Q4 2019 Earnings Call
Greetings and welcome to the trade that fourth quarter 2019 earnings conference call. At this time all participants are in listen only mode of question answer session will follow the formal presentation. If any what's required operators. This in turn the conference. Please press star zero on your telephone keypad. Please don't this conference is being recorded I would now like to turn the conference.
But to your host Mr. Crystal.
Vice President Investor Relations. Thank you you may begin.
Thank you operator, Hello, and good afternoon, welcome to the tradeoff fourth quarter fiscal year 2019 earnings conference call.
The call today from our Ventura headquarters, its founder and CEO, Jeff Green and on his first earnings call as Chief Financial Officer like Grayson.
A copy of our earnings press release can be done or web site at the train Dot Dot com any investor Relations section.
Let me begin I'd like to remind you that except for historical information the matters that will be describing will be forward looking statements, which are dependent upon certain risks and uncertainties 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 present supplemental non-GAAP financial data a reconciliation of the GAAP to non-GAAP measures can be found on our earnings press release.
We believe that providing non-GAAP measures combined with our GAAP results provide the more meaningful representation regarding the companys operational performance I will now turn the call over to founder and CEO, Jeff Green jobs.
Thanks, Chris and thank you all for joining us you've already seen the results, but let me just cover a couple of highlights that I think are particularly noteworthy.
Total spend on our platform in 2019 with a record $3.1 billion spend in Q4 topped $1 billion.
First time, we haven't ever crossed the 1 billion dollar mark in a single quarter.
This record spend helped drive revenue growth of 39% for the here.
And our adjusted EBITDA margin was 32%.
Marking the fourth year in a row about 30%.
Net income was 100 at $8 million.
And we have been GAAP profitable every year since 2013.
These results are highly encouraging we continue to generate strong revenue growth well. We also deliver profitability that is significantly higher than almost all other comparable software and internet companies of our side.
We will also continue to look for ways to invest that profitability to accelerate our growth.
With all that said about 2019 I'm, even more excited about 2020, I've never felt more confident heading into a new year.
That's because it's the largest independent D.S.P. in the world.
I believe we are uniquely positioned to grow and grab share regardless of any changes to the regulatory or tuck environment.
I'm expecting spend growth to accelerate this year to 35.7% year over year versus 33% last year.
We project that will drive revenue growth of at least 30.5% and EBITDA margin of at least 30%.
Part of our confidence comes from the Amazing progress we made in 2019, whether it's bringing more and more advertisers onto our platform or the tremendous growth we've seen across our inventory availability or the explosion of connected TV and how that is transforming advertising or the growth of the use of date.
On our platform, which grew 65% year over year.
I'm amazed at how far we've come out and so quickly.
Progress we made in 2019 puts us in a great position to grab share not only in 2020, but well into the future.
I want to spend a few minutes getting into these points in more detail.
I believe that in many ways, we're at a watershed moment in our industry and for our business.
I see that not simply because of the revolutionary impact of emerging trends such as CTV.
But also because we're at a point, where we no longer have to make the case for data driven advertising advertiser and get it they understand it and they want to apply it it's no longer a question of what the Hell is the same but it's more a question of how can I do more with you.
Well advertising is about $725 billion today, we expected to pass one trillion dollars at about seven years, we continue to assert what we have from the very beginning data driven decision in the future and the objective and more transparent companies, who managed to gain scale will be the dominate.
For.
The new advertising market that exists on the other side digital transformation.
On the inventory side, if you give me a blank sheet of paper a year ago and told me to predict what a successful year couldn't look like I would have never come close to what we actually accomplished in 2019, we exceeded every one of our goal is to bring on premium inventory.
I'm entre of our inventory team led by 10 cents is to be first and go fast. This is so important because I didn't massive scale in areas such as CTV.
Audio.
And mobile is a great leading indicator of future spend on our platform. If you look at sea TV, specifically, an advertiser can reach over 30 billion premium inventory impressions every day from nearly every major content provider.
That means there was exponentially more inventory available in 2019, then the year before.
Here are just a few of the inventory highlights from 2019, we became the first DSP to integrate with Amazon publisher services. We expect this relationship to grow in 2020.
We were the first the S.P. to launch live sports with Disney Programmatically, we were the first U.S.P. to run programmatic guaranteed audio with Spotify globally.
In Europe, we integrated with channel for Sky, Germany, perceive and our RTL mediaset tip, <unk> and rackets and TV.
Like the Champions League of European Media.
It's a similar story in Asia, where we became one of the first dsps to integrate with many of the regions top media providers, such as Cheever in Japan, and South East Asia. We have added over 13, new premium TV partners and these include VTB in Vietnam true I D TV in Thailand and hook across.
Oh Southeast Asia.
One last one which I think is particularly insightful and important we became the first DSP to go live with freewheel unified yield products.
This is effectively header bidding for TV.
Let me explain that one per minute.
The other ecosystem is not too dissimilar from the equities market supply and demand isn't always measured completely and when an order is placed or in our case, an impression that sold it may not be routed in a way that maximizes healed.
Banks are walled gardens may route the impression in a way that doesn't narrow the gap between the market price and the transacted price.
Header bidding is it technology that allows the demand side to access all out impressions and bid on them. It collapses, the silo supply and demand so that the market is pure cleaner and more fair no front running.
It was pioneered in display advertising, but now see TV content providers working with us are starting to adopt something very similar.
I'm pretty well has progressed the quality of transactions in TV by creating a header bidding like product. This is important because traditionally TV media sales have followed the classic waterfall method, which silos demand direct sales teams sell the highest valued inventory to the largest buyers first and then so on down the waterfall.
More TV content shifts to connected devices header bidding augment this process buyers like the trade death can now compete for every impression and that means we can bring more demand and suppliers get to consider all the demand at one which increased the cpms and improves forecasting for publisher.
Here's where we work with a free wheels unified yield we have seen spend increased up to five Alex. So we're convinced this will have a big impact on TV over the coming years I.
I know, we've talked quite a bit about TV on these calls in the past, but we are in the middle of a once in a lifetime consumer shift to connected devices and streaming content, that's driving all providers to rapidly develop and deploy streaming services many of them working with us to maximize that demand. We're seeing this translate to spend on our platform.
Let's see TV spend grew 137% in 2019 and current trends indicate that will double again in 2020.
If any of your whereas he asked this year you would've been impressed by the scale. This transformation, but you would have also seen that we are only in the very early stages.
Theres a whole section of the yes. It is devoted to the future of marketing and this year CTV was the largest topic of conversation.
And what you heard was advertisers looking to devote more of their TV campaigns to see TV.
And content providers racing to make more of their inventory available.
I was on stage, there with Linda Yaccarino chairman of advertising and partnerships NBC Universal.
We share our common view that this is the year, where the industry starts making that accelerated shift to connected TV, which will transform everything about TV advertising.
Whether at the application of data or measurement or the traditional upfront process.
Of course, we're already seeing the shift as major new platforms come online, including Nbcs Peacock.
Life's work are also a major driver as broadcasters look to see TV to optimize the unpredictability of live events.
Many said that sports would be the anchor for linear TV and would slow viewer migration to CTV consumption.
In 2019, we this proved that thesis.
Last year, we ran adds in nearly every major sporting event, while this merely scratched the surface and provided very compelling improve and case studies for what data driven advertising can produce for live content Needless to say in 2020, we expect this trend to continue.
Switching gears.
The demand side, there was a noticeable shift in 2019 in terms of how many advertisers are looking at the value. We provide as I said earlier, we have spent much of our use of our 10 year history, making the case for data driven advertising that's starting to change in 2019 today advertisers get it ended.
As much more channels get digitized such a TV they want to apply more data across all their campaigns.
They want to do more with us.
And as a result in 2019, we saw more advertisers shut their budgets and in the last 12 months about 75% of the outage top 200 advertisers spend at least $100000 on our platform.
Early in 2020, we're seeing that trend continue to date spend has been particularly strong in North America in 2020, we expect more large brand our platform.
Ever before.
That's one of the big reasons, why we expect spend growth to accelerate in 2020 advertisers are shifting span from large search and social platforms onto our platform much of the spend is expected to go to newer channels such as CTV an audio.
For example, we recently signed a major new agreement.
With a large multinational life Sciences company.
And they're shifting a significant portion of their advertising spend away from the walled gardens.
That's a common thread among many of our new or growing advertisers in 2019, the number of them assays with brands doubled.
We expect similar trends in the future.
I do want to point out that the overwhelming majority of brands that do sign I must say is with US directly continue to work with their agencies. As you know we've always been close partners to the agencies and this will change but.
But we also expect more and more brands to sign with us directly so that they can control the activation of their data as their programmatic spend continues to grow.
But they will continue to lean on their AD agencies for guidance strategy and global execution.
So why is the shift occurring.
As advertiser commit more campaign dollars to data driven advertising attributes such as transparency and objectivity become more important and advertisers I understand the trade desk is the most transparent and objective platform in the market. Today. This is even more relevant in the context of issues such as privacy and identity.
Let me take a few minutes to explain.
First of all.
The market has been testing the virtue of the wildcard in strategy.
To be clear the term walled garden describes platforms, who do not provide or enable measurement our performance of their advertising outside of their own four walls.
I can only access their inventory through them and only review results as measured by.
They get to grade their own homework.
The last 10 years has proven is that this strategy can work well if you have a majority market share if you own most of the social media as are most of the search ads or most of the UGC video ads, then accompany can afford to say biomar way or not at all.
But that only works if you're picking up so that marketers are afraid not to buy from you.
In TV this market share concentration does not exist no studio no channel No cable company no NBP no. One has the leverage to pull that off in TV and because we think video and all of its forms will be about how the trillion dollar advertising pie we've heard.
To that CTV will be the quantum leap forward that eventually forces all walled gardens to change course.
While the economics of CTV are putting pressure on walled gardens. So is the state of the privacy debate.
As you all know there are regulations, such as TCPA and GDPR as well as actions from tech companies, such as Apple, Google and Firefox to alter the role of cookies.
All of these get reported and overtime it starts to feel as if the advertising industry is lurking around every dark corner looking to violate a consumer's privacy to steal their data or something like it but that's not what advertisers are trying to do it's not even how to think about it I spoken to hundreds of Cmos may.
Many of those at the biggest brands in the World I've, yet to meet one that Doesnt care deeply about building trust with consumers. They know that they're in the business a building relationships between them and consumers.
Never met one that is throwing caution to the wind on privacy.
Because I've always been in the business of aligning my interest with the buy side I've also care deeply about consumer privacy.
Care about it as a global citizen as a consumer and as the CEO of data driven Tech company.
In fact, we've thought about privacy from the very beginning when we founded the trade desk over 10 years ago.
It has helped us prepare for GDPR and TCPA and browser changes without significantly disrupting our technology our business practices.
Just because Facebook and Google gather your most personal information does not mean that advertisers have any interest in asking our trading on that information quite the opposite in most cases brands our servicing a long lasting relationship that is incredibly important to them.
They understand the risks inherent in compromising consumer privacy.
What advertisers are squarely focused on is how to drive better and more relevant ads that helped fund the great Internet experience that we all enjoy while simultaneously protecting consumer privacy.
Outside our industry. These motivations are often misunderstood.
At the core of our value at the trust that advertisers have enough at the trade desk to put their first party data to work.
Through their first party data they can model who their most loyal customers are byproduct. They can understand what kinds of characteristics are common across these loyal customers and they can use data models to find where those patterns exists.
It's where in the market.
In order to reach their next million customers and that kind of data modeling can be done on our platform without ever having to know any directly identifiable information about the consumer.
Advertisers know that we can help them do their modeling work with a limited amount of data or vast amount of data.
If we operate in a world with less data were darn good at that.
Our whole system is built around making objective choices with limited data, we do that with many of the impressions, we see today and these environments, we already deliver high ROI.
For advertisers, if we get more data fantastic our platform can adjust as much data as you can possibly use at a privacy safe wed already.
We do that now better than anyone we are committed responsible stewards of consumers agencies partners and advertisers data in this way we are completely aligned with what advertisers are doing we only use data in a way that builds trust with this in my let me give you my opinion regarding Google Chrome GOOG.
Well as between a rock in a hard place right now.
They are under pressure from regulators and from other tech companies, such as Apple who block third party cookies.
Even if Google creates an environment that only provides for a high level of targeting within the browser that they control the value exchange of the Internet does not change.
And what that means is that advertisers in content providers will have to find new ways to fund content through relevant advertising.
The la times cannot tolerate 50% drop in Cpms.
Just because of the change in policy at Google.
And one scenario the content provider May then ask for a consent for our readers email address on every visit.
And then they'll work what the ecosystem to build new identity models.
To the trade does it doesn't really matter, what the identity model or approaches.
We'll be successful regardless.
And that I can make the case that we become indispensible and that latter scenario.
The next two years will be fascinating and will fully engage with Google and the rest of the out ecosystem.
Even though the cookie based internet does not represent the bulk of our business and it's certainly not part of the faster growing segments of our business like CTV or mobile in App, it's important.
And we'll be fully engaged on behalf of our advertisers.
Advertisers view us as their representatives and we will continue to represent them in the discussion about identity technology.
Because we only represent the buy side and because we don't own any media or our media platform. They know we our objective and represent our interest. They know we will protect their data and they know that we won't allow anyone to trade in directly identifiable information on our platform.
As advertisers make major platform decisions about where to run their campaigns I Hope. This explains why our objective approach is a significant driver of demand for us.
By the way. This objectivity point is also critical in another fast growing segment of our business and that's in political advertising.
The 2016 presidential election cycle Soc candidate start to leverage data driven advertising for the 2020 cycle nearly every Canada as using that.
We are starting to see more spend in this segment, which we expect will increase as the year progresses. As you know some tech platforms have decided to sit out or limit their role in the political advertising process.
At the trade debt, it's a very different decision we are not a three social media platform, where bad actors are easily engaged and can at times spread misinformation, we only deal in paid advertising.
That combined with our vetting processes.
Mike are targeting limits and our commitment to objectivity mean that we're rapidly becoming the preferred platform for major political campaigns.
So I know covered a lot of ground here, but I think it's all important to understand what's going on in our industry and our position within it.
We really are firing on all cylinders as we enter 2020.
First as I said earlier I could not be more excited about our inventory growth in 2019, we have always operated under the inventory model that if you build that they will come.
The economic model of our business means that cannot grow without growth in premium content.
In 29 team.
We laid more groundwork for demand growth than in any year previously.
And I focused so much on TV, because as we discussed advertisers view CTV as a way to break their dependence on walled gardens. It's why if current trends continue we expect CTV spend to double again in 2020.
Second we have more large advertisers on our platform than ever before about 75% of the at its top 200 advertiser spend at least $100000 on our platform in the last 12 month.
Even with this momentum we still see significant growth potential as data driven advertising becomes an ever larger element of their campaigns.
As a result their current spend with US is still small relative to what we expect them to do moving forward.
Third as political we expect the trade desk to be a preferred platform for all major campaigns as they ramp up spending throughout the year.
And finally global expansion, we've made significant investments outside the us over the last two years and we'll continue to do so we believe we are in the strong position to grow international again in 2020.
The trade desk is very well positioned as the advertising industry evolves our business model hasn't changed since we began 10 years ago. It was founded on the belief that advertisers with demand an open and objective platform as they optimize their growing digital AD campaigns with every passing year as marketers embrace data driven adv.
The timing that belief gets validated further we are executing well were poised for more growth 2019 was an excellent year and we expect 2020 to be even stronger.
Now I'm going to turn the time over to Blake to discuss our financials.
Thanks, Jeff and good afternoon, everyone.
I want to start off by saying that I'm thrilled to be a part of the trade desk I joined the company because I am so optimistic about the opportunity in front of us.
It's rare in my opinion to find the company was such a unique value proposition in such a large and growing available market.
It's also rare to find a company that can grow at a rapid rate, while producing profitable growth even as we try to invest in the right areas as quickly as we can.
I also have been very impressed with the team Jeff has assembled.
Im excited to be part of this journey when I look forward to helping the trade that scale to a much larger company.
As Jeff mentioned 2019, with a strong year for the trade desk as we continued our growth trajectory ending the year with more than 3.1 billion in spend on our platform and 661 million revenue. We also ended the year with adjusted EBITDA of nearly 214 million and GAAP net income of over 108 million, marking the seventh.
Straight year of positive GAAP net income.
The trade desks ability to give advertisers and alternative to large search and social media platforms was on full display in the fourth quarter Q4 revenue expanded 35% year over year to 215.9 million.
We saw strong spend growth during the holiday season in our audio connected TV and mobile in App channels. In Q4, we saw spend in both North America and international accelerate versus Q3.
89% of our fourth quarter spend came from existing customers, who have been with us for over a year.
Turning now to our expenses all comparisons are on a year over year basis, unless otherwise noted.
Total operating expenses in Q4 increased to 163 million up 46%.
Platform operations or effectively our cost of revenue increased 34% driven primarily by the increasing to PSR platform sees.
As a percent of revenue our platform operations is decreasing year over year, we expect more improvement in 2020, which I will talk about in a few minutes.
Technology and development in grew 36% driven by increased investments in our platform.
Sales and marketing grew 59% driven primarily by an increase in account management and business development.
Finally, DNA grew 61%, we expect to see the most leverage and proven NRG M&A in 2020, and certainly overtime as we scale the business.
Adjusted EBITDA was a record 83.5 million in Q4, representing a 39% margin adjusted net income for the quarter was 71.6 million or $1.49 cents per fully diluted share.
We closed the year with 255 million in cash and short term investments. Our dsos ended the year at 118 days and our depots were 94 days.
Finally, I would like to share our guidance for the first quarter in 2020 and preview our focus areas of investment.
For Q1, we expect revenue to be 106, 9 million and adjusted EBITDA to be 35 million and for 2020, we expect the full year revenue to be at least 863 million on total gross spend of at least to 4.24 billion and adjusted EBITDA to be at least 259 million or about 30 per.
Kind of revenue.
For 2020, we expect total operating expenses of 752 million and we expect our full year tax rate to be about 25%. We expect stock based compensation expense for the year to be about 13% of revenue.
And finally share count is expected to be about 50 million as we exit 2020.
From over the decade, I spent an Amazon I believe and actively managing how and where we allocate capital within the company tore areas that can drive growth and efficiency not only in 2020, but in the years beyond let me Previa few areas I'm very excited about.
First is on our people that can drive incremental spend on our platform, we will aggressively add more business development and account management employees. This includes both in North America and international with the massive available market in front of us in the generational shift to connected TV, you should expect sales and marketing to generally grow a little faster than revenue growth over the next.
Two years.
The second this product expansion on our platform one thing our customers or come to expect furnaces more product and functionality on our platform. It is why the company relaunch its platform in June of 2018. It is also why we will continue to invest heavily in technology and development as we keep our focus on the customer and bill features and functionality that generate better.
ROI is for media buyers and their fund that should spend our flywheel, even faster in the coming year and beyond one should expect to see more capability in CPV and better tools for measurement and contextual targeting for example.
And third is on our platform operations as our Q PS increases our cost to serve also increases. However, we have the opportunity to improve our efficiency and lower our platform operation expenses, even more as we scale. This includes improving the management of our data centers managing the cost of our outside cloud computing partners. In addition to invest.
In the efficiency initiatives that can reduce our cost to serve per impression overtime.
I can tell you from the relatively short time I've been here that we are 100% focused on building the best products and services, we can for our customers rapidly gaining share in programmatic, while it's still in its infancy and building for the long term not the next quarter, we already invest today in the areas. We believe have the most potential I look forward to helping the team of even fat.
After and more efficiently than it does today and I'm very excited about the opportunities. We have ahead of us with that I'll hand, it back to Jeff for any final comments and of course culinary Jeff.
So in closing, let me reiterate that we're off to a great start to the year our expectations first spend acceleration in 2020 demonstrate the trust advertisers, placing us our objectivity as more valuable to advertisers than ever we are even more bullish on our future than we were a year ago the opportunities in areas such as CTV give us.
Confidence that we will continue to aggressively take share.
Our investments are paying off when we see surprises they are typically to the upside and we believe the trade desk is best positioned to realize continued growth in our industry for this year next year and beyond that concludes our prepared remarks, operator, let's open it up for questions.
Thank you at this time will be conduction a question and answer session. If you would like tests question. Please press star one on your telephone keypad, a confirmations will indicate your line is in the question Q. You May proceed to view, we'll let you move your question from the Q for participants using speaker equipment. It may be listening to pick up your head simple for prisons Starkey one moment pieces.
Pull for questions.
Our first question comes the line of Sham Patel with Susquehanna Financial Group. Please proceed with your question.
Hey, guys. Congrats on the staunchly 19 and welcome aboard Blake.
Couple of questions.
You guys mentioned, one Q looks like it's off to a very strong start with.
40% growth, which is acceleration from Fourq, you annual growth looks to be in the low thirtys percent range.
At least initially can you just talk about this and and just the puts and takes that you're taking into consideration and then I have a quick follow up.
Sure so.
First of all I can.
I can't express loudly enough how excited I am for the for the year.
And also how excited I am about Q1.
Never been in this position, where I'm this confidence going into a new year, and especially have the momentum that we do from from Q1 with 40% growth year over year Thats.
Just a surprise we knew it would be strong, but we didnt know it would be that strong.
And of course connected TV is is a huge driver of that.
But we're also seeing.
More than expected from political.
2016 presidential election year, it was low single digits, its low single digits again, but it's.
There are higher than in last time.
But of course on the other side of Super Tuesday, certain candidates mice and more or less as a result to that and it's really hard to predict what that will do.
Of course, we're also watching the virus.
Around the world to crawl virus.
And trying to measure the impact that that will have on on everything globally and while we don't think it will have.
A significant impact.
In the current environment, it's prudent to be measure so we're more comfortable moving expectations up as we go but our optimism is as strong as it could.
Awesome and then I just had a quick follow up.
The initial.
EBITDA margin guide for the year of about 30% I think thats the highest initial guide.
You guys have given your history.
Some of this is just natural operating leverage and some of its efficiency to identified by Blake in the team, but I'm. Just wondering if you could talk about this is the more.
Yes, so I'll give my two cents and I'd love.
To give is sort of refresh opinion.
So.
We I feel like I've been apologizing to investors.
Since we've been a public company, where we say we know that.
Maturity, we will be very profitable business, but our hope is to reinvest as much as possible for now and we we still believe that this market is in land grab phase.
As I have always said.
Global advertising will soon be a trillion dollar industry and we want to capture as much of that as possible and that means we need to grow as fast as possible, but we will not do that responsibly and we're going to continue to look for ways to invest as aggressively as possible. So after multiple years of investing as aggressively as we can never wanting to hire the wrong.
People are or higher at a rate that will.
Negatively impact our culture.
Consistently outperformed on EBITDA almost apologetically so.
This was our first time of looking at it and saying, even though we're investing as aggressively as we can.
I think it's highly likely that will produce.
Something close to 30% EBITDA margins, yet again, so so that's how we get to this place and I'm really excited for what it represents.
Yes.
Yes. Thanks.
You're correct that we have guided in prior years to somewhere between 27 and 29% like Jeff said, we feel with our scale, we can deliver 30% in 2020, but still investing in growth areas as quickly as we're able to I'd only additional real point I'd add is remember that we don't manage to anyway.
It is hard so if we see great opportunities to invest that can spin our flywheel, we're going to take that option.
But still looking at the investment opportunities in front of as we feel like 30% as realistic.
Cool. Thanks next question Kevin.
Our next question comes on line of Michael.
Research. Please proceed with your question.
Great quarter, guys and thanks for the question.
Wanted to talk a little bit more about chrome the.
The reason.
Update that they made on February four and it's probably the biggest question that we get from investors is just skepticism.
Regarding how you guys can navigate through it. So I mean it was great would you gave us in the prepared remarks, Jeff, but maybe you could maybe you could help clarify maybe give a little high level about about cookies.
Obviously seems like the guide.
Particularly strong.
Yes, yes so.
And while I said in the guide like Theres no. There are certain pieces of uncertainty out there in the market admittedly. This is not one of them that we're including in any conservatism, we have pretty strong.
Conviction that the value of change the Internet is not changing at all in the targeting is not going away.
And that Google has done a good job of starting a good debate.
They haven't necessarily given clarity in their most recent blog posts and let's just remember that that is all that it was sort of started the recent discussion is simply a blog posts, where they said they expect to make changes in two years.
But there's been lots of supposition about what that means and what the impact will be so let me start by just talking about.
Maybe the worst plausible scenario and then when we when we see that that one's not that bad. We can then walk back and talk about where I think is much more likely to land.
So.
Some are afraid that Google will do exactly what safari did which as though eliminate third party cookies altogether.
What do go to announce only four ish months earlier menus, hey earlier in the year.
They had announced that they were going to handle third party cookies differently and we gave them lots of public praised for threading the needle between.
Our privacy and relevance.
But if they were to take us Safari like approach, which just remember that Apple is not directly dependent on advertising really at all and googles entire business is built on top of advertising.
So it seems unlikely, but let's say that they go there.
Then what I would do is point you to that part of our business that is most dependent on cooking switches are display business, while not our fastest growing.
Channel.
If you look at that closely and.
We have in just anticipating what would happen here Safari spend in Q4 grew faster for display than.
And the rest of it and the reason why I think thats really important is because it's indicative of the fact that.
Apples policy changes and getting rid of third party cookies did not stop us from growing impactful going faster that.
So.
And I'll also just reinforce that.
Display is ballpark, 20% of our business today.
So there's not that much of of our business that is directly dependent on cookies at this point so even in a situation where Google goes to a policy like Apple I don't think that were negatively impacted much at all if at all.
What I think it's far more likely.
Then Dennis scenario that I just described.
That Google will find a way to do a better Java threading the needle between privacy and relevance then what Apple debt I suspect that will end up lending that something closer to the policy that they've talked about just months earlier.
We have had great discussions with people at Google, who are front and center in this and this discussion the discussion inside of Google alone is far from over there will be really interesting to see where they go but in all possible scenarios, where as well.
As we are today or better.
The way that we calculated.
Thanks, Mike on next question Devon.
Our next question comes on line of Timna with Macquarie Group. Please state your question.
Oh, thanks, very much I'd like to ask about couple of things on CTV, if I could Jeff.
You've been bulent about this for a long time now and the numbers are all coming through very very strongly I'm curious if you could give us a bit more color on where you are buying see TV ads and I'm thinking is it network apps like in European App is in virtual bundle like sling TV is it in a lot platform like a broker channel.
Or Amazon fire or is it something open ubiquitous like Pluto TV or something that I'm sure. It's all of that but if any anything you could sort of give us to sort of layout, where the activity is and then you've got peacock coming this year from NBC, you, which is probably going to be a pretty big AD supported service.
What are your thoughts on on where that.
Gets you to and then if I could ask a follow on regarding freewheel. Your comments on freewheel header bidding is that entirely within the NBC you slash Comcast ecosystem given that they own freewheel or is this free will operating on behalf of the industry as a whole. Thanks a lot okay great.
If I give any part of your question coming out on it because.
I definitely want to address all three of those those question. So first at a high level on connected TV just want to remind everybody that.
Connected TV spend increase in 2019 by 137% so.
And shockingly that is our lowest growth year to date at 137%.
And we're in the middle of what I think as a generational shift from from traditional television to Internet driven television and while many people look at it and say, it's going to be a linear decline no pun intended.
I actually think that we're going to hit a cliff.
At some point, where linear television is not able to do what it does without a certain amount of economics, and we're not that far away from it. So I've always said that TV is something of a ticking time bomb and I think we're getting closer to that were much much closer to that especially as we look at our scale and see 80 million households.
Available through our platform just in the United States and then of course, we expect to double again in 2020, so with all of that as backdrop, Let me, let me dive in a little bit to your first question more specifically, which is where does the inventory come from.
So first of all.
It's coming from the large networks' first and foremost so thats those are the content owners themselves. So whether that's an NBC CBS or APC or Disney or discovery, or Fox and SDN and I could just keep going down the list. The large networks working with them directly is the biggest.
And perhaps the fastest growing.
If memory serves.
But secondly, it's from.
The the content on all different connected devices like things like the Roku and of course, our Amazon partnership.
And then we're also seeing.
Inventory from from channels that don't exist in traditional television so the who lose and Sony Crackles of the World for instance, and then last.
Just new Mbps, and that's what that's where the upload photos of the world and Sling TV is of the world come in but all of those together are fueling that massive growth.
And just really exciting to be a part of that especially when the content owners themselves have changed so drastically in the last couple of years. So that's that's first question as it relates to Peacock.
You know in phase one peacock is not going to be add funded which by the way if I were launching it if I if I had the job of deciding how to launch that I would do the same thing phase one I would try to whenever consumers I would.
Would likely.
And as much quality content as possible I think Disney plus use this exact same playbook.
And then after you gain a loyalty of customers I would give them the power of choice. So that they could choose whether they wanted to pay for their content by seeing adds primarily or by paying additional money.
And I.
I suspect that that's where peacock and NBC is going and so that represents I think a huge opportunity for us in the future, even though when peacock first launches it won't be add funded.
Lastly, as it relates here feel pretty well question.
The unified yield is I think a very important.
Just move for the industry and impact on the industry and that has not just isolated to Comcast inventory.
It effects all of the inventory that pretty well powers freewheel is a significant AD server and yield management platform for content way beyond just Comcast and they've done a good job.
Of maintaining business outside of Comcast Comcast, even though they were acquired.
Several years ago, So I'm I'm really excited about what they're doing and that does represent yield.
Across everything.
Our next question comes on line of mid Jones with Citi. Please proceed with your question.
Hi, Thanks for taking my questions.
First you're talking a lot about walled gardens inevitably coming down and how you're pretty vocal about it and if.
Google kind of here is as it may be sees it coming as well what are the what do you think the puts and takes there considering.
And any column changes it potentially benefit them to make it harder to attribute or target to further touch them in their walled garden to try to postponed.
Evolve and now one quick follow up after yes, so I think in broad strokes.
And this is all conjecture, but.
But it's not by accident that in the most recent blog post which has created all that all the discussion.
That they put a timeline of two years.
That's on the other side of an election that gives them a lot of time to figure things out.
You are seeing way more.
Consideration and conscientiousness about both privacy and anti trust inside of Google. So I think that they're looking at both of those things and trying to make certain that they don't Stepan.
So.
That makes it really hard and just having.
I spent a lot of time at Microsoft on the other side of anti Trust you just can't reluctant to make choices and you try to be deliberate when you take longer and Thats, what I see happening there. They do it if they if they weren't to get rid of.
Of targeted advertising for everyone else.
Then I think they have an antitrust problem.
If they weren't to.
Just to.
Not do anything.
Then I think they have a privacy problem.
So I think there just trying to figure out what's the right thing to deal with both of those and in a very Google like where theyre going to try to engineer their way into something that's better.
So I am really optimistic about it.
We are having more conversation with Google now than we ever have on this and so I'm really optimistic about a wearable land.
Thanks, and then Blake just one quick one can you talk about the free cash flow results on the air.
Sure. So you can see to in the release the cash flow from operations think we're about.
So about $60 million free cash flow is that about 19 million. The difference there is the capex. So we've got plenty and capitalized software of about $40 million. That's the vast majority of that's for the facilities and the build out as we scale offices.
Around the globe, so both in North America and international.
Thanks, One thing I just want to clarify on one of my previous responses. So I misspoke. When I said that Peacock is not add funded what I meant to say that peacock is not using programmatic AD today that funded those are all just sold directly through NBC and as a result, we haven't announced anything.
Between us and Peacock on this but for all the reasons I stated I'm optimistic that at some point that will happen.
Our next question comes the line of Mark Mahaney with RBC. Please proceed with your question.
Okay. Thanks.
Mr off three quick ones anything on China is there any materiality in your 2020 outlook related to China I know, it's still early days view, but you've been there for over a year. So just comment on that even though I know, there's a lot of issues going on in that market now.
Secondly, I know the I want to call you out Jeff on that the your answer to the first question I didn't quite get so the question is your guidance for the first quarter has this very strong revenue growth for the full year implies is real material deceleration as you go through the year kind of implies that the you exit 2020.
That kind of like mid or high Twentys revenue growth, maybe that's the law of large numbers, maybe there's some tough comp issues. Just just talk through the maybe two or Blake, but just talk through whether the other reasons for us to be thoughtful about expecting to see from a high very high level in Q1 market deceleration in revenue growth as we go through the year and finally, sorry.
One high level question I've thought about all these targeting changes that have occurred not just the.
The cookies, but really just the clamp down I guess on the Commingling of third party data and my interpretation of all this was that this could be huge advantage to the walled gardens because of all the great first party data and you're kind of making a different pitch, you're making the arguments that.
There may be less data will more did it doesn't really matter growth that will come down. The winners are going to be the company is the best work with the data I think thats your pitch and so I just I just wanted to just ask you just maybe just take another turn at that.
I think that the for companies with a large amounts of first party data win and then in Europe pitches that trade desk still wins, because any any in any data environment restricted or expansive the best data that manipulators, but the best data integrators those the ones that will just my stating that position right on that thanks, a lot yes.
Sure. So I'll answer one of three and then I'll get Blake.
First stab at number two and I'll come back and just add color on on the guide.
So in terms of materiality of China.
We havent forecasted anything material.
In our forecast for the year from China, It's one of those places, where we could get surprised to the upside.
I know we've done so much groundwork laying there that I I'm I'm very hopeful of what can happen there of course there's.
Theres lots of unforeseen things that they're managing right now, namely around the virus and of course, a significant amount of our operations are headquartered in Hong Kong and it had its fair share of a political challenges last year. So.
Despite all of that I'm incredibly optimistic about what it could contribute in 2020, even though we haven't put it into our plan.
Third thing.
You asked on on targeting changes.
Yeah, I think you, mostly characterize that correctly, which has.
Hi, I don't believe that debt.
And there will be a huge advantage to the walled gardens in large part because they don't have the most valuable asset in the ecosystem today, which is the asset of the data assets of the buyers. So.
The people who are core funding the internet the advertisers they have their own data and and they're more and more and this is why we spent so much time in the prepared remarks talking about the mindset of a CMO and the way they're thinking about their data. They are looking for someone that they trust not a media company someone that is trying to help.
I am deploy their data in the most objective way possible and we're just continuing to win more and more favor from from advertisers as it relates to their most precious data asset which is about their customers. So because we have that partnership with them and because we've always been focused on the buy.
Side, I, just believe having that advantage.
Less always doing the right thing as it relates to first and third party data even if there is an environment, where there is less of it I think all that will do is make the quality go up.
But I don't think data driven decisions are going anywhere.
And I don't think that that advantage.
You hypothesize is actually real in large part because as they get bigger and their own data asset.
People become more reluctant to share their data with them. So.
With that like anything you want say about the guy before I am sure, yes, as we as we talked about on the call. The overall, we're very happy with the full year guidance I would say that you can you can definitely see the Q1's gotten off to a great start for us political spending as a part of that we have a lot of candidates involved right now and that's going to be lumpy.
We don't see any major headwinds today, but like everyone knows we're going to have to watch other macro environment unfolds and just.
The confidence that will raise as we go we performed to the upside that's how we're going to operate.
Yes, so the other thing I'll, just say that.
Yes.
You said.
Must therefore be going from 40% at 20, something low twentys.
Got how we see it going from 40 something to sit to 30 something.
But.
That's largely because we think in the current environment, it's prudent to be measure and we're more comfortable moving expectations up as we go.
Thanks, Mark next question Devon. Our next question comes the line of more Kelly with Nomura. Please proceed with your question.
Okay, great. Thanks, guys not to keep harping on the guide, but I just wanted to get.
A little bit more clarity on the mix of the go spend outlook for 2020, and then also the revenue growth.
I think this is the first time and I think maybe three or four years, where it looks like gross spend will grow faster than revenue. So.
You know that implies that the take rate will come off a little bit.
Well help us think do that.
When I think of CTV and data and some of the big drivers that you guys just talked about as being material this year.
I think CTV is kind of a higher take rates. So what's what's the right way to interpret just the mix of the go spend outlook versus the revenue outlook. Thank you, yes. So.
I Love that you've asked this question, especially because.
I think if you understand how we approach this philosophically and strategically then it can help you with with modeling because this is really a strategic question that you're asking and the strategic part of this is.
Uh huh.
What do you care most about.
Making money or grabbing land and we've essentially said, we would rather grab land than anything.
And so how can we adjust well what I call consumer surplus, what we're giving back to our customers and adding more value that just translates to more client retention and then makes the flywheel spin faster.
So it is true, we're giving up a little bit uptake rate to help supply will spend faster to get more spend and that's why I'm. So excited by by the gross spend numbers that were sharing because that to me represents what land grab is.
And then that will have a trickle down effect, but this isn't something that we're sort of subject to its more of that we're making a deliberate decision to give more back to get more loyalty from our customers just what consumers surpluses.
Thanks, Mark networks. Our next question comes a lot of Tom White with D.A. Davidson. Please proceed with your question.
Great. Thanks for taking my question just on international Jeff you send it.
Think about growth there, but I'm not sure I heard you sort of a from what you said last quarter about accelerating international in 2020, this kind of Corona virus, maybe factor into your your view there and then just a quick follow up on the free cash flow question.
My arithmetic shred it I think free cash flow conversion of EBITDA was 910%, which is lower than we tend to see it other sort of tech or SAS SAS esque businesses.
Can you maybe just explain why that is is it just sort of maybe the timing vagaries of cash collection between that can happen kinda between publishers agencies and advertisers or is there something else. There. Thanks, great. So I'll take the first question I'll hop like take the second.
So as it relates to international.
Admittedly international item and growing as fast as we wanted to and as fast as we expected to in the future. So I'm I'm expecting them to have revenue acceleration at some point and then not distant future.
We have great momentum.
In many of the markets, we had record spend in Madrid and Paris.
And the UK and Q4, we also had record spend and Seoul Korea as you point out weve in some of our our hubs.
Like.
In Singapore and Hong Kong.
And Shanghai, we've had just viruses and political issues and whatnot.
That definitely create a little bit of a speed bump and we also are scaling in those businesses, where theres a little bit of a stair step function that we expect to see in 2019 2020.
The great news is that we've done that so many times now that we have 25 offices around the world that we're seeing.
The same patterns over and over again, where we invest in the team.
And then we see that stair step happened that's exactly what is happening and so thats exactly what is happening in Paris in Madrid.
And we expect that to happen and and all of our international markets at some point in the not distant future, but we're definitely still at a place for investing.
And then follow up on your cash flow question. So.
It's an accurate statement to say that so when you look at our Dsos in depots for the quarter you get less flow through from EBITDA, because dsos are where we saw in the call hundred 18 in Q4 depots a 94, so the gap widening a little bit I would just caution folks it just one or two days can affect that.
Hey, our APC.
Balance quite a bit and so you know just keep in mind closing that gap is top of mind for us strategically we want to bring it down we feel very good about the quality of our receivables, but the timing of this can can swing things quite a bit.
Our next question comes on line of Youssef Squali with Suntrust Robinson Humphrey. Please state your question.
Thank you very much I have to maybe starting with you Jeff the data business. I think you said it was up about 65% for the quarter I think that compares with somewhere like 80% to 90% in the prior several quarters. So just given changes to the data collection you talked about the cookie elimination et cetera has there been any.
No material change either in data availability or into the quality of data that advertisers can access on on the platform and then Blake on your 2020 guide I think it implies a couple of hundred basis points contraction in margin year.
20 over 19, I think you pulled out negative leverage in sales in sales and marketing as as one that the primary one and if not maybe just help us.
How to think through thank you.
So let me let me take the first one so.
I think your numbers right at 65%, which is ballpark a 150% of the growth rate.
Of our media spend so I'm really excited by the fact that it's growing at a faster rate.
In data than it is media because that just means people are making more data driven choices in our platform than ever before and data driven.
As is the is the trend.
So I'm really optimistic about that I wouldn't read too much into the 65% Q4 versus that 80% in previous quarters, you'll recall that we launched next wave the year before.
And so as a result of getting adoption from next wave in Q3, and four we actually create a pretty tough comps for ourselves in Q4. So the fact that 65% after all the momentum that we had in years previous.
I'm I'm really excited and optimistic about it.
I believe our data teams and our inventory teams.
Uh huh.
Where are the all stars of our 2019 so.
And then related to that your 2020 guide question. So correct for the for 2020, where we're looking to invest the most would be in sales and marketing and technology and development essentially those components that either that get us closer to customers grab share or build products and services the customers want.
Just like I said earlier Gionee, you're going to find will decelerate in growth year over year. The most of any of those buckets and then we will continue we expect to continue to get leveraging platform ops.
Hey use of one other thing I just want to add on the data side.
I should have made certain that I mentioned is in Q4, we we tested actually giving it the same way that we did with consumer surplus and all other aspects of our business and we're talking about in 2020.
We tested giving a bunch of data away to see what impact that would have so additionally that 65% difference is largely fueled by us experimenting with giving data away.
Got it thank you.
We have one more question from a line of Brian Swartz with Oppenheimer. Please proceed with your question.
Yes. Thank you for taking my question. This afternoon, Jeff I just wanted to follow up more granularly on the European business because it did look like it rebounded strongly in the corridor, which I actually thought was an impressive result, considering all the macro Brock said uncertain. They even have the UK election late in the corridor question I wanted to ask you is it just.
To better environment that more thinking about over in Europe or is the priority from the brands. The agencies for your business just sort of overtaking any uncertainty people may have about that region spending environment. Thanks.
Yes so.
I mean in terms of.
What's happening in that region.
We have.
Amazing momentum in Europe of course, it's a little bit more agency centric.
Of course, we have also than Oh.
Sort of managing.
That's sort of post GDPR World, which is I think a really interesting case study for the rest of the world to look at and the fact that we're seeing as much data driven decisioning and we haven't seen any material changes to to our business. As a result of that we think is indicative of what's going to happen everywhere else in the world.
But overall, we're just we're really excited about what's happening in EMEA and we're continuing to make investments I went Blake talked about.
We're just constantly looking for places to invest.
And places, where we are going to make big bets and.
And.
And have confidence that they'll pay off investing in Europe is one of them.
We have reached the end of our question and answer session as well as today's conference call. We thank you for your participation.
And have a wonderful day this does conclude.
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