Q3 2020 Trade Desk Inc Earnings Call
By pressing the star and one on your Touchtone phone.
I will be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Vice President of Investor Relations Christos. Please go ahead.
And the agencies in the World and we are winning more business with both new and existing customers.
Estimate to the strength of our value proposition and our customer relationship.
Thats, what makes me more proud of our performance in the third quarter than any other quarter in the trade desks history.
Our team navigated uncertainty and helped the most sophisticated advertisers fuel their recovery with new approaches to channels, such as CTV I'll come back to CTV in a few minutes.
The Asian from that in fact, I would assert that customers are relying on us more and more.
I see that not only in our growth numbers and the trends underneath those numbers, but also in the conversations that I'm, having with advertisers every day.
So today I would like to break this discussion down in three ways.
First how we have seen advertisers become more deliberate in 2020 and what that meant for us.
Second how the tipping point in television has proven a major factor to our growth in 2020 and three how all of this adds up to a few things that I'm most excited about for our future, especially starting in 2021.
Let's start with the first item advertisers have become more deliberate.
Brandon agencies that advertise more effectively who leveraged data to be more nimble and agile are gaining share periods.
And when programmatic advertising first came on the radar for most marketers back then display in mobile advertising were the big winners they won despite being weaker at winning hearts and minds than video T V or audio they one sure because they were measurable in comparable and marketers can prove effectiveness with credibility.
Be mobile MPC advertising, we've seen similar pattern show up across industries, whether it's pharma or fast food or retail or technology.
So those companies that are advertising effectively are gaming chair.
And as I said, if you want one, particularly potent microcosm of this in our industry you have only to look at what's happening within T V.
Live sports remain in a state of flux only adds to the acceleration in cord cutting.
All of this of course has massive implications for broadcasters and advertisers.
Reinforce advertiser conviction that there is a compelling alternative to walled garden likewise.
Sustainable.
The AD to content ratio creates a terrible viewer experience the cost of cable for the consumer is high.
Even if users are away from their keyboards. Finally this launch will include a new measurement marketplace to provide the advertisers with more transparent reporting. This represents an even more compelling measurement alternative to the walled gardens, who continue to grade their own homework.
Everything about this for at least points to the primacy Ah first party data and the ability to unlocked the value of that data in an AD campaign, especially in connected television.
Sitting around the open internet.
Even that phrase the open internet was something that only a few of us were using with any confidence a few years ago, but it is now a movement that has gained considerable momentum. The most important manifestation of this is the collaboration that is now happening outside of the walled gardens, the likes of which we have never seen before.
Brands are looking for alternatives to walled gardens, and alternatives to user generated content and alternatives to broadcast television and alternatives that are all data driven.
And of course alternatives that can be measured objectively.
All of which point to the value of the open Internet and all of which also mean that once again the secular tailwind are getting stronger for the trade desk.
So let me try to wrap this up by discussing some of the pressing items facing the trade desk Emmy opened Internet right now.
I want to touch on the recent antitrust actions against Google as many of you have asked about this particularly in terms of what it might mean for us and the future of cookies.
It is very difficult to predict what ultimately will transpire or what remedies might be if any.
All we do know is that it will likely take years and then it will almost certainly create some level of distraction and change for Google.
Ultimately it doesn't change anything about our strategy. We are focused on offering a compelling alternative to walled gardens, one that enables a free and better open internet for all participants for.
For advertisers data providers content providers and consumers.
We're trying to distribute power among the competitive media market not control the market.
And as we have seen this year there is growing demand for such an alternative to walled gardens that can execute at scale across every channel worldwide. The market will not allow Google to be the only company to offer effective AD targeting there is too much collaboration and understanding of what's at stake.
If you will have questions about apples recent moves regarding NY DFS, we anticipate most users will ultimately opt into I'd say in order to continue to enjoy personalization of apps across their devices.
That includes things like Spotify Dropbox linked in Netflix Facebook for thousands of other apps.
The last topic I would like to touch on is our most recent proxy filing.
Our board has proposed several amendments, which if approved would ultimately mean that our dual class stock structure will sunset or terminate in five years.
I want to go over the proposals specifically here today, there will be time to do that in another form.
But I would like to provide a little context as to why the board has made this recommendation.
Many of you have been with us for our entire four years as a public company and in that time, we've significantly increased our market valuation.
By thousands of percentage points.
In light of that growth, sometimes it's hard to remember that if you capture mind back four years.
You'll recall that there was a lot of skepticism around our industry and around our prospect AD Tech as an industry was load on wall Street.
Over the last four years, we've delivered significant shareholder returns.
But we brought a new loan.
And respect for our industry and our role in pioneering the future of media as well.
It Didnt happen overnight, we climbed out of that AD tech penalty box by making promises and setting expectations and then meeting them consistently quarter after quarter, because we knew we needed to build your trust and that trust helped US provide you with a consistent view of our long term strategy.
The trust between the trade desk and its shareholders is extremely important.
Because when you think about areas such as connected TV identity upgrading our platform international growth. These are not short term or AD hoc decisions.
These are decisions born of a long term strategic plan.
The next five years will be critical in our history as advertisers increasingly consider the value of the open internet and embrace an alternative to the walled gardens. The next five years will go a long way in determining the winners and losers.
Our board has determined that these changes will enable the company to continue to have that long term strategic focus.
Maintaining that focus maximizes our chances of continuing to deliver exceptional shareholder value.
Just wanted to provide that brief context as I know that many of you would appreciate that perspective, having been with us for the long haul.
Now, let me wrap up by coming back to where I started we are highly encouraged by our strong performance in the third quarter I have never been more proud of our team's performance than in this quarter. The team has done so much to set up our future and the future of the open internet because of that performance year to date, we are even more bullish.
About our ability to gain market share moving forward.
Nearly every category improved during the quarter with many exhibiting strong resilience in the face of the economic uncertainty that Jeff discussed in particular health and fitness, our largest vertical in 2019, as well as technology and computing food and drink and home and garden all performed well.
Automotive showed consistent improvement as well during the quarter ending with double digit growth in Q3.
Travel still remain negative on a year over year basis, but even that category showed relative improvement during the quarter and has improved on a year over year basis versus Q2 performance.
Propping also showed a noticeable turnaround in Q3, ending with growth well into the double digits and finally as you can imagine we have seen strong political spend in the month of September and also into October. However, it is fair to assume that we will still end 2020, as we had previously indicated with political spend representing a mid single.
Digit share as a percent of our spend.
Operating expenses were 173 million in Q3 up 22% year over year, although faster than we invested in Q2, our operating expense growth was a bit lower than expected due to a number of factors.
First our employee support costs, including travel and corporate events ran lower and are down materially from the prior year due to the Vmware virtual environment.
Second our bad debt expense for the quarter was lower than we had originally assumed partially due to strong receivables health the aging of our receivables actually improved slightly year over year, despite the volatile economic environment, which we're obviously pleased with.
Third while we continue to produce positive net hiring every month and grew headcount in double digits year over year in Q3, we did not ramp our hiring as quickly as we had hoped also partially due to the virtual environment.
Income tax expense was $1.3 million in the quarter, mainly due to the increase in profitability in the quarter, which was partially offset by employee stock based awards, the timing of which can be variable.
Adjusted net income for the quarter was $62.7 million or $1.27 cents per fully diluted share.
Net cash provided by operating activities was $88.5 million for Q3, and free cash flow was $66.5 million the.
The primary driver was the increase in net income and the change in working capital that can vary from quarter to quarter, depending on the timing of payments and receivables.
Dsos exiting the quarter were robust 101 days up five days from a year ago.
Peos were 82 days also up five days from a year ago.
Questions.
At this time, if you would like to ask a question. Please press the star and one on your Touchtone phone.
You may withdraw your question at any time by pressing the pound key.
And once again for your questions today that is star and one.
And we will take our first question from Michael Levine with pivotal trade group. Please go ahead.
Thanks for the question guys and terrific results, so just to be getting a little bit deeper Jeff on your comments around C. T V, which were super helpful. Two parts I mean, one I'm curious if the weakness in linear sports T V ratings actually led to some acceleration.
And I guess, just secondarily as you're thinking about 21 anything you guys could basically do the frame how investors should basically think about <unk>.
Yeah, Great first of all thanks for the question of course, there's <unk>, there's no place in our business that we're more excited about that and C. T V.
I think it's.
Difficult to argue that that we didn't benefit from the struggle that life sports has had in 2020.
2019, we just had this amazing sort of arm in arm tour with ESPN and just talking about the benefits of life sports.
But.
While time consumption has gone up.
Across the board on connected T V consumption on both.
Both linear as well as life sports has gone down dramatically life sports suffering the most.
When we ask you in a survey what was the number one reason that people hung on.
Cable, 60% of consumers said the reason for hanging onto it was life sports and we think that that's the reason why when we ask them about court cutting that they're doing that it between two and a half and four times the rate that they've been doing that in the past and that's in part because of just life sports beam.
Less compelling when there's not a crowd and it's not it's not the same in this environment. So we've definitely benefited from that.
We remind me of the second part of your question.
Oh, just some initial thoughts just how how investors could think about the opportunity for C. T V in 2021.
Yeah, absolutely. So the first is just to touch on a little bit the upfront. So this year at the Upfronts, which is a way that a lot of advertising spending teevee gets allocated with especially weak because just a lot of the decisions in meetings take place last week in March and.
First week in April that was the moment that perhaps with the most amount of uncertainty and the global economy and certainly in the media landscape.
I think most people part of the reason why I quoted Mark Pritchard on that really.
Really bold statements that he made that they plan to.
Skip out of problems going forward is in part because of the amount of uncertainty.
That the media landscape faces continuing going into 2021, what I think all of that means is the way to make television work and scale is going to be to move more to connected television.
I think it means that there's going to be more sold in what is effectively a spot market instead of on Upfronts and all of that bodes well for us that said I think it's also important to note that we're investing in product.
To help digital participate in a new version of of a forward market.
And we're working with multiple players in the premium content space to define that.
So incredibly optimistic about our prospects in 2021 because of the secular tailwind as we have.
In television for a variety of reasons, including the macro environment.
Terrific. Thanks again.
Thank you.
I think our next question from Shum until from Sue scanner. Please go ahead.
Hey, guys. Congrats on the impressive results I have a couple.
All of the questions.
First one job.
You talk a little bit more about how you are thinking about uhm Apple upcoming idea of any change in how you guys plan to manage that change and then Blake I know, you're not providing 2021 outlook yet but are you able to talk a little bit about how you are thinking about areas of investment as well as.
Margins could try next year. Thank you.
Awesome.
Well I'll take the first one and then Blake if you want to take the lead on on the second one that'd be great.
So so first I would like to answer the Apple idea a question in two ways first let me just talk about from our company perspective, and then I just wanted to talk about on behalf of the open Internet and bigger perspective.
About 10% of our spend uses IBSA.
And because we've had limited targeting on that 10% for quite a long time.
Continuing to limited or limited in a in a new way doesn't have a material impact to our business because we're looking at roughly 12 million ads every single second when you take a million ish of those and say we're going to.
Allow less data to be used on those.
We just look more carefully for gems in the other $11 million.
So I don't expect it to have a material impact on our business the way that it will others. So when you hear Facebook talk about having a big impact just remember their 70 ish percent mobile.
Not 10% IBSA so so.
Very different impact us.
That said.
I do believe this is apple trying to mess with with Facebook business and Google's business, they're much more committed I think to payments than they are to the advertising ecosystem.
But.
One thing I, just think has not been talked about enough is that when you limit.
The ability to use IBSA bye bye all app's, not just for advertising, but for personalization like in Netflix or Dropbox.
Or so many others.
That is going to lead to is.
Massively deprecated consumer experience, where consumers are then going to be asked the question. If you would like to upgrade your experience you have to go to settings and change the following.
I believe that that is inevitable that because there's so much advantage to that personalization and there's so many companies that are committed to doing that.
Fair equitable responsible way, including us.
I believe we've already been through this.
With with location on Apple and ended up people, giving consent.
And the places that mattered, so that they can have a better experience.
I think long term, we ended up with people opting into IBSA and if not being a big setback for the industry of personalization I don't I don't expect that to happen.
I'll just go back to as it relates to us it's a small portion of our business.
Given our focus on connected T V and being.
Gateway to all channels not just one.
Blake.
Thanks, Jeff and I'll try to address this from that address if you want to add anything feel free then with respect to the second question on thoughts around investment in margins may.
Maybe some context that I can provide them may help you know just in general we're very excited about the investment opportunities. We have in front of us whether that's in connected T V International identity solutions or product development, such as Solara, Jeff referenced our focus is to drive investment and there is a.
Drive platform spend gross you know as we as we move into 2021, there's still lots of uncertainty around covid and the macro economy, you saw it a bit in Q3 areas like support costs travel events in hiring they're they're generally below pre covid levels.
We're confident that when we do return to normal.
Remember that whenever that is.
Some time in 2021 late 2021 20 twenty-two your guess is as good as mine on that are margin structure should be as good as it was pre covid and over the long run as we continue to add scale potentially slightly better, but where I'd end that statement with is that please remember that we do not manage to an EBIT target.
We have a areas that we were really excited about investing in driving growth and and we're always looking for those opportunities. So if we can invest more that will drive future growth with the right long term Rois I will really advocate for it and so we just we always have to how 'bout balanced perspective.
I'll just add.
30 seconds.
On the phone.
With some of our team in China in this morning, just talking about how they are leaving.
The world and global growth for us.
Back to to the offices and sort of business as usual and having a phenomenal year for us.
I definitely want to make investments there I want to make investments and the forward market and CTV that we talked about we've talked about the the momentum behind unified it'd be definitely a place that we can we can do more we're planning the biggest release in our company's history next year and saw Lamar. There's just a lot of places for us to continue to grow and we're still just in the very <unk>.
Early innings of what.
Is shaping up to be a huge game. So just really excited looking for places to make more investments.
Next question Chloe.
I think our next question from Seeley Garcia from Cannonball. Please go ahead.
Thank you good afternoon, Jeff wanted to ask you to talk about the decision to deemphasize Amazon publishes services in favor working directly with the app's I think you announced that several weeks ago, what was the rationale to.
To do this a little over a year after the B M. P was set up and does that change your approach to the streaming platform such as Roku. So would appreciate your thoughts on on this.
You bet it so so.
First the 2020 is the year, where media does three years worth of change in one year.
So so while I had initially thought that this would this would last longer I was extremely confident.
And it being important to our success in the short and medium term.
But had less certainty about the long term because of that the partnership was an amazing success.
We proved.
Monetization on Amazon, we continue to monetize on Amazon, It's just not through Amazon publish a publishing services.
It's my read that that's not the highest priority inside of Amazon.
But instead getting access to the content that runs over fire brochu and every other other device bye.
By creating closer relationships directly with the content owners. There is the same MTV that content is king.
And we continue to get closer to that content, where they are more and more committed to doing yield management either through a very close partner like a freewill or a magnet or.
Doing it in some cases on their own and were okay, no matter, what sort of agnostic to how they wanted to yield management as long as we plug in with them.
But.
Aps itself was less than 1.5% of all CTV AD impressions. So many in the.
Not necessarily Amazon, but those that came through Amazon publishing services.
And so getting that more directly is actually better for us better for our advertisers and deepens the relationship with the content owners. So by that measure this was a smashing success.
And next question clothing.
We'll take our next question from Justin Patterson Keybanc. Please go ahead.
Great. Thank you Hi, Jeff Blake Hope, you're well I congratulations on all the progress with a unified I D to Idaho and getting closer to the critical mass. My question is this even with that degree of adoption. There's some checks out there, suggesting it's still gonna be a lag time before Roy matches, what previously existed.
Under the third party cookie.
Love to hear your thoughts on whether an air pocket might exist and how long do you think it could take rest and start seeing the benefits of unified Ivy play out well for your business and the open Internet.
You bet.
First of all thanks for the question.
Somewhat complicated question in large part because third party cookies still exist right and they will for the next 18 months or so so everything that we do in that in the time between now and the time when they go away inside of chrome.
Ah.
The the unified Ivy unified it'd be 2.0 is a supplement to the rest of it now that said I believe will replace it before they go away. So I believe that it will be the primary way that people are targeting on the open Internet before a third party cookies go away.
As people are thinking about well, what's the adoption looked like just think about the fact that that live ramp and <unk> and Nilsson have a pretty amazing footprint and when they when they talk about interoperability an adoption, it's effectively cooling the footprint that we have a wide ramp pretty old nielson.
And the trade desk.
To start that's just the start if I were to give you. The list of all the people and media that are engaged with with us and with all of US that are working on it are all the people on the on the supply side that are working on this.
It's actually overwhelming to just keep up with the amount of success I have never seen anything like this and the history of the Internet in terms of of adoption.
And I think it's just because we got the product right as an industry, where we said.
We wanted to upgrade to cookies, where it's encrypted.
It has it terms of service so that it actually operate better we get rid of the cookie mapping issues. It's a simple framework for publishers. They can better explain the quid pro quo of the Internet, we're giving consumers better controls. There's this SSO that comes with it so that people can consent, one time per app and web site.
Holiday, they're email address one time, and then have effectively a pass to go all over the Internet with open past so.
I highlight those four components to this to just say, it's an upgrade across the board on all of those themed and especially when you take that momentum that's already there there's not a good reason or any company not to sign up.
Benefits from this this common currency, which is every advertiser every publisher even the consumer benefits from that so I think we figured out the way to make it a win win across the board and that's why the momentum overwhelming.
Thank you.
And we'll take our next question from 10 no-one with Mcguire. Please go ahead.
Oh, great. Thanks, very much Jeff I have a question also about unified it'd be I hope, it's as simple one could you help us understand a bit more what your partners are doing in this effort you you've mentioned now and we've seen that releases in the last couple of weeks with live ramp and <unk> and Nielsen maybe.
Is it about them, helping create and build the idea itself or is it them agreeing to make their systems work with it just to understand a bit more what they are actually doing with you on that and Relatedly I think especially when it comes to Nielsen you were talking about measurement a bit more I think on this call. Then you haven't previous calls what role does unified aidid too.
Oh play in actually measuring media, especially CTV. Thanks, yeah. So so.
This is a complicated question.
So.
The third party Cookie universe. There is all this thinking that has to happen. So if one company, let's just say Google has a cookie.
And they identify a user is user AVC and then Facebook has a cookie and they identify that user is 123 in order for them to have a common understanding of the user they have to ping each other and so when you see on the bottom of your browser all the the pixels loading constant.
<unk>, it's all these companies syncing with each other so that they have a common understanding that user and create a currency around the internet was.
<unk> unified I V 2.0 does is it replaces that where there's constantly pings happening and sinking. So that there is a common understanding user and replaces it with a standard that we all have.
And this effectively creates a currency.
For the Internet.
It doesn't mean that we aggregate all the data in fact, it liberally designed to avoid that there is this idea where there's no data per se attached to it and then the individual companies themselves and.
And proper ways.
Gained insight or data then can use that in their own four walls without having to send the data.
All different places.
Because everybody has an interest in creating that understanding so we can stop thinking and have a better system.
We basically took a recipe from the IAP, where the Ivy. It said this is what the best solution should look like and we just went one click down on fleshing that out and then we sent it out to partners like cardio and like.
Which incidentally is it.
Competitor and a lot of levels, but we felt like it was very important to start there so that we.
We were signifying to the industry that this was a collaboration even though we compete.
Then we did the exact same thing with Leibrand.
To just make certain that it was interoperable. So you asked whether it was about interoperability are about collaboration it is about pole.
But we took something to them that was mostly baked and said what do we need to modify.
To get you to adopt it and make it interoperable with your solutions.
And that's where we are with all of them you mentioned measurement, you're absolutely right that one of the things that.
That I think Facebook and Google have done really well and becoming as big as they are in advertising is that they have.
Done a good job of taking credit for what happens in all of advertising because they touched so many conversions when they sell something they are effectively providing analytics to say, yes, we touched it you sold that product because of us.
He opened internet needs to do a better job of showing the role that it plays, especially given that I believe most hearts and minds are one and themes like CTV and audio so we need to integrate with the with the best measurement solutions in the world you're going to hear a lot more from us about measurement over the next year at about <unk>.
Inner shifts that were that were initiating to make that better, but there's no place better to start than with Nielsen who has effectively been the gold standard of television measurement for decades.
Next question clearly.
I think our next question from you since Squali from truly Securities. Please go ahead.
Great. Thank you very much and congrats on a really impressive quarter chaff I was just wondering to two questions for you one hour the potential changes in the political environment could impact how are they potentially impacting you know.
Your ecosystem, especially around.
What's happening with the walls gardens with the change in the guards have a material impact one way or another and then on a topic that you mentioned briefly earlier, which is China. This was the topic that used to talk a lot a lot more about.
It seems like China is now on the other side of this covid they've opened up their growth has been very very impressive.
How are you looking at that business from a contribution standpoint, I think 2021 was going to be year, where China was going to be starting to basically move the needle I'm, sorry, 2020 was a year, where China was going to start moving the needle for you will 2021 now beat that year. Thank you.
Great. So first as it relates to the political environment and correct me, if I'm wrong, but I assume you just mean the amount of scrutiny that as they call. It big tack is under right now.
As as that continues.
Alright.
The worst sins, how does that play in your favor potentially or not so.
So.
I don't think that it will affect us all of that much but whatever effect that has is likely to be positive.
And here's here's why.
As I mentioned in the prepared remarks, I think adding pressure to Google and especially having lived through.
Sort of the other side of antitrust with.
When I was at Microsoft.
More than 10 years ago.
The level of scrutiny that I think big Tech is under is likely to make.
The googles of the world slowdown be a little more careful.
Dot is and cross teased to make certain that they're not violating antitrust.
Could likely mean that they make changes.
Two.
Pricing tactics.
And it could mean that they are less aggressive and.
<unk>.
Going after.
Target even if it is in the name of privacy, so that only day would be the ones to target on the other side of that if the collective open internet didn't work together.
So because of that.
That pressure I anticipate that.
We'll see some small benefit but.
Here's I think the most important thing that I can say on this topic.
We were fine with the landscape the way it was.
We built a business from the very beginning.
That was built on objectivity and we wanted to focus on the demand side. So that people knew what we were we were to some extent 10 years ago, a rebuttal to Google's business model to be involved in every part of the AD Tech stock and instead, we just said we were going to focus on the buy side because with that came the level of transparency and <unk>.
Of activity that we knew someone in google's position could never provide.
So.
If if they have to slowdown great. If they don't that's fine we're going to keep talking about the exact same principles that got us here and we believe we're more likely to win now than we were 11 years ago and happy to keep going.
Thanks is up next question clothing.
I think our next question from Mark Rosenblatt Securities.
Right.
Thank you Hi, Jeff I appreciate all the color on you I D. A lot of excitement and Anxiousness I would say in the industry as we talked to lots of.
Please involved just curious.
If we think about perhaps milestones over the next 12 months that will indicate that we're trending in in the right direction here to fully replace the scale that chrome cookies offers can you maybe talk about a few milestones that we should look for and then what do you anticipate to be the primary as of all the <unk>.
Parties that are involved here and whether or not.
The bigger ass will come from the bigger publishers, if I'm I'm thinking about that correctly. Thanks.
Yeah. So so the milestones are are mostly measured and interoperability so as as a publisher or an advertiser says we want to leverage this to create interoperability between R. I D and somebody else's Ivy and there are lots of Ivy initiatives out there nearly every agency has one that they are.
Pursuing many of them have been pursuing them for multiple years.
Those are all different most of those are similar to live ramp where there about data onboarding and making it possible for people to use the data that otherwise has not been that's different than creating a currency, which is all about interoperability. So every time you you see a press release.
Or you see somebody publicly saying, we are making our Ivy interoperable, you're just sort of joining the circles of what otherwise would have been a venn diagram in the cookie world.
To just make a bigger circle.
And so the thing to be looking for is it.
Is interoperability.
Did I answer the second part of this question.
Did we catch that mark.
Okay. We will answer you said that a second part of his question regarding China, and so Jeff will take that question right now great.
Great. So.
You're absolutely right that we've had high hopes in China.
A very long time, we've also been making investments.
For a few years now.
Rather than just quantify when it's going to move the needle, especially as that.
Becomes.
A bigger target as we continue to grow our business.
Around the world.
I'll just reiterate China is leading the world right now for us in terms of growth rate.
The Green shoots are really remarkable in 2020, I don't know that I would have pointed to the green shoots and years before this year.
But they're really remarkable we continue to just build out the team and build out the product that we need.
Our vision.
Is to do for the Chinese speaking world, what we've done for the English speaking World. If you look at like the places where we've had the most amount of growth.
The countries that we've talked most about in connected television it's been in the English speaking world leather, that's in Australia or in London or in of course, the United States doesn't mean that we haven't had great success in places like Germany, and other places as well, but it's been predominantly English. We think there is something very similar to be done.
The Chinese speaking world, which goes beyond just greater China.
And we're seeing those green shoots in 2020, so it's one of the places that I'm interested in making investments and spending more time and and really eager for the world to get back to some sort of normal. So I can I can go back and spend more time.
In a place I fell in love within 2018.
And Chloe will take we have time for one more question and then we'll close it out.
I think our next question from John expert with diesel. Please go ahead.
Great. Thanks for taking my question.
Jeff It seems like in addition to being a far more efficient channel four large brands and linear television advertising C. B C. Television seems really tailor made for premium video ads from Smbs, a mid market retailer's that never really bought T V ads on a national level due to factors like budget limitations are narrower geographic focus in these companies are.
Arguably among the largest drivers and digital asked demand today and driving most of the growth for the wall Gardens right now so I guess two questions.
First are you working with many companies in these categories to your agency relationships today, and I guess looking maybe.
Maybe a few years out as your penetration within large advertiser and agency budgets continues to grow would you consider developing products that that better cater to this segment and I guess, if so what are some of the challenges to consider there.
Yeah. So.
I could not agree more with the premise of the question, which is that smbs in mid market advertisers have been driver of digital especially for companies like.
Like Google and Facebook.
We of course.
I have done much better among the premium brands.
And deliberately started there and that continues to be the core of the.
Of the of the market that we service, but we fully acknowledge when we talk about a trillion dollars Tam and we talk about being focused on the demand side. So that we can appeal to everybody that objectivity in that Tam have to include.
Advertisers of smaller sizes, the way that we service those today is largely through agencies and other tech providers that are very focused on servicing those advertisers.
Today.
There might be a time down the road that.
That we do some of that ourselves without trying to discern immediate any of them would be would be the hope.
But there's a lot to consider there you ask what are the considerations you have to have a relationship that is almost like a b C relationship in order to service those.
Which.
I think it's just really important for us to think about as we continue to expand so those things are not lost on us we're spending a lot of time trying to learn more about that that market, but we continue to be focused on that trillion Tam and no we can't ignore it.
All right last question clearly.
I think our next question from Brian Schwartz with hopping Heimer. Please go ahead.
Yeah. Thanks for taking my question. This afternoon and I've got a question for Blake on the EBIT margin trajectory. If I look at the second half of this year, you're going to put up about 400 bps of improvement year over year, and and that probably somewhat on for state them. All I wanted to ask you whether your comments about the lower off opex growth that you.
Expected in the current quarter and the uptick in investments was intended perhaps suggest some restraint when we're thinking about that EBITDA margin for doctorate again, I'm not asking for firm margin guidance for next year I know that will probably come later, but just directionally.
How has the experience with Covid and the cost structure, how has that changed if at all your view of the EBITDA margin trajectory coming out of the pandemic. Thanks.
Sure, Thanks, and I will try the parental but more perspective, I think obviously in Q3, we've seen the impact.
I referred to as the virtual environment lower support costs and travel corporate events things like that I mean, it's not just it's not just lower than quarter over quarter, but it's down significantly year on year I think that and then you can obviously look at our EBIT guidance for the fourth quarter and then for in there some.
Sense of continuation of that in those numbers themselves I think the thing as far as like thinking about it into the future goes one of the reasons why we are able to run with a lower cost as soon as that we're in this virtual environment. Our customers are in the spiritual environment along with us.
We are here to serve our customers and meet with them and help them in any way, we can and so if and when you know behavior changes on a macro basis will adapt accordingly, but I don't expect that personally now. The question is the timing of when is everybody's got their own guests and.
None of us are gonna be right about that the timing of it but I think it's one of those things I think where we begin to see benefits on murders and I talked about this a little bit earlier my answer I think before is just with scale because we just get larger and larger and we can gain scale, we should be able to gain efficiencies, but as far as like near term components. That's Ah Ah.
About the way that I'm thinking so I hope that helps.
It does appear we have no further questions at this time I went down like to turn it back to Chris town for any closing remarks.
Thank you Chloe. Thank you everyone for joining I know, we ran a few minutes so over the top of the hour, but really good questions and thanks, everyone for joining and we look forward to speaking you over the remainder of the quarter Goodnight.
Goodnight everyone.
This does conclude today's program. Thank you for your participation you may disconnect anytime.
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