.
Let me just pause a moment and reiterate these content providers are not our direct to customer they are partners more and more they are asking to work with us it's not just Amazon and Disney as if other major global providers worldwide, including channel four in England press, even in Germany tier one in France and pretty much.
Every other significant network and content provider.
They are coming to us because they want to make sure. They do everything right. So the advertisers kind of five data driven strategies to their content.
On a more micro level whats at all this change mean for us in this quarter three things first as the quarter progressed more and more premium TV inventory became available on our platform and more of our customers started to accessing.
This helped drive revenue growth acceleration for us as we moved through the quarter.
As a result, our last month was especially strong in CTP growth. That's in part the result of inventory coming online partners, such as Amazon and Disney.
With the Amazon the number of impressions on our platform increased 21 effects during the quarter.
Well, we're also seeing game changing progress from other partners.
Example, three will the largest AD server in the CTV space launched their version of header bidding unified yield.
This is the best thing for them to offer content owners, because it gives them access to the most demand but it also means in a nutshell that we can compete on every impression.
As always if we can level the playing field. This becomes a fight between data driven add selection and gassy. Whenever this is the challenge we're confident we'll win way more often than we lose as a result.
Free will leveling the playing field, we saw available CTV spot increased significantly through the quarter up as much as 300% with some premium content providers using this new feature on pretty well.
Second upfront commitments by major brands to programmatic TV advertising campaigns, which were signed back in the spring started to go live in late August and September as broadcasters launched new content.
And last but perhaps most interesting in terms of the fundamental difference between linear and connected TV advertising is live sports, let me spend a minute here. The unpredictability of lives events is a huge opportunity for both content providers and advertisers. If you wonder what Disney is working on with us as they build.
Our streaming platform, it's all about optimizing the value of unpredictability.
Think about a major league baseball game goes into extra innings, or an NFL game goes into overtime.
This is one viewership is that its highest and most engaged level everyone's washing.
They should be the broadcasters most valuable out inventory and the most desirable for the advertiser, but in a linear environment. These ask Bob are often wasted the advertiser can't plan for them and the broadcaster often ends up giving them away at a discount for repeat that.
In a data driven environment, the advertiser kind of optimized for those opportunities.
Automatically recognizing value and shifting investments in real time.
Broadcast work and then realized the full value of those spots.
Third quarter progress, we saw the NFL kick into gear College football start baseball playoffs races heated up.
And the start of the European soccer season.
All of these are huge opportunities for advertising clients.
And there's momentum will stay with us through the quarter and into next year wearable, how not only major sporting events, which will continue to benefit from programmatic TV advertising.
Also highly charged political events such as the presidential election, which will also drive unpredictability in content.
All of that not only to CCB helped drive revenue growth acceleration for us through the quarter.
I firmly believe that TV advertising is coming of age right now.
It will fundamentally alter the economics of television moving forward.
The way that will benefit the trade that.
This year is important in another context too.
The progress we've seen in TV as a direct result of the investments we've made in our platform and then our partner ecosystem. This commitment to investment is a major differentiator for us advertisers recognize that we are always investing to help them be as successful as possible.
As I've said almost every quarter, we retain the financial flexibility to invest wherever necessary to stay at the bleeding edge of our industry and that's not just in connected TV. We're building on our Outbrain acquisition and investing heavily and identity graph solutions that enable our customers to drive data.
Driven precision in their campaign.
Whether they are operating in a cookie based or a cookie less environment.
Our investment also includes areas such as measurement.
As advertisers look for the most precise information on campaign performance.
Our measurement tools allow an agency or advertiser to use third parties for verification.
This helps the ecosystem become more transparent and avoid the grading your own hallmark syndrome that advertisers experience with walled gardens.
And which often office gates ROI and data.
We also continue to invest in our infrastructure to support business and data processing growth worldwide you already see some of these infrastructure investments flow through to our gross margin or platform development expense line.
It is these types of investments that helped drive leverage in our model.
We do not have to choose between growth and profitability, we do both.
This is highly appealing to our customers and a major factor in our 95% cost retention rates. They know we will continue to invest for their success.
This puts us in a position of strength for a company is out of similar size and profile, we are growing faster and we are significantly more profitable.
Our view profitability is good business discipline and forces us to focus on how we're delivering premium value.
We constantly ask the question are we providing value that exceeds the few we charge for us in our platform.
That focus is driving more major brands and agencies onto our platform.
It's what's prompting a major beverage brand to work more closely with us to apply advanced tools to improve frequency management across all digital advertising channels. It's what's driving all the major broadcast providers to work with us as a strategize on their new streaming platforms.
I've covered a lot of ground, but I think it's all important to understand what's going on in our industry and our position within this is a fascinating time for data driven advertising and given everything I've discussed I feel very confident that we are well positioned to continue to lead our industry and dry momentum for our business.
As we exit 2019 and look forward to 2020, there are six specific areas that make me extremely positive about our future prospects.
First brands and agencies are driving more data driven strategies across their campaigns to stay competitive and to protect that brand value.
This is good for them and it is good for us.
In the long run moving to data driven choices leads advertisers to global Omnichannel platform like ours overtime, we expect to see the amount of data per impression increase.
Second we have more large advertisers on our platform than ever before more than 70% of the AD age top 200 advertisers have spent on our platform in the last 12 months. Despite this momentum we still see significant growth potential as data driven advertising becomes an even larger elements of their campaigns as a result.
There are current spend with us is still small relative to what we expect them to do in 2020 and beyond.
The third area is connected TV as I discussed the progress we've made in adding premium inventory supply from the likes of Amazon Disney and others is driving more and more advertisers to apply data to there's huge TV AD campaigns for the first time.
This has helped rctv spend increase materially.
We expect CCB growth over 100% again in 2020.
Fourth global expansion, we've made significant investments outside the U.S. over the last two years. We believe we are in a position to accelerate our international growth in 2020.
Yes, we continue to invest heavily to stay at the forefront of innovation in our industry. We have seen major success with products such as cross device data and identity solutions and expect to continue that trend with new products that we launch in 2020.
And finally, we have extremely strong customer retention rates and expect to maintain those rate even as we expand our customer base.
This model of excellence in customer service has fueled this business since its inception.
Our goal is to continue to offer the best scale the objective media buying platform in the world.
All of that said and with all that great momentum, we're still just getting started as our numbers quarter. After quarter show. The trade desk is growing much faster than the market. We anticipate these trends will continue for the rest of this year and into 2020 now I'm going to turn the call over to Paul to discuss our financials.
Thanks, Jack and good afternoon, everyone.
Q3 was another record quarter for the trade desk, and we were really pleased with our Q3 financial performance and execution.
Revenue increased 38% year over year, adjusted EBITDA increased to 47.8 million, a Q3 record and net income was 19.4 million.
This marks our 14th consecutive quarter in a row of GAAP net income all while we continue to invest aggressively for future growth.
Revenue for the third quarter was a record 164.2 million, which was above our expectations and reflected increased spend by our existing customers and the addition of new customers and advertisers.
For the quarter, approximately 89% of our third quarter gross spend came from existing customers, who have been on our platform for longer than a year.
Q3 marks the Twentyth third quarter in a row, where customer retention with over 95%.
With the growth of our business, our operating expenses grew to 142 million in Q3.
This increase was primarily due to sales and marketing and engineering as we continue to scale for growth.
The year over year increase also reflected higher gionee expenses, which take into account stock based compensation.
GAAP net income was 19.4 million for Q3 or 40 cents per fully diluted share.
Our adjusted net income was 36.1 million or 75 cents per fully diluted share.
Compared with adjusted net income of 30.2 million or 65 cents per share in the comparable period last year.
Adjusted EBITDA was 47.8 billion with a corresponding margin of 29.1% of revenue during Q3 29, Tim.
The increase in adjusted EBITDA dollars reflects the strong growth of our topline, partially offset by our increasing investments across our operating expense lines.
Net cash provided by operating activities was about 67 and a half planned for Q3, and our trailing 12 months of operating cash flow and free cash flow were 136 million and 100 million respectively.
As a reminder, the timing of our payments and receivables in any given quarter can swing our cash from operations significantly.
We continue to have zero down our balance sheet, and our cash and short term investment position continues to climb exiting the quarter at 297 million.
Our dsos at the end of Q3 were 96 days a.
<unk> decreased from four days from the same period a year ago.
Dps for Q3 were 77 days also a decrease of four days from the same period a year ago [noise].
For Q4, 2019, we are expecting revenue of 213 million and adjusted EBITDA of 78.5 mile.
And for the full year 20, 910 inclusive of our guidance for Q4, we now expect revenue for the year to be at least 658 million, which approximates to 38% growth year over year and corresponding adjusted EBITDA to be 209 million or 31.8% of revenue.
With that I'll hand, the call back over to Jeff for any final comments and of course QNX.
Yes.
Thanks, Paul Q3 was another very encouraging quarter for the trade desk as we continue to see our strategy and execution payoff as more advertisers commit their budgets to us we exceeded our expectations for the quarter and are raising them for the year. The fundamentals of our business are solid and we continue to scale.
Across markets and channels looking at the rest of 2019, we anticipate and a strong Q4, the advertising commitments that were made in the television upfront earlier in the year are now kicking in and of course, the holiday advertising season, traditionally makes Q4, the strongest quarter over the year.
We see similar opportunities in 2020, we expect another strong growth year end TCV fueled by live events, such as the U.S. elections, and the summer Olympics and more quality inventory than ever on our platform.
As a worldwide advertising market moves towards a trillion dollars. The trade desk is perhaps the best positioned company to win the largest share of the programmatic portion of that market, which is the fastest growing segment.
We feel confident in our strategy our investments and the momentum we are seen from both advertisers and content providers, we've seen nothing but upside ahead that concludes our prepared remarks, operator, let's open it up for questions.
Yeah, you will now be conducting a question and answer session.
If you would like to ask a question. Please press star one on your telephone keypad.
The confirmation tone <unk> King your line is and the question Q.
You May press star kill it feels like trim move your question from Mikael.
For participants using speaker equipment, and maybe necessary to get their headset before passing the sorry Keith.
The first question comes from Michael Levine with pivotal Research group. Please go ahead.
Two questions guys.
First I'd love to understand.
You know, how we should be thinking about the linearity of 2020 with regards to connected TV and.
Both what give you as much confidence as you do in terms of in terms of that very strong outlook as well is trying to better understand the moved by Raghu in terms of acquiring data zoo and how you think they end up being positioned as has the media companies get a little bit more sophisticated about what their inventory it looks like.
Right.
Awesome. Thanks I appreciate the question so Oh first to talk about connected TV.
This year has been something of a dream as it relates to the way that we've set up 2020.
If you go back in time.
And asked me to write down on a sheet of paper what are the best partnerships that we could form this year I don't know that I could have dreamed up about a year than what has happened.
Between the partnerships with Amazon and with Comcast and what we're doing with Disney and even what we're doing with broke through I'll come back to the second part of your question just a second but it's just been an unbelievable year Q3 of course, we just highlighted that are connected TV spend increased by 150% year over year, we've talked about how.
Amazon inventory went up 21 to apps throughout the quarter, we views that 21 X before and.
And our connected TV numbers and to to be there again with a partnership that has as new as it is with Amazon, but to go up that much.
It's pretty exciting equally exciting is a.
Free will launch in a product that is equivalent of header bidding so that programmatic demand can compete with sort of the ordinary salesforce in TV seen that go up by 300%.
Also amazing and it's been amazing to see our partnership with them expand.
You know just sum it all up I I heard a number a number on CNBC recently, which was 20% of television content has moved to streaming but only 3% of I'd talk.
If you look at that it's sort of the macro direction that we're all that we're all heading in that if you believe that ultimately all the content is going to be streaming because it's better to be on demand.
Then you know were 3% done and this year, just t. things up and if that wasn't enough.
Have a dream year you also have.
Disney going all in on what I think there's a pretty amazing strategy, where they recently.
Put together the pieces from Pixar Marvel box Lucas films put all of this amazing content together and it's no wonder that my 14 year old when I was dropping them up to school today, we passed to the AD for Disney plus and it wasn't by eight year old Girl, who said can we get Disney plus it was my fortunate outside and saying Hey, there's going to be stay.
Our worst content that comes out on November 12, when when Disney plus launches can we get that I think it's I think its teeing up what's going to be amazing Amazing 2020. So all of those to me represents how tailwinds that are that are out that are just helping.
As it relates to the role to move let me just give a little bit of context to it.
First run through the great partner for US we buy inventory on on their platform. They obviously have had an amazing run.
To date, I think they're going to keep going there they're going to benefit from the move that we just described.
It's an interesting move that they buy data due to just give a little bit of context in terms of side. This year just round numbers.
Well control a little over $3 billion in span they'll do a little over $100 million and spend the data zoo.
Of course in comparison, it's extremely small I.
I think the more impressive thing that they bought.
The technology talent that can help them built more of a self service platform and help expand the rocket platform itself.
But the thing that I find it, especially exciting about the mood is actually all the discussion.
And all the things that Roko itself said about the acquisition, most notably the they're more committed than ever to one our partnership and to being a part of the open internet.
And our language open Internet I think is really important to underline which is being a part of the open internet means that you're willing to make your content available for purchase from all the major buyers.
Oh that content.
And so my hobby in an open platform it means you're willing to let the market compete.
And that also means that you're willing to share.
The idea that makes it possible for you to compare what happens on the road to to what happens on Amazon fire to what happens on any other device or any other content.
And Ronco of course is dependent on.
Other people's content, primarily for them to produce a.
The AD revenue that they have.
So this commitment to the open internet.
To do symmetrically, what Amazon dot switches share the I'd with data.
I think that is the most exciting part about what they just announced its less about them, having a DSP. It's more about 10, expanding their tax, but especially it's exciting about them joining the open internet, which I think is really promising.
For Fourq for TV content in general because no one will have a monopoly in television the way that there are in social or search.
Thanks, Mike next question operator.
Thank you for the next question comes from that you said Squali with Suntrust Robinson Humphrey. Please go ahead.
Great. Thank you very much I guys, Jeff you've been very keen on and investing aggressively against all these future opportunities, while still showing margin leverage and I think in this quarter shows that as well what are the key areas of investment as we go into 2020, and how should we think about the margin intact.
For the year and then Paul trying to just reconcile you know all the excitement that that is palpable in jeffs presentation would your Q4 revenue guide, which basically implies growth dropping from 38% to 32%.
Just so how should we be thinking about growth as we move into 2020 as well. Thank you.
Awesome, Yeah, I'll take I'll take a stab at both of those I'll pull out on the second so.
In terms of the things that were especially investing in as well as the things that we're especially excited about as we head into 2020. So I know I just covered at a second ago, but I just need to underline theres nothing we're more excited about there's nothing more game changing and what's happening in connected TV and not 150%.
Year over year spend increase that we experienced in Q3 is just indicative of that.
The second thing that we've been investing in quite heavily international and this is definitely been an investment year, where we need to help take all of our international markets into the next level in broad strokes.
When we started this business actually we're about to celebrate our 10 year anniversary. When we started this business global advertising was roughly a 500 billion dollar industry it'll be a trillion dollar industry and six or seven years at about that time, we expect a much greater percentage of our revenue to come from international.
Given the fact that right now the U.S. only comprises about 40% of the global advertising pod.
So.
We feel like we have a lot of catching up to do and that means that we need to make investments. This year has been a year of investing where we expect to see and many of those markets.
Dividends start to pay off next year and of course, they'll continue to pay off in years to come in order for that that balance to come to come to pass.
We we also have just been investing a lot in tools related to measurement and that's somewhat relates back to connected TV, which is that we need a better measurement in television. So that we can show people, what they're getting incremental what is better about connected TV that in.
Traditional television and because traditional television hasn't had very good measurement. It's just a lot more work to show people why that are getting better reach and frequency management and connected TV than they are in linear television.
Additionally in.
In 2020, I think partly because of the political environment, partly because of just media growing up and partly because of connected TV. The role that objectivity plays is going to play a much bigger role and so as a result, we've invested a lot in products, where we can to onboard first party.
Data on behalf of clients.
Were continuing to do.
More and more technological investments so that we can be the best partner in the world for companies like Comcast and like Disney and like 18 tea and of course, Spike I, Ci and Prosieben and RTL and channel four and so many others around the world TVB at Hong Kong.
And then the lapping I'll just touch on before.
Talk about the second part of your question is another huge opportunity in 2020 will of course be political spend.
So.
We view that as a humongous opportunity.
I know that a number of of tech companies out funded tech companies have decided to sit out this election and I think that's a mistake not just because of the opportunity the political ads represent but also I just think theres a civic duty a role that we play in helping that.
Process get better and it can get better and will get better and that's something I think that we can help and so we're we're really excited at the opportunities that that represents.
As it relates to your question on slowdown I'll, just give a little bit of macro context before Paul ways. In so if you were to look at our 27 team.
You'd see that at the beginning of the year, we started that 70%. We ended the year at 40% and if you spend too much time looking or expecting a straight line.
Simply straight up into the right, even though the overall trend for us has been pretty steadily up into the right.
You would have missed out on a 2018, where our growth rate was 55% being misled by that Q4 2017 those 40%.
It's easy for you to look at.
This year or this moment and make the same mistake. When you look at the ONTAP opportunity, especially in connected TV. I think you just have to look at the general trend did not get too caught up in the short term, which is that overall our biggest opportunities are ahead of us.
But I'll, let Paul way of any other parts of the penetration.
Yeah, Hey, you assess I'm just a few general comments.
We executed really well in Q3, and we're raising our expectations again for Q4, and what we're comfortable moving expectations.
As we go along and we're continuing to win share we expect that to continued to drive growth and in the current environment. We think it's prudent to be measured and so.
I'll, just remind you that I'm surprised that tend to be to the upside and we do what we say we're going to.
Thanks Youssef.
Next question operator.
Yeah. The next question comes from the athlete Karen jobs with Cannonball Research. Please go ahead.
Thank you very much a Jeff I wanted to talk about international for a little bit Oh can you tell us what may be more detail what kind of.
Trends you see in Q channels keep territories. The I know you touched on China, you did a lot of work building out the overseas in the past couple of years can you share may be more detailed thoughts on what needs to happen next for us to see an acceleration in share gains overseas and do you think there is room I think you're just imply that too.
Hi, good gross billings.
Gross kind of accelerate in 20 to 22, so I'm just wanted to make sure I understood that correctly. Thank you.
Yeah, I mean to be very direct yes, I do except I do expect.
Revenue acceleration from our international teams.
In 2020.
You know there is a huge amount of opportunity in in connected TV in particular, and you know having met with.
With some of the leadership and of the biggest media companies and in Europe in particular in the UK and Germany, I'm, especially excited about the opportunity there as as you know as anybody who has been following us for a while knows we've also just been making big investments in Asia, especially in China.
Those investments are are showing green shoots finally, its ben.
It's been a long time up simply investing and it's largely because of the fact that weve.
We've now put together a client facing team inside of China, a and because of the strong partnerships that we have with Baidu Alibaba Nike.
And of course, 10 cents, a we feel more comfortable than ever to to put more feet on the street.
You know that the partnership that we announced for the first time on this earnings call, what what with Blue media.
Represents.
The first of many but also I mean their massive partner for some other Oh Big American Tech companies and so this is this is a huge opportunity.
So I think we made a lot of great investments there I do expect revenue acceleration internationally and we're going to keep doing that so that we continue to make up the ground because that's the way I look at it.
International markets need to grow faster than the U.S. in order for us to rightsize that pie as we get to the trillion dollar. So I just keep looking at that that that long term view and there's some markets that are nascent there are some where theres opportunity for us where where we need to go catch up but in most cases nearly all cases.
As we are investing early rather than late so that we don't Miss the opportunity and we won't.
Thank you thanks, that's it.
Thank you. The next question comes from Brian Fitzgerald with Wells Fargo. Please go ahead.
Thanks, guys I, Jeff how is the rollout of first price auctions on AD exchange and other supply sources played out in the quarter and what kind of opportunity do you see in predictive clearing related to that it it seems like when we when we initially talked about first price machinations back with header bidding back in the day to kind of quarters food.
Normalized but.
As it moved from from the published pages, the U.S. piece of the exchanges the adoption in the adjustment period meter through quicker. Thanks.
Yeah. So so just to.
To give everybody a a little bit of context, just because I imagine. This is a pretty detailed question for a number of people on the call.
For for the last few years Theres been.
A debate if you will or a disparity in practices among cell type platforms and out exchanges about how the mechanics of the auction should work should it be a first price auction.
Shouldn't be a second price auction.
And and bad times, it's been what some of call a modified second price auction.
Which I would say.
A bad times has men.
People haven't always been consistent in the way they run their auction.
But what's happened over the last few years is that impart because of the competition that that header bidding created is that.
People have to run an auction with integrity or they're not they don't have a place in the market.
And whether you call. It a first price auction or second price auction doesn't really matter as long as you run an auction with integrity now if they do you run it.
First by Sox Im sorry, they run a first price auction.
There's an opportunity for us to out a little bit more value in predictive clearance.
But if if you run a second price auction. Then then the auction itself is going to lower the price on behalf of the buyer.
Yeah first price auction.
We have to do that for them, we have to predict where it's actually going to clear. So that we can save them as much as possible and we have to be careful about over bidding.
That that puts more opportunity for us to perform and to add value in some cases that represents opportunity for us to make more money.
Overall, what we really just one is an ecosystem, where there's integrity and consistency and so we're happy.
Google Dot exchange moved to first priority auction. It helps us on both fronts and just delighted to have some consistency. So on the big picture. It really doesn't have that much impact that slightly positive for us, but overall, it's really a win for the ecosystem because people know how the auction is running.
How it's working and in my view that the changes that they made to the auction made the ecosystem just a little bit more of a level playing field, which is good for everybody.
Thanks, Jeff.
Thank you next question operator.
Thank you. The next question comes from markets get away with Rosenblatt Securities. Please go ahead.
Thank you Jeff you commented on how your revenue outperformance, which you know relative to worldwide programmatic, which obviously continues to be impressive and you might even argue that it's even more impressive given.
The majority of your growth has been coming from the U.S., while it's really international, particularly China, that's been really pressing that world wide growth numbers. So the question is what you know what level do you need to see international mix really begin to grow I mean at what pace doesn't need to grow.
Relative to the market.
It seems to be obviously, tailing, which which youve acknowledged.
And the question is how quickly that needs to grow its to prolong you know what is the eventual mean reversion at some point and then just more specific to that what are what markets do you see really driving that acceleration in 20, and then beyond 20. Thanks.
You bet so.
And your question about what pace, we expected to grow I'll, just say in broad strokes I expected to grow at a faster pace than the U.S. that that's it.
And.
It's not going to be straight line. So lots of these markets are very nascent as it relates to programmatic.
You know we've had a couple of years for instance, in Germany, where they've been up hundreds of percentage points every year.
That's not going to happen every year, especially when we're at the scale that were out with them. We've had the same thing happened in the UK. We've had similar things happen in Australia, we've had similar things happen in Singapore.
And of course, we've had some amazing years in quarters and in Hong Kong.
So.
It's not going to be linear, but we do expect the international markets as a whole to outpace the U.S.
For as far as we can see into the into the future in terms of what markets, we expect especially to contribute in 2020.
You know.
It depends on whether you're talking about I actual dollars or were whether you're talking about growth right. We have a much stronger presence in Europe , just as we've been in the market longer than we do at some of the markets in Asia, but Asia has so much growth potential.
And.
We're going to continue to invest but it's it's possible to see some serious pops and turns or inflection and some of the markets that we're in and in Asia.
So without going through each market by market, it's really hard to identify which ones were expecting the most from in terms of growth rate or absolute dollars.
But oh, we expect all of our international markets to continue to lead the way.
Thanks, Mark Operator next question.
Thank you. The next question comes from Mark Mahaney with RBC capital markets. Please go ahead.
Great. It's actually it's been on for Mark Thanks for taking our question.
The end of your prepared remarks, <unk> remarks, you spoke about products such as cross device data and identity solutions and that you expect that to continue that trend with new products I'll be launched in 2020, what potential synergies you see here with these trends for like TV sports and really just connected TV as a whole can you elaborate.
How you think this could evolve and how you can capitalize on this trend in 2020. Thank you.
You bet I am I'm, so glad to get this this question because it gives us a chance to talk about.
Part of the part of our our value proposition.
Oh, which is.
You know media is getting more and more fragmented, especially in connected TV, so because of that fragmentation.
If youre a buyer of ads, it's really hard to control, what we call reach and frequency which means.
How many people are you reaching.
And how often are you reach in that.
So if you're trying to launch a a new movie and you want everyone in America to see the add three times.
Doing that is harder than ever not because there are people watching TV all the time and time, we're consuming more TV content apparently than ever.
But because it's it's just harder to know where they are and how to measure where they are.
Because there's you know there's 20 different ways to watch.
Yes PM on your TV you can do it to your cable company you can do it through sling TV or to be TV or you can do it through the E.S. PNM, there's a lot of different ways to get access to it.
And if those aren't all coordinated if the by isn't coordinated so that you're showing the add three times to one person in three times to another person.
Then you're going to waste a bunch of money and even worse you might make the consumer hate you because you show them. The at 57 times instead of three.
The only way to fix that is to have a platform that is objective sitting in front of all the different media option and the only way to partner with all those media options.
It is to be objective and not only media. So that when you partner with them. You can then say Oh, we bought one here and we shouldn't by went over here, but.
But in order to do that not only do you have to be objective and you have to partner with everybody. But you also have to have technology that helps you identify oh, while this phone is the same user as this TV.
And so it's going to change the way all of TV is bought so that we're actually respecting the consumer more than ever so you're not seeing ads that are irrelevant on TV. The way that most of the AD you see on TV are irrelevant to you today.
That will all be fixed because of things like that cross device technology that is growing that I don't know triple the rate of our business.
So we expect that to continue just because it at the core of what we do which is held buyers make very deliberate and data driven decisions. So they're talking to the right people the right amount.
And.
As it relates to TV.
Or the second part of your question.
I think just one other thing dimension and that is that a lot of that data that gets used it doesn't originate from TV.
So the best way to Ted to learn something about the consumers to listen to them in but on in all of their environments, where they're sharing their their preferences in in consumer Safeways.
So that we then can tailor the add to them in a respectable way that that if we were just in TV. If we were just in connected TV, we wouldn't have the date or insight to do that.
Well, thanks, Zack really appreciate it operator next question.
Thank you. The next question comes from Shyam itself with Susquehanna. Please go ahead.
Thanks, guys I had a question on the fire TV partnership surprising to see the 20 onest growth rate occurs so fast.
Jeff You mentioned you have access to all the premium inventory not just round then I was wondering if you could just talk more about just this this this opportunity with fire TV.
For portray desks.
And also just how economics here compared to the other.
CDD partnerships you guys had in place.
You bet, Sean Thanks for the question I'm I.
If I have to pick up a partnership that we have just under discussed and is.
A very big deal that Weve, yet still failed to express what a significant deal. It is it's this one.
And part of the reason why it's such a big deal is because the way that Amazon is approaching it. So I know we've taken a stab at explaining this before but I want to do it again, because I think we're getting better at Oh, So first.
You know Amazon publishing services Ats It started with all the fire depart devices, so they're showing ads on on the sticking to the pop at you you buy from Amazon. So you can access all of your content <unk> basically their competitive product.
Heroku.
And so they're starting with just the third party content on it. So we're not talking about Amazon apps or Amazon Prime videos were talking about things like discovery channel or Oh. The turned our products are any of those sorts of things that are on.
The out that you or or on the apps that you would have on your Amazon fire to boss.
So any of those that have partnerships with Amazon that are on their device, we're able to show pads, assuming that the content owners have opted into showing ads as their means or at least part of their means to monetize their content.
So that's it that's exciting by itself just because Amazon fire is growing and if they're they're competing but whats, especially exciting.
Is that.
Many of the M B P D and so the distributors for linear television.
<unk> charge, a pretty aggressive rate.
And in some cases in in connected TV because rates have gone higher in connected TV because of the data component that makes them more valuable they're charging even an even higher percentage. So if you're a content owner and you didn't like the economics of linear TV.
In some cases digital is worse and so you're not racing to put your content on and less the consumers argue that which a lot of consumers are driving people. There so they're moving over because they're being forced to by the consumer.
Well, what Amazon did and that you know as they they they made very transparent that they're charging a much lower rate 10, and 15% which is much lower than any of the NBP. These did in television and linear television.
So what that means is that now not only our consumers dragging content owners to streaming.
But the economics are now too.
And so I think that means very good things for our industry. In addition to our partnership so the fact that that theres. So much more content. So many more at that 20 onex.
I think is largely driven by the economics that made it obviously for content owners to go all in on streaming and because they're doing that it puts pressure on other players to make the economics more competitive and that you is going to fuel more people coming into streaming.
So I don't know that Theres, a more macro move that I can point to that has more bullish sign support Pos and for all of connected TV in 2020.
Thank you very much operator next question.
Thank you and the next question comes from Mark Kelly with <unk>. Please go ahead.
Jeff can you just remind us how much of your spend was political during the last election cycle in the U.S. You know you know to be a pretty big opportunity next year be good to have kind of a baseline to think about and second just bringing it back to see TV I want to make sure I understand your prepared remarks, a bit more you called out a lot of the positives from Guinea.
The access to Amazon and some of the other growth metrics and then you noted I think that that in particular health Reaccelerate growth.
It looks like CTV growth was basically flat versus the second quarter, a and then you know corporate level revenue growth was down a few hundred basis points, I guess or you're talking about spend or did I Miss hear something thank you.
Oh, yes so.
Let me first talk about the percentage that came from political so.
In the last election cycle, it was low single digits.
Oh of course.
Oh, when you've grown as much as we have as a company since the last election cycle, if we add low single digits.
To 2020, and political that wouldn't be here or otherwise.
Oh, that's a big number that's material number.
So.
I'm really excited about what we proved in the last election.
And excited to be a part of the process and this upcoming election.
As it relates to the to the prepared remarks, and a slowing down in Q3, I actually I'm not sure what you're referring to I don't know if you're referring to just a 150% year on year growth and you're looking at from that perspective Mark.
Yeah. So you guys said, 145% and then you know in Q2, you guys said it was to actually year on year. So yes, you got to basically the same number what doesn't mean that it's necessarily slowing down you're just looking at the growth rate.
It's nobody will you guys had a re accelerate over here yeah. What you guys said that it held to Reaccelerate. The business I just want to know what re accelerate it that's oh throughout the quarter, Yeah, I'd say I see what you're asking for Oh got it.
Huh.
It was really exciting to see <unk> I was just trying to give a little bit of a glimpse into what happened inside the quarter. So it wasn't that there was a slowdown or anything like that 150%.
Year over year growth it is incredibly exciting, especially after quarter, where you put up 200% growth year over year. However.
What I was trying to point you made that comment some real reacceleration was simply that Oh. The last month of the quarter was especially strong I was just trying to give some indication that that's part of our reason for bullishness on TV as we're looking at Q4, but also as we're looking to 20.
20.
Because that 21 access super exciting, but a really strong.
And to our Q3 as it's something I was just trying to share a glimpse of what.
What.
Got it okay. Thank you Jeff.
Mark last question operator.
Thank you. The last question comes from Brian Schwartz with open hybrid. Please go ahead.
Thank you for taking my question. This afternoon, Jeff just one question just on an operational question on the on the management team. You you had talked previously about I'm looking to help scale. The leadership team to help you scaled the business and just wondering if you have any updates in terms of AD initiative. Thanks.
Thanks, Brian .
Yeah, it's been it's been a very busy year I would I would summarize.
2019, thus far.
The year, where we've been adding a lot of leadership from the highest levels of the organization, which we've added a few people too.
And and also that we've.
We've added a lot of a management and leaders in the middle if you will.
We've never had a year, we'll get added so many leaders from outside the company at all levels of the organization.
So it's it's been an adjustment for us, but the adjustment has been extremely positive because we had a company with an a really amazing culture growing in going into the year and we leave having added to it and out of this amazing team with fresh blood that can act.
Really influence lots of other people and by keeping our bar really high on the people that that will add to the team at times, we wanted to grow faster than we have I still want to grow faster than we have in terms of adding to the team and growing our business because I think it is land grab time, but I'm I'm really happy at our at what we've.
Done this year in terms of adding to our leadership.
We saw more work to do you, but I think this year.
Marks the most significant here in the history of our company in terms of the number of leaders that we've added to the company. So I'm.
I'm really pleased with with what is often a very top.
Sort of stairstep for for growing and scaled companies when you get a tower site. So it's an exciting time.
Thank you so much.
Brian operator.
Yeah. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Thanks.
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