Q4 2020 Trade Desk Inc Earnings Call
Good afternoon, ladies and gentlemen, and welcome to the trade desk, the fourth quarter and full year 2020 earnings conference call.
At this time, all participants have been placed on a listen only mode and the floor will be opened for your questions and comments following the presentation.
It is now my pleasure to turn the floor over to your host Christos, Vice President of Investor Relations, Sir the floor is yours.
Thank you operator, Hello, and good afternoon to everyone and welcome to the trade desk. The fourth quarter 2020 earnings conference call on the call today are founder and CEO, Jeff Green and Chief Financial Officer, Blake Grayson, a copy of our earnings press release can be found on our website at the trade desk Dot com.
In the Investor Relations section.
Before we begin I would like to remind you that except for historical information some of the discussion and our responses in Q&A may contain forward looking statements, which are dependent upon certain risks and uncertainties in particular, our expectations around the impact of the COVID-19 pandemic on our business and results of operations are subject.
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Should any of these risks materialize or should our assumptions prove to be incorrect actual financial results could differ materially from our projections or those implied by these forward looking statements I encourage you to refer to the risk factors referenced in our press release and included in our most recent SEC filings. In addition to reporting our GAAP financial results.
We present, the supplemental non-GAAP financial data a reconciliation of the GAAP to non-GAAP measures can be found in our earnings press release, we believe that providing non-GAAP measures combined with our GAAP results provide the more meaningful representation of the company's operational performance I will now turn the call over the founder and CEO, Jeff <unk>.
Green Jeff.
Hello, and thank you everyone for joining US 2020 was of uniquely challenging year from a variety of dimensions at the same time. However, 2020 also represented an inflection point for our company. It was a year that advertisers became more deliberate with every advertising dollar shifting spend toward the open internet.
There were a lot of drivers of change in 2020, which included an unprecedented global pandemic. The rise of the social justice issues of divisive election in the United States and stronger economic pressures and higher levels of uncertainty weighing on nearly all of the consumers in the world the.
These drivers of change have already manifested themselves for marketers, whether its the accelerated shift to CTV or the demand for better cross device measurement and ROI.
Sure.
Or brands and advertisers reassessing the value of user generated content and they're now more deliberate marketing plans.
I want to spend a few minutes today, explaining what the 2020 inflection point means for our company and our industry moving forward 2020 was a year that the world had more uncertainty and more change the unusual while our CTV like the rest of the world, we'd like to get back to a world that is a little more predictable and feels a bit more of like what we call of norm.
In 2019.
So much happened in 2028, both inside and outside of our company.
The better positions the trade desk for a bigger and brighter future.
So I need to give you my perspective on what happened in 2020 to show why I believe we're so well positioned in 2021 and beyond as the digital advertising market matures and more marketers gravitate to the open Internet, let me start with the highlight numbers.
Spend on our platform in 2020 was nearly $4 2 billion.
A record.
Fourth quarter spend alone was over $1 6 billion.
Also a record.
CTV spend more than doubled for the year and once again, despite all of the uncertainty of the year, we delivered strong profitability highlighting the operating leverage we have in our business.
We often benchmark our results against the rule of 40 of other high growth companies of our size, where the health of the technology company is expressed as the sum of the company's growth rate and EBITDA margin.
40% is healthy in 2020, we finished at over 60%.
All while we are investing in our future as fast as we can.
According to E marketer, our total global AD spending declined four 5% last year.
Meanwhile, spend on our platform grew 34% even amid the uncertainty of 2020, we're all marketers reevaluated their AD campaigns in some way shape or form they continued to shift spend and invest in AD opportunities that are dynamic and measurable.
We were able to drive this performance and take so much share even at some of the verticals, we serve such as travel auto Entertainment and real estate continue to be in a state of flux.
They have all yet to fully recover obviously, we benefited from the surge in political advertising last year, which represented a high single digit contribution to our growth in the fourth quarter and by the way. We're very proud of the work we did in political last year, especially our role and representing a better process for all political candidates.
As many companies agonize over the role of day should play we weren't clear from the outset, we are an objective and independent platform open to registered candidates on all sides.
I continue to believe that the data driven advertising has an important role to play in the political arena.
On our platform such as ours candidates are more likely to focus on the substantive issues that voters care about leveraging premium inventory versus the device of user generated content often found on some social media platforms and some of UGC video platforms.
But even as we point out the political advertising surge we saw in 2020 political fill the hole for trade desk that was left by other advertisers and other important verticals that have not yet returned to their pre pandemic levels. We.
We expect them to improve through this year culturally.
We start to return to some sense of normal.
More broadly I fully expect that the trends we saw in 2020 continue to accelerate in the years ahead as advertisers increasingly gravitate to our platform.
To give you a sense of these trends and why I'm. So optimistic I want to cover three main areas first I would like to take a look at TV and how 2020 was a turning point for many marketers and their massive TV ad campaigns.
What's happening in TV is not limited to that channel, it's driving change across the AD ecosystem.
It's important to focus for a minute on the future of relevant advertising and in particular, how the industry is thinking about identity and third and finally I want to summarize how these factors among others are critical as the AD industry starts to gravitate towards the open internet of trend that I expect to accelerate in years ahead.
So first the changing nature of television.
We've talked a lot over the last 12 months about how the pandemic accelerated trends that were already underway.
But we couldn't have predicted quite how sharp that acceleration would be.
With most consumers working from home not surprisingly more and more of them are shifting from cable to streaming TV. The on demand nature of streaming makes for a better experience. However, the new economic pressures weighing on the average consumer are also forcing an even bigger change whether you look at our numbers.
Our magna globals or E. Marketers. The trend is undeniable, we are right around that point, where there are more U S households, without a cable subscription than those with one and that trend is not rehearsing dig a little deeper and youll find that younger generations. The 18 to 34 year olds highly <unk>.
Evident by many advertisers have even less interest in cable.
And if you look beyond the U S. At Asia for example, Youll see in many markets that the notion of the big screen in the living room is less conventional in Asia premium video is often consumed on a mobile device.
But perhaps more important than all of that data is where we go from here because 2020 was a wakeup call to the advertising the industry. When it came to TV I can't put it any better than Marc Pritchard debt, the Chief brand officer of P&G. The worlds largest advertiser I was on stage with him at CES, a few weeks ago virtually of course.
And he talked about how 2020 has forced advertisers into a world of quote.
Constructive disruption he highlighted the upfront process, which he described as a holdover from the 19 fifties, where TV AD campaigns were tied to new vehicle launches every year every fall.
He talked about the need to be more flexible more real time to bring the same measurement techniques, we've grown accustomed to and digital to the world of TV ultimately he and I believe we are heading toward an inevitable future where all of advertising is and I quote using his words digital programmatic data.
Riven an automatic.
By the way he is not alone in this thinking about the upfronts. According to our research 60% of linear TV AD buyers are planning to spend less at the Upfronts This year for.
For the very same reasons.
One of them the head of TV AD buying at a global life Sciences company told us that quote traditional upfront media buying is the most disconnected area of media and business today.
And it's not just advertisers who are thinking differently the content providers or two and on that same stage Linda Yak arena of NBC talked about how CTV has free of the network of the quote handcuffs of legacy stuff.
That was preventing them from delivering on the new data driven needs of their advertisers, it's liberating for the entire market.
And Thats, one reason why CTV stood out in a year when across the industry. Overall AD spending was down CTV was the strongest growth segment of the global AD market last year and the fastest growing channel on our platform as well.
And thats, because advertisers see their customers moving to streaming platforms and they are learning that CTV offers a new kind of value advertisers can apply data to drive more precision and localized targeting than linear they can measure of performance in real time across platforms. They can pivot campaigns quickly based on performance.
The back and they can experiment with new formats.
And of year when brands are challenged to adopt messaging often on a highly local basis based on rapidly changing circumstances all of these factors become compelling.
Take a large U S automotive research and E commerce brand that needs to navigate the uncertainty of 2020 and in particular, the economic fallout on their business because of the pandemic.
This company needed more flexibility and agility throughout the year they pulled as many dollars as they could out from their existing underperforming upfront contracts in linear budgets and move those dollars to CTV on our platform.
With our agency they chose the trade desk platform for two main reasons, one was the ability to apply data driven decisioning and measurement and real time in order to adapt to the rapidly changing market conditions the <unk>.
Was the access premium inventory at scale and specific local markets on networks, such as NBC and discovery.
This is not an isolated case in fact in 2020 more than 1000 brands spent at least $100000 on CTV on our platform.
Those brand spending more than $1 million on our platform in 2020 more than doubled from a year ago.
When you factor in that CTV now has the scale to provide an alternative to the device of user generated content that often populate big social and video platforms. You can see why CTV was the largest growth segment of the global advertising market last year.
But let me take this one step further and till 2020 television was the last bastion of analog advertising at the same time. It is also the largest segment of the advertising part marketers know that video is the best channel to win the Hearts and minds of consumers TV is where marketers spend the most money and is often where the most crew.
Eight of talent resides within the brand, it's also where the power centers of the agency typically reside.
The market opportunity here of significant eventually all of television advertising will be digital and programmatic in fact, I believe premium video and all of its form including CTV will be half of the trillion dollar advertising market in the not too distant future <unk>.
CTV as a Trojan horse for the acceleration of programmatic across the AD industry and we're starting to see that play out now.
Which brings me to my second topic.
The future of relevant advertising and how the industry is coming together to forge a new path for identity.
This is not simply a question of updating you about <unk> two point out I'll get to that but before I do I'm not sure we've been clear enough about a key point.
Right now many people are debating what identity solution has the best chance of replacing third party cookies.
But I feel like we're having the wrong conversation instead, we should be focused on the question of how to make the open internet of Symphony that maximizes the talents of every orchestra remember playing together rather than looking for a single solution. The most.
<unk> of work is done by those of us, making solutions interoperable, creating the currency that can be used by all reputable players and upgrading all of the weaknesses of.
<unk> you.
<unk> two is the new common currency of the open internet, one that respects privacy and improves consumer controls, while preserving the value of exchange of relevant advertising.
<unk> two is also free.
And as we speak it is being integrated into the transactional pipes of.
Of the entire open internet and that common currency is not just centered on identity.
That's a key element, obviously, but the value of relevant advertising can only be preserved at this new currency allows for effective comparison and measure ability across all advertising channels across the open internet.
Ultimately, that's what advertisers care about most of you were to ask most of them. They probably say they expect the identity piece to get fixed and they expect the key industry players such as the trade desk to figure that out for them what.
What advertisers really want is a trusted system that solves the identity problem, while also solving for the measurement of opportunity.
And if we get that right. Once again, we prove out the value of the open internet versus the limitations of walled gardens, where measurement is typically some variation of grading your own homework.
And it's also why I'm. So excited about the progress of the industry has made with unified I'd to pointed out pretty much of the entire AD Tech ecosystem has signed on among ssp's.
Index exchange magnate problematic open ex and <unk> are all on board.
<unk> has become a great partner.
Like us they are all in on <unk>.
Among data connectivity companies live ramp of new star are integrating new publishers, such as media buying and approval of television are now part of the <unk> community along with the Washington Post and the Zeus technology platform that powers over 100, other media publishers, including some of the leading daily newspapers in the United States.
Those are just the ones we've announced there are many others that we're working with actively.
Including publishers advertisers partners large media companies data companies and even other DSP.
But perhaps most telling about the future common currency of the Internet is the work we're doing with Nielsen as you know Nielsen is the gold standard and media measurement, especially for TV.
But as the media world becomes more fragmented and more digital they are overhauling their technology to stay at the bleeding edge and unified I'd two will be a core element of that new offerings, why because like us Nielsen believes the USD two will become the new common currency of the open internet they.
Stand what an upgrade this represents the cookies.
In addition to the wide ranging industry support for unified I'd too. There's also been a lot of progress around independent governance.
As we have said from the beginning and identity solution is much bigger than any one company, including the trade desk.
As you May have seen <unk> has been submitted to the partnership for responsible addressable media or <unk>.
Further community development and management.
<unk> comprises the biggest advertising brands the major agencies and the leading AD tech players in the World <unk> was designed to oversee the administration of new identity tools that advance the open internet such as <unk> <unk>.
<unk> of you it will ultimately be Federated and pre bid and the industry organization committed to transparency and fairness in header bidding has already signed on to be one of the governing the organizations of USD.
What's also been very interesting about the evolution of <unk> is not just the enthusiasm in the United States.
But also demand to understand its application around the world.
To understand the importance of the interest worldwide you need to appreciate how various privacy and consumer protection regulations have come into FERC force around the world takes.
<unk> in Europe. For example, <unk> was an important initiative to craft new legislation to protect consumers as the internet started to reach into every aspect of our lives.
At its core of GDP or like a great deal of privacy regulation, we see around the world is based on important philosophical principles.
But it's not necessarily prescriptive, it's up to market participants to interpret GDP are and figure out what to do without prescription and without case law, everyone is working on solutions that meet requirements and building that important body of use cases in my view unified IV to pointed out of it comes closest to meeting the evolving.
Philosophical principles that we see getting legislated around the world, including in Europe.
Not simply because it's highly secure and it moves controls of the consumers' hands.
But also because unified I'd solves for the other key aspect of becoming a common currency of digital advertising.
Unified I'd to also allows for cross channel measurement across the entire open internet.
I am very deliberately focused on CTV and identity. So far because they are transformative in how we think about the value of the open internet versus the smaller less competitive internet that is primarily run inside of walled gardens.
Which is the third main point I want to make with you. This afternoon.
Until now.
When we think about every new dollar that goes into digital advertising, we think about that dollar going into of Facebook or a Google first.
Because of these platforms are easy.
As easy access to scale.
The open Internet has traditionally received the leftovers, but that dynamic is starting to change at end state. The first dollar goes to the open internet.
So why am I, so optimistic about this because in 2020, we started to see the signs of the tide turning.
As it continues this won't happen overnight, it's going to take years, but it is starting to happen.
You only have to listen to Marc Pritchard and thousands of other major brand marketers, who we interact with every day hear them talk about the importance of being deliberate data driven and measurable across multiple platforms and channels.
That can really only happen on the open internet.
Walled gardens are not the easy on ramp for CTV in fact, they often don't have access to the premium content most valued by marketers and often targeting is limited and results are too relatedly, let's consider what happened and UGC in 2020 last year brands became more aware than ever that there.
<unk> may be showing up against questionable use of generated content and the device of viral discussions that UGC content can sometimes insight advertisers want an alternative and in 2020. They started to look at CTV at the scalable brand safe platform that gets them the same reach with better performance measurement.
You idea adoptions are even better than expected publishers brand suppliers data companies partners and even competitors everyone wants the open internet to operate with the highest level of privacy and consumer controls while also preserving the value of exchange of relevant advertising through cross.
Measurement.
The cracks the code on that and it's inspiring to see the industry rally around the solution bigger than any one company.
Now it won't exist in isolation in fact, I would argue that there will be a handful of other identity technologies in the market.
That's okay.
Steven good.
Because the focus is on interoperability.
But perhaps nothing the highlights this shift more than the news, we announced a few weeks ago around our new partnership with Walmart.
The work, we're doing with Walmart is actually indicative of an entire industry that is starting to shift two of data first marketing model.
This is significant for our business.
<unk>. According to some estimates the Tam for shopper marketing is well over 100 billion.
Let me use Walmart to explain Walmart is the worlds largest retailer after all.
With the world's largest supplier of shopper data across the massive array of consumer products and for the first time with this partnership they are making that shopper data available to advertisers.
The Walmart suppliers, who happen to be among the worlds, leading advertisers can now run digital ads, whether on mobile desktop CTV audio et cetera, and understand how shoppers are reacting to those out by that I mean, which ones led to the sales and win and advertisers can then refine those AD campaign.
And based on which ones work best with which kind of customers at what times, and what channels and what regions and near which stores four of consumer packaged goods companies. This is something of a holy Grail.
They can adapt campaigns on the fly based on the data they get back on shopper reactions.
So the advertising process becomes more refined more effective and more valuable.
This is especially true in Walmart's case, because not only are they a fast growing online retailer, but Walmart is also the largest brick and mortar retailer in the world.
The integrated approach to data and measurement will apply to both aspects of their business.
You're a major CPG company you may have many products such as tied laundry detergent or of Hershey chocolate bar that are still sold primarily in the store. So this integrated approach is critical.
Because we are talking about some of the most valuable shopper data in the world of Walmart wants to make sure that data is managed securely with all of the appropriate consumer privacy controls.
They could have built their own platform, which makes us even more honored that we afford the partnership and are leveraging our scale together.
Instead, they are focused on the combination of Walmart shopper data and the technology and performance of the trade desk platform not.
Not only does our platform provide the data controls Wal Mart demands. They know we are in the independent and objective company and they know their supplier clients.
Already worked with Us and trust us.
And as I said, it's not just Walmart that's driving the shift in the retail industry. Most major retailers recognize the value of empower of their shopper data. Those retailers are also working with us to liberate data. So there are suppliers can market more effectively in a secure privacy safe way the.
The go to market approach for each retailer may be slightly different but the common thread is that these retailers understand that the only way to realize the full value of their data is on the open internet.
There's no point building walls around it brands will over time always gravitate to the places where they can be deliberate and where they can measure ad impressions across channels.
I'd like to wrap this up by tying this all together.
As I said marketers are driving of game changing revolution in TV advertising based on conviction that they need to be more data driven more deliberate and more measurable.
Partly driven by the shift in TV advertising major brands are now talking about the future of being data driven and programmatic across all channels I hear it from every customer I talked to across all industries.
That new data driven focus is also driving momentum around new identity solutions that not only boost consumer privacy, but also become a common currency that is key to cross channel measurement.
And you can see this playing out as companies such as Walmart and the retail industry more broadly are standardizing on the trade desk as the overhaul of their digital marketing business.
All points to the growing primacy of the open Internet and Thats why we win as this shift accelerates in the years ahead and it will we have the opportunity to become the de facto demand side platform for the open Internet I'm confident about our future.
Now everything wont happen overnight or in one quarter of course, but we've spent 10 years getting ready for this opportunity is why we continue to invest in our platform with the biggest product launch in our history coming later this year.
Which is all centered on helping our clients drive value from their data across advertising channels. It's why we continue to focus so aggressively on international growth.
This is a global shift and I'm very excited that our international growth is now outpacing our North America growth.
That's a very positive sign that we are investing in the right way in the right places and it's why we continue to work hard to drive the industry forward with initiatives such as unified I'd to point out.
This work is critical to build trust as the shift to the open Internet unfolds. It raises all boats, including ours are focus allows us to continue to exceed our expectations as I said at the outset 2020 was a very challenging year, but it was also a transformative one for us and our industry.
I could not be more excited about building on our progress in 2021 with that let me hand, it over to Blake to cover the financials.
Thank you, Jeff and good afternoon, everyone.
As Jeff mentioned, we finished 2020 incredibly strong capping off a solid year for our business. Despite the challenges faced around the world Q.
Q4 revenue was $320 million of 48% increase from a year ago.
For full year 2020 revenue was $836 million of 26% increase from a year ago.
We have been encouraged to see advertisers accelerate their shift to data driven advertising in the second half of 2020.
Our results reflect the ongoing strength of programmatic advertising and the value that the trade desk provides the thousands of agencies and brands as they work to connect with their customers across our platform every day.
With the strong top line performance in Q4, we generated $153 million and adjusted EBITDA or about 48% of revenue.
As you have seen historically when we outperform on the topline, we often see that outperformance dropped down to EBITDA, which it did again in Q4.
EBITDA continues to benefit from temporarily lower than expected operating expense growth, partly driven by the impacts related to COVID-19.
Even recognizing that I'm proud of our continued ability to substantially grow our topline revenue, while also producing meaningfully positive EBITDA.
From the channel perspective video, which includes CTV led our growth in Q4, followed by audio mobile and display which all grew in the double digits on the year over year basis as.
As Jeff had mentioned connected TV continued to be our fastest growing channel.
Geographically in Q4, similar to last quarter North America represented 88 per cent of spend and international represented 12% of the spend.
All of our major regions, North America, APAC, and Europe grew spend well into the double digits again year over year in Q4.
One anecdote, we're excited about our early indicators of acceleration in Europe.
Growth spend growth in Europe accelerated every month in Q4 and for the full quarter actually grew faster than North America. After excluding spend associated with the U S presidential election.
Still early days for us internationally, where we continue to expand our leadership team and are optimistic about our trends there.
In terms of our verticals that represent at least 1% of our spend nearly every category improved during the quarter health.
The health and fitness, our largest vertical in 2020 shopping which benefited from the holiday season, food and drink and home <unk> Garden, all performed very well automd.
Automotive was also particularly encouraging is the bounce back quite a bit in Q4 versus the prior quarter true.
<unk> continues to stand out in terms of delayed recovery and while it improved slightly from Q3 still has a lot of room for growth that we expect will follow as the world returns to normal whenever that happens.
And finally as you can imagine we had strong U S political spend during the quarter in Q4 political spend represented the high single digit percentage share of our spend.
For the full year of 2020 political spend represented a mid single digit percentage share of our spend.
And importantly, this impact was felt beyond just the second half of the year.
For example, the Democratic primary races drove solid spend for us in Q1 as the month of February in particular was one of our stronger political spend months during the year.
Operating expenses were $213 million in Q4 up 31% year over year I would like to remind you the due to the virtual environment. Our operating expense growth continues to benefit from lower than normal employee support costs, including travel and corporate events, which are running significantly lower than the prior year.
Income tax was the benefit of $45 million in the quarter, mainly due to the tax benefits associated with employee stock based awards, the timing of which can be variable.
Adjusted net income for the quarter was $185 million or $3 71 per fully diluted share.
Net cash provided by operating activities was a record 168 million for Q4 and free cash flow was $149 million.
The primary drivers were the increase of net income as well as a number of efficiencies gained in working capital some of that occurred throughout the year, including improvement in collections activity better alignment of payables to receivables and shorter payment terms, primarily due to the political advertising environment.
Dsos exiting the quarter were 121 days up three days from the year ago.
101 days up seven days from a year ago.
We exited Q4 with the strong cash and liquidity position.
Our balance sheet had $624 million in cash cash equivalents and short term investments at the end of the quarter.
In early October we paid off the remaining $72 million of our revolving line of credit that we drew down in the very early days of COVID-19 out of an abundance of caution at.
At the end of the quarter, we had no revolver debt on the balance sheet.
Turning to our outlook for the first quarter during the first month and a half of spend is strong and we're off to a great start to the year, we estimate Q1 revenue to be between $214 million and $217 million, which would represent growth of between 33% to 35% on a year over year basis.
Modest acceleration from our Q1 results in 2020.
We estimate adjusted EBITDA to be at least 55 million in Q1.
I would remind you that the relative strength in our EBITDA forecast is in part due to the virtual environment. Our teams are working on.
As we think about the full year, we are modeling for an improving digital advertising environment and expect a reasonable acceleration in our revenue growth that said our business still continues to be impacted by the COVID-19 pandemic that has significantly affected our advertisers and their demand for advertising.
In addition, and this is important as we think about your models, we faced relatively easier comps in the first half of 2021, especially in Q2, and then pumped stronger performance in the second half of the year and in particular Q4, where we significantly benefited from the U S political ad spend.
I want to say a few words about our expected operating expenses starting late in Q1 of 2020, we reduced the pace of our spending due to the uncertain operating environment.
We saw demand begin to return in May we strategically started to increase the pace of our investments.
While we have made some progress as we think about 2021, we do expect to continue to increase our investments over the course of the year as we continue to invest in the long term growth of the business.
We expect 2021 capital expenditures of capitalized software investments to be similar to what we incurred in 2020, we.
We do expect datacenter and infrastructure spend to represent a larger share of our expenditures relative to office facilities compared to the prior year.
Share count is expected to be about $52 million as we exit 2021.
In summary, Q4 represented a strong finish to 2020 I cannot say enough about how well the team is focusing on helping our customers spinning the flywheel and staying mindful of efficiency, while driving material spend on the platform, while we invest in and scale our business.
That concludes our prepared remarks, and with that operator, let's open up the call for questions.
Certainly ladies and gentlemen, the floor is now open for questions. If you have any questions or comments. Please press star one on your phone now.
Both of those.
Your question. Please pickup your handset at Lasalle speaker phone to provide all of them sound quality.
These hold them on the call for questions.
Your first question is coming from Michael Levine.
Your line of life.
Thanks for the opportunity guys and congrats on the strong finish to the year.
A lot of.
A lot of the other digital advertising peers, I know a big part of the.
Of the question and answers were directed around the idea of Fei.
So I mean, I think it's exciting what you've called out around unified I'd, two <unk>, but I guess I'd be curious your two cents on how just as you're thinking about the the slope of the year and in ways that you guys feel like you can work around it.
To hear your latest thoughts on the idea of it.
Yeah. Thanks, Michael I appreciate the call.
Complement as well as the question.
So.
At times when I've answered this question of the past.
Perhaps given too much color on both the micro and the macro and let me just talk specifically at this time about how it affects us.
The trade desk, so about 10% of our spend uses the idea of hey.
That's meaningfully different than most other digital companies, who are spending a lot of time talking about this we also our demand side platform. We are not of publisher we are not.
A destination, if you will where your logging onto our offer our website.
So by being the debt demand side platform. What we do is we look at about 12 million of AD opportunities every single second.
And so if a million of those ish.
And identify or missing so in other words of your takeaway.
We still have of $11 million to choose from so we just choose from the.
Those that are left the 11 million that are left.
So even the 10% that has the idea of FA on it today, we've just found some amount of signal to make it worth buying.
But it's already something that we sort of steer away from which is why it is not that much of our business.
Which is why I can say definitively I don't believe this will have any material impact on our business the way that it affects others and I just I just wanted to put a finer point on it and just the spell the MIT.
Unlike a platform of our destination like of pin for a store of Snapchat, where you have to monetize every AD on your site when the visit or commentary you have to monetize it if that's attached to an idea of a phone for instance, or an Apple phone. Then you still have to find the way to monetize it and youre going to monetize it at a discount those are the.
The very same AD that we on the demand side are passing over.
Because of the fact that we're on the demand side. That's why we're not impacted the way that those others are it's not a difference of opinion, it's a difference of location and the supply chain.
Great. Thank you so much for the color.
Okay.
Your next question is coming from Sean Patel.
Your line of lives.
Thank you and congrats on the on the great year and the outlet guidance.
I had a couple of questions.
I know.
You said that political was in the <unk>.
High single digits in the <unk> and mid single digits for the year.
And when I look at <unk> guide it seems like an apples to apples basis, you're actually seeing accelerating growth. I was just wondering is that is my math correct. There and just would love any color on that and then second question.
Blake Thanks for the high level of commentary on 2021.
I was just wondering the possible to maybe put a finer point on how you guys are thinking about the year from a top line perspective, as well as from our Opex and investment perspective. Thank you.
Sure. Thanks for the question so I'll try to address some of the mall here.
So your math is correct and so let me just try to walk through it so 2020.
Accelerated trends that set us up pretty nicely for 2021 of them beyond but to your point, it's going to be a unique year in terms of comps on the quarters.
So like I mentioned earlier in the prepared remarks, we will have an easier comp in the first half of the year, especially Q2, and then we'll be comping stronger performance in the second half of the year, especially Q4 because of that strong political spend that you mentioned so as you think about moving from Q4 of 2020, the Q1 of <unk>.
'twenty one it is really important to think about the political impact and strip that out if youre trying to do a sequential year over year comparison. So if you strip out the high single digit percentage spend in Q4 of 2020 and the strip out from Q1 of 2020 that kind of mid single, which we had referenced for the full year you will see that our Q1.
On guide actually shows acceleration from Q4, excluding political which is a pretty good setup for us and there.
There's a lot of men get into your question about the full year, there's a lot of positive trends and Jeff can also add color at the end of your regarding those but we're seeing you know the obvious one is this continued shift to digital advertising and this just trend theres no trend really larger than this move the T V.
We're seeing verticals recovering with room still to grow in many of them. We have the kind of the momentum we have the partnerships momentum around things places like Walmart and others of the team are working on.
And we also have all the tools and the continuous platform updates associated with things like solar more so when you take all of those things into account from a topline perspective, it's a pretty strong fundamental business.
Just to repeat we do see a reasonable acceleration for the full year and I'm really comfortable about our business and are set up for 2021 with regards to the.
The opex components.
A reminder of the you know 2000 twenty's of unique year and that in the late in the first quarter, we reduced our pace of investments because we saw demand return kind of back in late Q2, we started to ramp that up and then you also have to keep in mind. The 2020 expenses were impacted by Covid.
Reported to like travel and events and support and things like that so.
As far as we think about 2021, we do expect to continue to increase the pace of our investments and theres lots of areas to invest in.
<unk> mentioned, a few of them, but it's like CTV and platform updates of international and we have identity and measurement. There's just all of these areas for us the.
We can focus on so what I would say about you.
You know kind of like expenses in the or EBITDA is.
<unk>.
Really optimistic about our ability to drive meaningful EBITDA the scale, but I would.
And I'd say this generally relatively frequently we do not manage to an EBIT target.
We want to invest in areas of drive growth, but we also want to be mindful of the efficiency gains we can get as we scale and so over the long term I'm confident that when we do return to normal whenever that is your guess about that Cisco's mine our margin structure should be as good as it was pre COVID-19 and over the long run as we scale it could.
<unk> be even better but again on a more of a short term basis, we do not manage to an EBITDA target and will retain that flexibility.
Yeah, Sean I'll, just add a little bit of color because Blake just covered it really well so one thing to highlight on unified I'd is the.
Cookies will exist throughout the year, so anything that happens the new I E is it up is upside nothing but upside that comes from that because they'll coexist cookies and new ideas. So there is definitely a ton of momentum there so the upside potential of course.
Our Walmart announcement partnering with the biggest retailer in the world.
Who also has amazing offline data so it's really important when you're comparing for instance of Walmart and Amazon, they're still of lot of products, especially household products that are mostly bought in the store and being able to connect that to online ads at the scale that we're doing here is something that is.
Unprecedented in terms of closing the loop.
I just wanted to give of one one click down on what Blake said on the verticals recovering.
<unk>.
We're forecasting the acceleration when you extract the political and that that includes a recognition that travel and entertainment and much of real estate is still on the sidelines. So theres still a lot of room for recovery in some of those and of course.
It includes things like.
Like like sports So and then lastly on the international just to give a little bit more color like one thing I'm really excited about is just our growth of around the world, but we're seeing acceleration in most of our offices in Europe. Most of our offices in Asia and I'll just call out one of them.
Shanghai started the year, that's all of our.
Our mainland China office started the year is our smallest of it but did not end of the year as our smallest office and it was our fastest growing office all year long so just.
So tons of.
A ton of of reasons to be optimistic about 2021.
Thanks.
The next question Catherine.
Your next question is coming from the Sealy Caris of.
Your line is live.
Thank you I wanted to follow up on the unify the deed to point of conversation. So it seems like there is a.
Very active news flow continued since the since the last quarter call. My question is where do you think we are in terms of unified the idea of adoption for your business and the open Internet in General and then wanted to hear what your goals are over the next year debt.
Leads up to the deprecation of of cookies.
So would appreciate it.
So on some of this absolutely.
And I appreciate you asking the question and the opportunity to talk about <unk> at a macro level.
So the momentum could not be any better.
And especially some of the most important adopters early on include names like Nielsen, which is really the gold standard of measurement in TV for the last 50 plus years.
The live ramp.
Bubo, the Washington Post, which includes Zeus, which kept the which is basically tack that provided 100 plus.
Newspapers.
And journalistic outlets ever.
Every major SSP.
Which represents thousands and thousands of publishers.
We talked about the governing bodies of pram in pre bid in the prepared remarks, but if you know anything about the way the internet is governed pram in pre bid and the iab.
The played significant roles.
In the governance of the Internet and to have there.
Support and adoption is really great and in fact, there their commitment to help govern this going forward.
In terms of next phase and what we expect over the course of the year.
At some point next year this to be the currency for the open internet, meaning that it's adopted everywhere.
What youre seeing now is a ton of support and commitment.
It's fair to say, we just now are entering the beta phase.
Where everybody is working on implementation.
But what has been proven in all of these discussions in the Pea.
People, we're talking to our people that understand the way the Internet works and is monetize they recognize that out of this as an upgrade to cookies and every meaningful way the consumers are getting more privacy controls and better management advertising advertisers are getting more relevant ads and better measurement publishers can maintain.
Pain or improve CPM, which incidentally is critical to the future of journalism and the government debt.
A product that is more in line with things like GDP or in the TCP E than any current solution or propose alternative and its an upgrade to cookies from almost every perspective, most notably debt. There. It comes with terms and conditions, which cookies never did and it's encrypted which provide the level of.
Security the cookies net.
Never could provide so.
So when you put all of that stuff together, it's understandable why we have so much momentum and right now it's just the.
And the issue of implementation and there are 100 plus companies working on implementation today.
Thank you.
Thanks for the silly.
Your next question is coming from Yosef Wally.
Your line is live.
Great. Thank you very much and the Jeff Congrats on the really good performance of June.
So I want to go back to the to the Walmart partnership that you announced can you maybe just help impact of that opportunity for us a little bit more I mean.
Shopper marketing and trade promotion for Amazon has been a huge opportunity and they've been able to really deliver on it just wondering how you guys think about it in terms of you know not just the I know it won't be launching until the end of the year, but as we look at this business over the next two to three years, how big can that be for you and then beyond.
Just Walmart does that open up opportunities for other partners. Thank you.
You bet.
First of all thanks again for the complement of and for the question I'm really.
The grateful for the opportunity to talk more about this amazing partnership so.
This is a case of <unk>.
Taking best of breed Tac.
The trade desk and combining it with best of breed shopper data.
Im not certain that there's better shopper data I don't think theres better shopper data anywhere in the world than what Walmart has.
And let me be really clear on what we as partners are after here.
We're trying to help.
Unilever sell more dove soap and profit Gamble sell more tide detergent and hershey's saw more chocolate bars.
And Walmart wants them to sell more of that stuff in their stores.
And so what this does is by Walmart, making this data available.
It makes it possible for all of those companies and obviously thousands of others.
The optimized their media buys to sell more products in Walmart and whether that's something in their online presence.
The brick and mortar presence and of course of the biggest brick and mortar.
Retailer in the world the biggest retailer in the world, but especially in uniquely just had an amazing presence.
And the brick and mortar space the fast growing online business.
By optimizing their media spend than Walmart gets more sales.
And then they also close the loop for those suppliers. So that they continue to improve the efficacy of their media buys.
I believe this is something of the Holy Grail for those companies that sell product in of Walmart.
It makes absolute sense for other companies like Walmart to do exactly the same thing.
So.
I anticipate that day, well they will be doing that.
And there's tons of opportunity for the trade desk to partner there as well, but we're just so delighted.
They have started.
With the biggest and <unk>.
And believe it will have a big impact on our business in the future.
That's helpful. Thanks, Jeff.
Thanks Heath.
Your next question is coming from Brian Fitzgerald.
Your line of gold.
Jeff Congrats thanks, guys.
Mm connect the T V. It seems like CTV had its strongest quarter.
If ever we wanted to confirm that that's the way we were kind of looking at our numbers and then what percentage of linear spend could be migrated to connected TV given the current inventory availability and maybe just one more on the on the.
Inventory availability when you look at 59% of linear buyers, who are saying, hey, we're making less upfront commits P&G.
P&G stepping away how much connected TV inventory do you think is currently in the upfront process.
And anything you can do the to capture some of that or watch how that shifts to away from the upfront process.
Yeah. So.
Lots of unpack there so first I'll just say that.
2020, well without a doubt go down in history as a tipping point per TV.
And that's largely because the number of people subscribing to cable dropped below the number of people that are accessing their TV experience over the internet and CTV.
And because of that CTV spend on our platform more than doubled in 2020 over 1000 brands spent over 100 K on our platform.
Last year in <unk>.
And then those advertisers spending over a million dollars more than doubled last year.
So <unk> is without a doubt the fastest growing and also just.
They are being a bit of a referendum on user generated content that also helps.
The things over.
As it relates to how much can move over from.
From the linear honestly, that's more of a macro question than it is.
About our business, specifically, but I will point to the vectors that debt that I think will dictate whether or not that happens.
One is a huge reason why there was so much move away from cable last year. It's just because it's the most expensive part of the TV experience.
So if you believe that the economic pressure on the consumer, especially the U S. Consumer is going to continue then you can expect of cord cutting to continue at the high rate that it has been if you think it's going to get worse and I think you can expect it to accelerate.
You also have to believe that the amazing content that has been put out there that will we will continue to find ways to put that.
In the connected TV ecosystem and as long as that happens I am confident that Avon will continue to be the preferred way for people to monetize, especially when we go incremental from here.
So to me those are those are some of the big macro vectors that you have to consider.
But but I think the deckers, nothing but upside and it's all about a question of when not if it is inevitable debt all of television will eventually be consumed over the internet.
And the linear.
The broadcast TV has gone away.
Thanks, Brian next question Catherine.
Your next question is coming from David Beckel with Barnburner.
Your line is live.
Hey, Thanks, so much of the question and congrats on all the fantastic into the year.
Two questions if I could first on Walmart again, I was hoping you could provide a little bit of context around the structure of that partnership financially is that the type of deal well, where you'll be able to participate in the growth of that platform over time or is it more of a fixed fee type of arrangement and secondly on U I D.
We hear from the industry, some concerns about scale well enough people or users actually log into the answer so I'm curious to hear your thoughts what level of user participation.
The percentage of whatever metric you prefer wood <unk> two point of need in order to replicate the efficiency of cookies today. Thanks.
Sure.
So first on the Walmart piece I'll, just I'll just speak at a very high level and that is.
We are both highly incentivized to.
The health.
The sell more of Dove soap and more tide detergent and more Hershey chocolate bars.
And if we do that we both benefit we both we both scale with the outcome.
In other words, we're both going to participate in the upside.
On your question on unified I'd so.
So.
With unified I'd.
We will launch a single sign on and Thats largely to give publishers the long tail of publishers and the opportunity to.
To manage their single sign on themselves without having to create one so right now there is somewhat dependent on the walled gardens typically a Google or Facebook are the ones that are providing of the logging the opportunity.
It doesn't provide them with the same opportunity to monetize and definitely doesn't give the open internet of chance to compare one property to another.
Of this single sign on would come with more features for the publisher of themselves and again, it's for a long tail of publishers. However in order to create a unified I'd.
We don't need that single sign on to be present that the.
Service for the long tail.
What really has to happen is the biggest advertisers in the biggest publishers have to adopt it and that alone gets enough touches on the internet to give it the scale of our quiet and because of this does not have the sinking requirements, meaning the constant connecting this cookies of this cookie that happens in the status bar of the.
The browser constantly today because of this does not have that we simply need that head of the internet.
The large publishers of large advertisers.
To adopt this and then it has a scaled response to the rest of the Internet.
And also makes it.
Fairly easy and obvious for everyone else to use it but it also requires less work from them at that point.
So I think a few of wrongly thought that we have to get.
The millions of websites to get the SSO in order for this all of the work and that's just not true.
Super helpful. Thanks.
Okay.
Your next question is coming from Justin Patterson with Keybanc.
Your line of five.
Great. Thank you very much two if I can first in terms of.
Just thinking about the verticals over the course of the year could you talk about.
How we should think about the sectors that were affected by COVID-19 rebounding. So that's question number one and then question number two.
You know theres more focus on privacy on the idea.
Are there any particular channels like connected TV that you think could benefit from budget share is that 10% that's affected shut the overtime other channels. Thanks, so much.
Sure.
So.
I'll take I'll take a stab at the verticals and then Blake do you want to.
Out of anything at that point or do you want to go first.
I can let me just take a stab of I guess on the verticals. So much of it is going to depend on how the world opens up so I think that that's going to be.
Kind of that leading indicator like Jeff mentioned, we've already seen obviously some pretty positive.
Positive trends out of our some of our largest verticals and so then and still room, we think to grow.
We I think I mentioned, the automotive showed a pretty good bounce back from Q3, the Q4 and then Jeff mentioned.
Interest well travel, but like the real estate of entertainment verticals I think the.
It's going to be a bit of of macro side of that on how and when those open up and when those industries begin to start opening up their investment and their spend.
Accordingly, but that's probably about as is detailed of the description of that I can get from a vertical standpoint.
Yeah.
I think Blake nailed it.
Early phase we had.
The pharma and CPG and all of the things that people were consuming in their houses as we started the quarantine.
Less than a year ago.
In most parts of the world.
And there's still a bunch to go so whether it's health and fitness of food and drink or home and garden or automotive or travel there's still parts of all of those.
To recover and in fact, many of those the majority of them are still sitting on the sidelines.
As it relates to who will benefit from a.
The shift away from <unk>.
I really think the the company that will benefit.
<unk>.
The most will probably be.
The chrome or Google's, chrome, which will by moving away from idea of Hey, I just think of it.
It reinforces the chrome is a better browser.
And just the friction in the Apple ecosystem.
As of.
Sort of challenging or trying to capture the value of exchange of the quid pro quo of the Internet and I think it's doing well everywhere else and is the bias of every consumer.
And because of Google in Chrome at this point managers that I think pretty well.
They'll benefit from it in terms of the specific verticals or would the <unk> benefit from it I think CTV has so much wind at its back.
Got it.
It can get a little bit more and that will help and I do think.
I do think basically everything else will benefit from it and because people are being so data driven at this moment it's the.
The themes that are on sale or performing really well are going to get whatever get rotated out of a specific sector and that is going to mean that CTV and audio.
We are going to benefit most if youre looking at it via channel.
Great. Thank you.
Your last question today is coming from Brent Thill with Jefferies. Your.
Your line of lives.
This is James <unk> on for Brian. Thank you for taking the question last quarter, you talked about the benefit that you saw from social media AD dollars shifting to your platform is there any way you can quantify the impact that you saw this quarter and maybe what youre seeing so far in Q1, and how are you positioning yourself the capture share from advertisers that are <unk>.
Singly focused on brand safety. Thanks.
Yes.
I'm not quite sure how to quantify in the.
In the Q4, specifically, what's come from things rotating out of of <unk>.
Social media.
But.
Well I will just talk at a high level about what the trend.
It has been in 2020 and continuing into 2021 as it as it relates to brand safety.
And I think the election had a lot to do with this just because.
In the election Theres a lot of.
Now that we've had of more polarizing one of the United States in my lifetime.
And there was of course concern of.
Misinformation in the middle of that and there is a lower tolerance for missing information I think during the global pandemic. So you put all of those together and people are just more.
Skeptical of user generated content.
And so one of the things that has been really great for us and also really great for connected TV.
Is that there's not much doubt about the premium nature of connected TV and people have a.
Better visibility on where things are going to fall, where many of where ads are going to show up.
No.
That that scrutiny continues today, there's more and more work that the.
It has to be done by everybody, including us.
To make certain that we keep the open internet.
It's clear from from bad actors of misinformation as possible.
But as we continue to do more work deploy more technology against debt.
It continues to get cleaner and cleaner and we're just inherently in a better place.
Then I think any other company of.
Of our size and scale in the sense that we are pointed at the most premium parts of the open internet and that is inherently a safer place to be.
Great. Thanks, Jeff.
I would now like to turn the floor back to Chris <unk> for closing remarks.
Hey, Thank you Catherine and thanks, everyone for joining I know, we ran a few minutes over the top of the hour, but really good questions again, thank you everyone.
We look forward to speaking with you over the remainder of the quarter and have a good night everyone. Thank you. Thanks, everyone.
Thanks, everyone.
Thank you ladies and gentlemen, this does conclude today's conference call. You may disconnect. Your phone lines at the assignment of a wonderful day. Thank you for your participation.
Okay.