Q1 2022 Trade Desk Inc Earnings Call
Thank you operator, Hello, and good afternoon to everyone and welcome to the trade desk first quarter 2022 earnings conference call on the call today are founder and CEO , Jeff Green and Chief Financial Officer, Blake Grayson a.
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 recent pandemic on our business and results of operations. In addition to potential supply chain disruptions or other macro events that could disrupt advertising spend are all subject to change.
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 our risk factors referenced in our press release and in our most recent SEC filings. In addition to reporting our GAAP financial results.
<unk>, we present supplemental non-GAAP financial data a reconciliation of the GAAP to non-GAAP results can be found in our earnings press release, we believe that providing non-GAAP measures combined with our GAAP results provides a more meaningful representation of the company's operational performance I will now turn the call over to founder and CEO , Jeff Green Jeff.
Thanks, Chris and thank you everyone for joining us today as.
As you've seen from the press release, we are off to a great start once again this year for the first quarter revenue grew 43% compared with last year, our fastest first quarter growth rate in the last four years. Our strong growth is a testament to a variety of factors that I want to touch on today, and which give us significant optimism for the future.
Our performance is especially encouraging because annual advertising budgets are often being reset and reconsidered in Q1, making them historically are harder to predict.
And this year the macro environment was challenging with the ongoing global pandemic more on the Ukraine and the higher rates of inflation around the world. Despite those challenges, we again exceeded our own expectations. I believe we are now firmly established as the default DSP for the open Internet and that we are very well positioned to grow and grow.
<unk> share regardless of the macro environment.
We now have over 1000 customers, representing tens of thousands of advertisers spending on our platform across the open Internet. We continue to see a steady stream of new agencies and brands starting to work with us for the first time as well as existing customers increasing their spend with US we are seeing strong momentum around key.
Such as connected TV shopper data to open path and our game changing new data marketplace. In each case, we are working with our advertising clients to drive maximum value from their campaign dollars.
And this in turn helps us grow our trusted relationships with the world's leading brands and agencies, many of whom are signing long term strategic partnerships with us.
As the CEO , it's always important for me to look at how we are performing relative to the industry. For example, the iab and Pwc predict digital advertising will increase approximately 8% in 2022.
Equivalent scopes zenith estimates the increase at about 14%, but either way we continue to grow at a pace well ahead of industry estimates, which means we are gaining share and adding significant value I continue to be extremely optimistic in part because of the combination of our except.
95% plus retention rate.
And our significant growth rate.
There are macroeconomic forces, which have changed the media and technology landscape dramatically in the last few months, especially in CTV, which also give me optimism as many of you know I've spent many of the last 10 years publicly predicting that Netflix and nearly everyone else would eventually show ads.
Netflix recently announced that they are likely to make ads are part of their future.
And so many other great things are happening in CTV in fact, I can't think of a time that the TV landscape has had more positive changes in a short period of time than what has happened in Q1 of this year I want to spend the biggest block of time on that but in order to discuss the significance of what's happening in CTV.
We first need to discuss what's happening with two foundational initiatives first our work on a new identity framework for the Internet and second our work to make the supply chain more efficient.
So first identity.
The Internet has been operating on a quid pro quo since it became commercial but the internet has been a sub optimal internet and by that I mean, we've used cookies as a makeshift technology to enable relevant advertising, but due to a series of events and choices cookies are going away.
Google has the majority of the browser market share around the entire internet outside of China. So they decide when this transition is going to take place and they are currently targeted the end of Q1 2023.
This has created a very unique opportunity to upgrade the internet indeed without those many circumstances. This opportunity wouldn't exist. We are upgrading from an opt out internet to an opt in internet.
The open Internet is scrambling to coordinate and collectively upgrade many different opt in Ids are being created some of them will scale and survive. Some wall. However, those that scale will be distributed encrypted and interoperable. We don't believe Ids can or will scale, if they don't upgrade the experience for consumers.
<unk>.
With this in mind, we developed and launched UAV too. This is the second version of <unk> version, two being email and phone number based instead of cookie based.
This allows consumers to take their privacy settings and controls with them all over the internet without loss of control or a false sense of security. Some of the privacy protection that has been promised to consumers by large technology companies with billions of log ins has misled some consumers to believe that they control privacy.
Opt in and the quid pro quo of the Internet across Ctv's mobile environments and computer browsers.
He actually does enable consumers to set preferences and restrictions for each web publisher mobile App and CTV app, they choose who they trust and can change their mind their preferences are tied to an encrypted hashed salt that IV based on email address or phone number that a consumer can.
Take with them.
Because of this move to an upgraded opt in Internet is scheduled to happen in about 10 months based on the date, Google Deprecated third party cookies in chrome the entire open Internet ecosystem is thinking about identity and we continue to make significant progress with <unk> and I'd like to spend a few minutes talking about this.
<unk> from the various innovations that are driving that progress.
In terms of the number of unique Ids, we are now measuring <unk> on billions of devices with every passing month, we are posting new all time highs that comes as more advertisers activate on UAV too and as more publishers adopt it let.
Let me give you one quick example, which is particularly illustrative of the business value of <unk> <unk>.
<unk> is a company that manages advertising for more than 8500 independent publishers. Those include some large publishers like the Hollywood gossip and some very niche publishers like steamy kitchen, they are big.
They are a comscore top five lifestyle media platform with more than 130 million monthly viewers and 17 billion monthly AD impressions media buying has now adopted and deployed <unk> to their publishers have seen CPM increase more than 100% with <unk>.
Two they can create privacy safe identifiers for their readers pass those on safely to advertisers, who can then serve relevant advertising without ever knowing anything directly identifiable about the reader.
Opt ins and more signings, including new lightweight <unk> is what a post cookie internet is going to look like and pioneering the advertisers publishers and CTV providers are building that internet now.
Momentum is amazing, but we're still in the early stages simply because the internet is so big this work is both inevitable and essential.
Without relevant advertising CPM full crater.
The fundamental value exchange of the internet relevant advertising in exchange for free content.
That's why so many publishers are implementing new IV too with many already reporting strong CPM growth.
The ecosystem of UAV partners also continues to expand info.
<unk> data collaboration platform recently signed up as another closed the operator of <unk> too, many leading advertisers and their agencies, including omnicom already use info some to activate their first party data and are excited about this partnership as they look to unlock the value of that data, while maintaining control over it.
<unk> two.
<unk> also recently joined the <unk> ecosystem Apple event is one of the world's leading mobile in App AD exchanges and our advertisers now have access to add opportunities across more than 140000 apps and $1 8 billion devices with the precision and relevance that UAV too.
Eight.
Our solutions, such as <unk> to allow us to manage that value exchange in a way that improves the experience for all parties I believe this new approach will ultimately result in an upgrade to the Internet. We also recently announced that we are launching a version of <unk> that will be tailored for the European market called EU IV.
I understand the connection between <unk> and EU I'd.
Considering the analogy to chrome and chromium.
Chromium is a free open source development platform for web browsers, many browsers used core elements of chromium, including Google Chrome, which uses chromium as a foundation, but which is enhanced and adapted by Google essentially chrome is one iteration built on top of chromium.
In the same way <unk> two is an open source project and EU IV is a version of it developed for Europe that meets the specific needs of that market, especially the legislative requirements building. This specific version also allows us to build in the features that give our partners.
Reassurance that data will not leave Europe .
Even for international companies that do business and have data in Europe .
With this approach we believe that <unk> is the most GDP are compliant identity solution in the market today.
In order for the open internet to thrive it will require more authentication or logging in high CPM and relevance will gravitate to publishers and content owners, who have logged in users.
CTV and new sites and apps, especially have a unique opportunity at this moment as the identity foundation of the Internet being rebuilt.
The CTV leaders understand this nearly every CTV AD as shown on the authenticated side of a login almost always via an email or phone number which means CTV already operates in an opt in environment. Unlike much of the rest of the Internet, which is still in the opt.
Out, although it's transitioning within that environment broadcasters can work with advertisers to build the new identity fabric of the Internet that provides address ability while significantly upgrading consumer privacy and new identity solutions, including <unk> our key here.
With you I'd to advertisers can safely onboard first party data and then with interoperability with CTV apps. They can find valuable audiences, both current and prospects exactly when they are viewing their favorite premium content.
Ultimately this is a much better advertising experience and one based on cookies cookies were never really intended to do this work. They were just co opt it but in new technology environments like CTV, we can build a new identity framework that allows advertisers to create relevant enables publishers to maximize yield enhanced <unk>.
Tumors much more control over their privacy and so.
So in many ways the CTV ecosystem will pioneer the future of identity to be clear, it's not about any one identity solution.
Interoperability this new fabric will include new currencies, such as <unk>, but also other identifiers, whether it's those developed by CTV providers themselves.
Measurement partners like Nielsen or by companies such as live ramp and we are working with all of them to ensure this new fabric pays off those promises I just outlined for all participants.
There is so much to discuss today that I am going to bookmark a related issue that I'd like to discuss in a future call.
Our data marketplace. The data marketplace is as healthy as ever largely because <unk>, a better often environment creates a better foundation for our data marketplace, which has the potential to become the largest in the world I don't think any walled garden can ever create a data marketplace.
Arrival at.
Already we have enacted massive marketplace design upgrades as a result, we're already seeing higher data usage, better CPA and ROI for advertisers better margins and a faster spinning flywheel for us.
We have once again stair step increase the consumer surplus of our offering to our clients. There is so much more to report on this and more change and benefit to come so I am excited to talk about that in the future.
Related to all the progress, we're making with <unk> it.
Is the recent launch of open path.
We announced in our last earnings report I'd like to give an update today.
First a reminder of what it is open path is a way for our advertisers to plug directly into publisher inventory via our platform by plugging indirectly publishers have the opportunity to capture the value of an opt in internet and implement changes that benefit all participants, including advertisers and agencies.
I do want to reiterate that this does not mean that the trade desk is getting into the FSP or supply side business.
Pass it simply a direct path to inventory with publishers that already have their own yield management solutions.
<unk> helps eliminate steps in the process, where there may be fees or charges with no value in return.
For example, since we announced open path, we have shutdown googles open bidding on our platform.
When we announced a few months ago. We also have commitments from news organizations that represent a majority of news consumers in the United States organizations, such as Reuters, The Washington Post Gannett condo math, which owns Vanity fair.
Both the New Yorker, and many others, Mcclatchy, which owns more than 30, leading daily newspapers, including the Kansas City Star and the Fort Worth Star Telegram Hearst magazines, and newspapers, which operate major titles such as the Cosmopolitan and the San Francisco Chronicle, The Tribune group and several others.
In the days following the announcement, we had more than 100 inbound inquiries from major publishers looking to join the initiative. We're prioritizing journalism as we launch open path because nowhere is the danger of the absence of identity more apparent.
Recently, we announced more journalistic publishers committing to open path, including the La times, Buzzfeed, Forbes media volume and Red ventures, which includes publications such as CNET and Lonely planet.
As more publishers adopt open path, they will make Q2 deployment or interoperability a key element of their plan and doing so they can activate their own first party subscriber data in a way that protects that data, but also provides enough relevance to advertisers that we can enhance the value of those AD impressions and <unk>.
Yield for publishers.
For those that don't show most of their ads.
After a user has logged in open path will include a simple <unk> two based SSO that will help them make this essential transition to a post cookie environment.
Let me bring this back to CTV, because CTV is really the epicenter of open internet identity.
We've seen massive moves in the CTV landscape recently in 2021, we added exponentially more inventory things to new partnerships with a wide range of partners, including Peacock, Paramount plus discovery plus and Sky.
Early this year, we entered a scaled relationship with HBO Max one of the most recent and fastest growing content companies to aggressively adopt AD funded subscriptions for consumers.
On a more macro level Amazon bought MGM and streams ads through Imdb TV. Just this year, so far Disney plus announced that adds would be added as a choice to their app, Microsoft acquired Zander time, Warner less of the AT&T family and is now owned by discovery and is mostly led by discovery plus.
Leadership, which is one of the most savvy programmatic teams in TV and of course, Netflix recently announced that it will likely make ads available on their platform.
These major changes in the landscape have huge implications for the future of CTV and programmatic.
Tailored TV AD is probably the most effective scaled advertising available today on or offline.
As a result for most of our clients television is the largest segment of their campaign spend that unique combination of video and audio delivered at a time when the audience has leaned in remains the most effective way to touch the heart.
And minds of consumers.
Consumers have shifted in mass to streaming platforms advertisers are following them.
For consumers on demand content is just better as.
As content owners and the streaming apps are competing for more subscribers. It has become very clear providing consumers with choice is the only way to win.
This is a great setup for Netflix by not having to ads to date, Netflix has protected and amazing user experience, but it required netflix to keep raising prices, so that they could keep making and buying content.
At some point price becomes an issue for nearly all consumers.
Consider what we can learn from TV of the past even in the days of cable bundles very few consumers paid for every premium channel Showtime HBO Cinemax NBA League pass et cetera in.
In the past nearly all channels have had ads now once again consumers will have something better.
Joyce.
Netflix will very likely set up a clean option for consumers.
Ads and paying meaningfully less or pay slightly more and avoid ads altogether consumer.
Consumers will continue to be given more choices.
With this move Netflix will continue to be something of a pace car in TV innovation.
We're the first ones to really nail the subscription model for CTV. They were the first to 100 million global subscribers. The first of $200 million and they continue to lead that rates today.
And now they are embracing consumer choice as a way to expand their market share even further.
It is important to note that at least half of Netflix subscribers are outside the United States. So the implications to this move has global ramifications to the world of CTV.
But there will even be more to this part of the story.
Netflix explores advertising options they will be unburdened by legacy processes that some of their competitors are working through for example, they will be able to structure their advertising operations. So they don't have sales channel conflict. There can be data driven from the start in everything that they do using data to ensure that they max.
<unk> yield on every AD impression and all of these dimensions and likely many others I believe Netflix will continue to innovate and set the pace and as with any market others will have to adapt accordingly.
<unk> of them already are we are working on these opportunities with leading CTV providers every single day.
HBO, Max Disney plus and Netflix are all public about their intentions to implement ad experiences.
The pressure to all content owners to accelerate the move to data driven buying and selling and finding ways to make the most competitive consumer experience.
Which means limited relevant ads with ICP Ms.
For CTV to continue to produce the amazing and expensive content that is driving this new golden age of television relevant ads are the only way to fund and preserve it.
This requires CTV to participate in the open internet because in walled gardens, one cannot control universal reach and frequency. Additionally.
Additionally, I believe this means every CTV company around the world is racing to create the optimal viewing experience.
<unk> has historically competed regionally due to the licensing and broadcast regulations.
Netflix and Youtube have made this a global race, we're seeing content owners all over the world quickly adapting to these recent moves.
Recently, a personally spoken about this directly with some of our content partners in the United States and in Europe . They are already feeling the pressure to move fast and to improve their ad experiences.
This messaging from Netflix Disney plus and HBO, Max is requiring everyone to embrace biddable environments and move away from legacy models like Upfronts and even programmatic guaranteed where advertiser choice is limited.
Changes in the TV landscape also have adjusted marketers mindsets.
As advertisers are seeing reach and impact a road from traditional cable TV. They are focused on moving to premium streaming content increasingly this is the most important by on the media plan marketers want to advertise against premium content as much as possible if content they can trust.
With content that reflects their own brand is content. They can activate on and measure against with precision as advertisers prioritize as a premium content on our platform. They are beginning to start their campaign planning there too as a result user generated content is increasingly getting the leftovers.
With the explosive growth of premium CTV over the last few years, especially the last year. The trend is clear we see a clearly reflected in some of the UGC data that's been reported out in the last few weeks and it's also why CTV remains by far our fastest growing channel and why premium.
Video and all of its forms has become the largest segment of our business.
This trend will be equally apparent internationally, where there is also a flight to premium content. We work with many of the fortune 500 companies almost all of whom direct their advertising campaigns at multiple international markets as more premium supply comes online, particularly premium video.
We have more than enough demand to satisfy it.
And we could not be more excited about what this shift from Netflix Disney plus and HBO Max means in terms of opening the door of Avon supply not only in major markets that have already embraced CTV advertising, such as Western Europe , and Australia, but also in many other markets, where Avon will be via.
The driver of subscription growth because of tighter economic pressure on consumer wallets.
Premium video, where everything is authenticated is one of those key areas, where the future of Internet identity has been forged.
Not just for CTV, but across the open internet, including inside the browser.
That may not seem obvious as cookies are not present in CTV and so you would think they'd be less affected by the potential phase out of cookies next year, but CTV need the persistent identity to have effective and high CPM ads and they need high CPM ads to fund that content.
Economics, thats driving that process as more CTV leaders embrace advertising they want to ensure that they create as much address ability as possible because that's the only way that they can maintain high CPM and.
An advertiser will pay say a $12 CPM if they know the viewers are watching the latest hot reality show, but they will pay three times that if there is a reasonable chance those viewers are interested in their product and thats why they will be among the pioneers of the new identity framework or the open internet.
I'd like to wrap this up by bringing us back to the market opportunity in front of us.
Global advertising industry is moving rapidly towards a one trillion Tam as the market grows the majority of that spend will be digital and all of it will ultimately be traded programmatically at.
At the same time the industry is making important progress in several dimensions and building the internet advertising ecosystem of the future one that no longer relies on cookies.
The Internet is getting an upgrade we're moving from an opt out internet to an opt in internet.
Everything is founded on a better identity framework on that foundation comes better controls for consumers more choices for our consumers on how to pay for CTV subscriptions, whether that's with money or without time and better measurement and data.
As the ecosystem continues to evolve and move away from walled gardens led by CTV, We will unleash the power of programmatic for our advertisers and for our publisher partners. It will be an improved experience for everyone. Consumers included the innovations we are driving to help accomplish this are all.
<unk> delivering performance improvements for us today. They are a key factor in why we are off to such a positive start in 2022 and why we are so optimistic about our growth opportunities looking forward.
As I said earlier advertisers are increasingly gravitating to our platform as the de facto DSP of the open Internet led by CTV and we will continue to innovate to reinforce that leadership position and deliver more value to our advertisers our profitable business model allows us complete flexibility to make these.
Investments and continued to drive growth.
In doing so we will help build a better internet for all stakeholders and all of that is what makes me. So excited about our growth prospects with that I will hand, the call over to Blake, who will take you through more of the financial details.
Thank you, Jeff and good afternoon, everyone.
You have seen in our results 2022 has started out strong with solid Q1 financial performance and execution. Despite the current macro environment.
Q1 revenue was $315 million or 43% increase and an acceleration in growth from a year ago.
In Q1, we benefited from a digital advertising environment that is leaning increasingly towards data driven advertising and measurable results.
This was evidenced by the continued strength in CTV, which again led our growth in the scale channel perspective.
<unk> adoption is over 80% and we continue to see promising results as customers are utilizing solar maher to leverage more data elements than they did previously.
More data driven precision improves ROI for customers and we believe this helps to spin the flywheel of our business faster.
We are also starting to see green shoots in our retail media business with Q1, representing our first full quarter of operations in this space.
We have brought on additional retail media partners into the platform and are cautiously optimistic as spend continues to ramp up.
With the durable topline performance in Q1, we generated $121 million and adjusted EBITDA were about 38% of revenue.
The $121 million and adjusted EBITDA represents a 72% increase from a year ago.
In Q1, we continued to benefit from temporarily lower than expected operating expenses, partly driven by the virtual environment.
Even recognizing that I'm proud of our continued ability to consistently grow our top line revenue, while generating meaningfully positive adjusted EBITDA and cash flow that has enabled our cash and short term investments balance to end the quarter over the $1 billion Mark for the first time.
In the current environment, our demonstrated ability to invest for growth and self fund our high growth rates through profitable long term cash flow generation sets us up well for the future.
From a scaled channel perspective, CTV by a wide margin led our growth again during the quarter.
For Q1 video, including CTV represented our largest percentage share on the platform followed by mobile.
Video and mobile each represented about 40% of spend.
Display continues to grow well in Q1 and represented about 15% of spend and audio represented about 5% of spend.
Geographically North America represented 88% of spend and international represented 12% of spend the.
International's overall share while relatively small for our overall business dropped slightly from Q4 and the prior year.
Historically, our growth has been driven by the strong position we have in CTV, particularly in North America that said, our CTV business internationally continues to grab share with European CTV spend more than doubling over the prior year in Q1.
We did see a larger gap between our north American growth rate and international growth rates, particularly in the second half of Q1, mainly due to spend in Europe . However.
However through April Europe has recovered to levels. We saw early in Q1, although there is still some room to improve.
I'm excited about our opportunities to grab share because we've proven that as our customers become more deliberate and data driven with their AD spend much like they did in late 2020. The trade desk is in a great position to help those customers and also spin our flywheel.
It is still early days for us internationally, but we are optimistic about our market position and the long term growth opportunities that we have.
In terms of the verticals that represent at least 1% of our spend nearly all of them grew in the double digits during the quarter.
Both travel and perhaps more than doubled compared with a year ago.
Dropping and food and drink were also very strong. We believe there is still the potential for share gains and improvement in most of our verticals.
Turning now to expenses.
Excluding stock based compensation operating expenses were $207 million in Q1 up 30% year over year.
Continued to see significant operating leverage as we scale the business and improve our efficiency.
Our income tax benefit of $2 7 million in the quarter was 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 $105 million or 21 per fully diluted share net.
Net cash provided by operating activities was $146 million for Q1 and free cash flow was $136 million.
Dsos exiting the quarter were 88 days down five days from a year ago.
<unk> were 72 days down three days from a year ago.
We exited Q1 with a strong cash and liquidity position cash.
Cash cash equivalents and short term investments ended the quarter at $1 1 billion, we have no debt on the balance sheet.
Turning to our outlook for the second quarter, we estimate Q2 revenue to be at least $364 million, which would represent growth of 30% on a year over year basis.
We estimate adjusted EBITDA to be approximately $121 million in Q2.
With a large available market in front of US we see significant opportunities ahead and continue to be motivated to invest thoughtfully in the business, placing a high importance on hiring to support future growth. This enables us to continue distancing ourselves from the competition in areas such as technology identity supply chain optimization.
And customer service.
I am pleased that over the past couple of years, the operating expense structure of the company has improved and is significantly better than it was prior to the pandemic doing so allows us to invest meaningfully in opportunities for growth, while still generating strong adjusted EBITDA and free cash flow.
In closing we are excited about the momentum of our business with significant long term growth drivers, including CTV, our international business, our retail media opportunity, which is only just beginning our recent platform upgrade and so lamar and the upcoming U S. Midterm election cycle, we remain highly optimistic about the long term prospects for.
Our business in 2022 and beyond.
Continued to generate strong free cash flow and the strength of our business model and balance sheet have positioned us well in the current environment.
I believe we have the structure in place to continue driving long term growth, while scaling our business efficiently and I'm cautiously optimistic about continued improvement in the future.
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 at this time, we asked about posing your question you. Please pickup your handset of lifting on speaker phone to provide optimum sound quality. Once again. Please press star one if you have any questions at this time.
Please hold while we poll for questions.
And the first question is coming from Shyam Patil from Sig shop. Your line is lives.
Thank you Hey, guys.
Congrats on the results I had a couple of questions.
First one Geoff.
When we look at your results and your outlook.
They look a lot better than what we've seen from a lot of other.
AD funded company.
During earnings.
Can you just talk about what you think is driving your outperformance.
And then second question can.
Can you talk a little bit about how you see the rest of the year shaping up thank you.
You bet. Thanks, Tom I appreciate it.
No.
<unk>.
As I look at that.
Outperformance for this quarter and I just look at all of the things that went right in this quarter.
It's hard not to start with the television I mentioned in the prepared remarks that CTV had more positive changes than ever.
I don't know that I could have.
Made up a better script in terms of <unk>.
<unk> seen companies like HBO move from sort of a testing phase to scale.
And then Netflix and Disney plus talking about ads.
We're really created an environment that is really optimal for us and of course, we already have great relationships with Paramount and Peacock and <unk>.
Sky in so many of those do you think.
As the Bard leaders to now have really everybody entering into this world of choice that is driven by ads is just very exciting.
Very exciting phenomena.
But.
Im also very encouraged by the fact that of course there is macro.
Pressures of noise and uncertainty that everybody is seeing costs from more than inflation.
Course, let's talk.
Market bouncing around a lot, but in that environment. What we've historically seen is that the moment when CMO and marketers get very deliberate about where theyre going to spend money and they become very data driven and the choices that theyre, making.
And in our case that means they're spending more with us.
So I'm just incredibly encouraged.
All of the things that where we've seen this quarter and how it sets it up for the rest of the year, which gets to the second half of your question.
So with all these moves.
Advertising, especially from the global players of CTV.
I think it really sets up the second half of the year for around the world to see movement towards AD funded CTV in a way that we started seeing early on in the pandemic, but I think we're seeing even more now.
Now we.
No we didn't spend a lot of time in the prepared remarks talking about shopper data.
In the first quarter of this year. We also just had our first full quarter with with Walmart.
Who is just doing really well, we have talked about new partnerships with Walgreens and Drizzly there've been others that have talked about our partnership with targets media company round round out so to have Walgreens, Walmart and target.
On the platform and partners as it relates to data and measurement.
Unbelievable.
Again nearing.
Nearing a perfect setup as it relates to shop our partnerships.
And.
Then of course in the second half of the year, we're also going to have.
Mid term election.
For reason event that seems to be.
When that's going to be exciting as well and I suspect just because of.
The momentum and attention.
It will have.
More investments than than most.
And we think.
We're very well positioned to have it.
Our biggest.
Political year ever.
So Lamar is now over 80% adoption. So we'll finish that by the end of the year.
In other words will move everything over to sell them or the platform that we shipped on July <unk> 77 last year to go from launch to 100% adoption.
The following year, it's something that we were aiming for but now we're extremely confident that we'll hit.
And then we spent a lot of time in the prepared remarks talking about USD and open path.
We mentioned a laundry list of names on open path, but we Didnt mentioned those that we mentioned in the press release, just a couple of days ago, Buzzfeed La times, Forbes media buying Red ventures, which includes seen that in a whole bunch of others.
Also been added to it just since last quarter that we announced publicly so all of those.
About to some amazing.
The contributors to the second.
The remainder of the year, so in the second half, but to the remainder of the year.
Thank you guys.
Thank you.
And the next question is coming from Youssef Squali from Truest Securities you assess your line of life.
Great. Thank you for taking the questions two if I can.
Jeff.
Two to four years ago, you were already of the strong opinion, where the strong belief that Netflix had two offering AD supported.
Our model that was just a matter of time.
How do you feel about your chances of potentially partnering with netflix around that opportunity and or the potential risk.
Fleets potentially building its own DSP, Amazon and bleak.
Q2, EBITDA it implies a pretty big sequential and year on year drop I think to about 33% can you maybe just flesh out the biggest areas of investment and whether there is typical.
Typical kind of conservatism built into that or and just how should we think about that for the remainder of the year. Thank you.
Yes, great.
You're right I've been I've been saying for for more than half a decade I believe Netflix will eventually have to show ads.
And Thats really.
On the fact that I believe that consumers want choice and that Netflix.
Netflix has done a phenomenal job of preserving an amazing experience for consumers that at some point that becomes cost prohibitive, because we have to just keep raising prices that is exactly what has happened over the years.
And they are now at a place where I believe.
They will benefit from offering that choice.
I think they have more pressure on them because of that history I believe they have more pressure on them to <unk>.
Create an amazing AD experience than anybody in the streaming.
Petition if you will.
It's partly because of that.
You May know, David Welch, who was the previous CFO of Netflix.
And our board almost five years ago.
So we've had a great relationship with Netflix because of him.
And I am extremely optimistic.
<unk>.
And the potential for us to partner with Netflix one thing that you should know.
Use a few.
I think you've put.
Just works to something I've heard from a few other people as well.
Why wouldn't Netflix built this themselves.
What most advertisers are trying to do is they are trying.
To manage.
We saw reach and frequency like how often do I showed the same ads for the same consumer.
Across apps and channels.
And so if I just control how many times they show an AD on station 112, and then just.
Control, how many times I've shown at <unk>.
Currently on station 114, and those two things don't talk to each other at all you can waste a lot of money and show a lot of repetitive apps. This is why in traditional television. There's a lot of repetition. It's also why the outbreak has so many out of it.
If netflix.
To provide an AD experience that have lots of repetition.
In order for them to make the money that they need.
I would have to show lots of them.
Because the CPM it would be lower because there are less effective which creates more repetition and you get into that unfortunate cycle that I believe this happened in traditional television.
The surest way out of that is.
For them to partner with.
Objective independent DSP that manages reach and frequency and budgeting across all of the fragmented pieces.
Streaming.
So that we can provide.
Three best AD experience for everybody.
Because we'll be paying the highest prices.
Because of the fact that it's so much more efficient or effective.
So I'm very optimistic.
That will.
Be able to create partnership.
With every major streaming company in the world, including Netflix.
Fact that we have a phenomenal relationship.
With discovery.
And therefore also time Warner and HBO, we have great relationship with them fantastic relationship with Disney.
We partnered for years with Peacock and with Paramount and so many others.
Of course, I had the expectation that we will do the same thing wasn't that folks.
And do you have to follow up on your question on the on the EBITDA for Q2, just to frame it up I'm really happy with our situation and where we are.
Like we mentioned on last quarter's call. We do expect in 2022 to increase the pace of our investment.
As we focus on the long term growth of our business.
That's got a support from a very strong business model that produces strong free cash flow and has a really really solid balance sheet. Our Q2 forecast reflects that that includes accelerating hiring across the business.
Particularly in engineering business development and account management roles that really play a huge factor in driving our long term growth. We also expect our in office expenses to start ramping this year to pre pandemic levels and we also anticipate hosting more employee events to get the team together, but in terms of this.
Year Q1, EBITDA was very strong I'm comfortable with our EBITDA trajectory and where things stand over the remainder of the year.
Like we said last quarter, we do expect the operating expense structure of the company to be better than it was prior to the pandemic.
As I've always said.
This business is really built for and I'm really optimistic about driving meaningful EBITDA and free cash flow as we scale. So I think that lots of great opportunities in front of us and I feel pretty good about it.
Great. Thanks Blake.
Thanks, Jeff.
Thank you Jeff.
Thank you.
Next question is coming from Matt Swanson from RBC capital.
Matt Your line is live.
Yes, Thank you and I'll add my congratulations on the quarter, Jeff maybe staying on the theme of CTV and Netflix you mentioned still having an abundance or maybe an over abundance of demand for CTV, but what the upfront coming up could you maybe give us an updated view on the supply demand curve, especially for <unk>.
Premium CTV content and how you think about the additions of Netflix and Disney plus with all of that content coming online and whether or not we'll see lower CPM.
Then I guess it was kind of a follow up.
You mentioned that obviously, you saw Netflix coming from a long term or a long time away.
When we think about the maturity curve now, though for any subscription model hitting that threshold of payers do you think this is going to change how new products launch from here on out when they see a Disney and Netflix and HBO Max all leading ads is are we going to see any subscription only products still get launched.
Well first of all I appreciate it congratulations.
Extremely excited about the results and as well as just all the things going in our direction, most notably on CTV.
I appreciate that sentiment so.
First let me just address head on the concern that you raised in your first question.
We'll CPM it would be lower as a result of this additional inventory and can I just described a little bit the demand.
The demand is really off the charts and that's in large part because people are moving away from traditional cable TV, where there are just tons of ads and you are paying more and getting less than you have in a very long time.
And so as a result, when you are adding new inventory.
Desperately needed there is demand already lined up.
The thing that is really great about the way that we're seeing players like Disney or what I anticipate Netflix will do or HBO Max.
And then those that have been doing it for a while there there are of course in order to continue subscribers, which is the way that continue to gain subscribers, which is the way theyre all graded.
They have to have a great experience. So I cant alienate users that means that they have to provide relevant and they have to provide very few ads.
So that means we're going to see scarcity for awhile.
As far as we can see in the future honestly.
And that means that there will be demand and that is the best way for them to get incremental subscribers.
Cause I believe that those economics are becoming obvious.
And obvious to everyone. So I'm not sure.
The biggest names in the business seemed to pivot very quickly that we're just at spot.
I don't think so.
Strategically smart for anybody who is just entering the space now to start with asphalt only.
Any product, where we're over time as it evolves.
You launched the iPhone today, or a new smartphone and it doesn't have features that rivals the iPhone 13 and instead.
Rivals the features of iPhone one.
Not going to be competitive <unk> got to you've got to be at parity with the current state of the market.
The current way to compete is to offer consumers choice.
And I believe that that becomes increasingly important for anybody entering.
Streaming wars with hopes of competing with the biggest players in the space.
Thank you.
Thank you.
The next question is coming from Vasily <unk> from.
From Cannonball research.
Your line is live.
Thank you good afternoon I have a couple if I may one on Europe , you said in the prepared remarks that spend good slowed down around the startup.
<unk> been recovered.
In April so can you tell us your thoughts might be a little more detail about what the advertising environment is in Europe , right now and where it's going on do you view. The second question is about political you could make some comments on it but.
Wanted to see if you could give us more details so broadcast some companies have been reporting and both saying, but both are record political cycle spending so far so can you tell us.
How do you feel youre positioned do you think.
This could be some incremental revenue growth this year from some political thank you.
Yes, it sounds great I am going to Blake.
To actually take a stab at both of them and then I'll also take sustainable.
Sure. Thanks facility for the question so with regards to Europe , just first to put into context.
Our growth has been driven by the very strong position, we have in the U S. Europe represents sing.
Single digit share of our spend.
CTV has been the primary driver behind our growth in U S, but Europe European CTV also gaining share I think in the prepared remarks, we talked about that more than double the grid in the triple digits.
In Q1, we did see more of that gap of a gap between North America International in the second half, but it did it recovered a bit.
In April and recovered back to what we were seeing in January but there is still some room to improve I think that that's.
That's not a surprise I think for people who follow this space. The thing I think about when I think about opportunities like that as when customers become more deliberate with spend.
They focus on the most efficient investment opportunities that's when the trade desk tends to shine because from my perspective, we proved it out in the second half of 2020, when we saw that as people needed to be more deliberate they were focusing on the areas of investment that perhaps the highest ROI.
Then they were consulting with us and it worked out actually quite well in our favor so I'm super optimistic about that.
With regards to political is it's a great opportunity.
<unk> for US and then we'll see how this ramps up because its going to probably start ramping up for us over the summer into November obviously.
<unk> seen reports that talk about midterm election spend on par or better than the 2020 presidential elections. The one thing I would encourage you to think about as you go through the forecasting is the seasonality is going to be different than we saw in 2020, so you'll need to take that into account.
There's still a lot of factors to consider like the number of competitive races out there and stuff, but we do believe we set ourselves up to be the kind of go to platform for this political advertising versus maybe social media platforms, and such and well have more color on this as we as we progress in 2022, you know more in the second.
Half of the year, but definitely look forward to some tailwind there and then whatever Jeff do you want to add on top.
So first.
Everything just suddenly covered almost all of that I'll just add.
Sure.
A little bit more color so.
First.
I've been to Europe twice in the last four ish months.
And that's in large part because.
There's just such an opportunity shaping up in connected TV.
In various markets, we're seeing just a lot of movement.
From even some of the companies that previously haven't.
Embraced ads and certainly.
Dramatic open Internet ads.
<unk>.
Now doing just that and now with pressure from some of the biggest global players we're.
We're seeing them move relatively quickly which is why we saw CTV up over two <unk> and Q1 in EMEA.
So just a.
Very excited by the momentum.
Even in the very rare cases, where there's there's pauses or theirs.
We've seen some supply chain coming from Ukraine that are a little bit more effected in EMEA.
EMEA.
The sentiment is very positive as it relates to their intentions to spend with us.
In.
And the rest of the year.
So I'd love both of the trips in the last four months more positive than when I got there.
Believing that what most people are doing is exactly what we described in the in the prepared remarks switches.
There is some economic pressure.
They have to do more with less they become very data driven and they become closer partners of ours during that time, and that's exactly what I am seeing everywhere around the world.
And maybe as much in EMEA as anywhere else.
On the political I'll, just underlying Westlake said on the seasonality is a little bit different than mid term election than it is in a presidential election. So we expect to see more hit the second half. We also had similar reports of of justice potentially been record setting.
For political on the macro.
But I'll just say.
Lastly on the political.
We.
I'm really proud of what we we've proven in the last couple of election cycles.
Which is that we can.
Jeff typically represent.
Democratic the Democratic Party as well as the Republican Party.
That we can support a fair process.
And that.
Buying in programmatic and a data driven way there's room for both parties to run a better process.
Then than what they have in other mediums.
And in some cases.
And social so we're really excited about what we've proven in the past and believe that we've set ourselves up.
To do more.
Both parties in and even.
The more independence.
Then what we have ever done before so im excited about what that means for the second half of the year in particular.
Thank you.
Thank you and the next question is coming from Jason <unk> from Oppenheimer, Jason Your line is nice.
Thanks for taking the question I'll just ask one just wanted to focus back on CTV. So for a very long time.
Google is wanted to get into this and the media companies don't want them basically doing programmatic CTV.
While they let them do.
<unk> TV right.
Who is doing the ads.
And we've seen media companies try to own.
Technology assets and take asset and have not been good at it and I guess, Jeff Your perspective, I mean, given what we've now almost seen as kind of like the.
Undoing some of the media mergers where there is like.
Clear idea that content owners need to be content owners, and maybe just be divested that because it's so competitive.
How do you see how that kind of impact your space on the board and ultimately to be potentially like the default partner to.
To help the media companies.
With this transition.
Yes so.
I think your assessment.
That's sort of built into your question is spot on.
I believe the tolerance for conflict of interest.
Among media companies and technology companies.
Is lower than in almost any other place.
So.
I think it's really interesting.
Google decided to go to the Upfronts this year.
<unk> their upfronts right on top of Disney's.
<unk>.
It's just sort of bad form and certainly not a way.
To win friends.
And I think that somewhat representative of the way that they are being received among many of the.
The media companies.
So.
I think it's just such an amazing backdrop for us.
So do we.
In the CTV space being one of them in many cases, the very biggest provider of AD demand for some of the biggest media companies in the world and they are leaning into our partnerships in a way they've never before it's just really incredible and that's largely because they know who we are we're very.
Very clear on the value that we provide we are not trying to compete with them, we don't own any content.
We are constantly both publicly and privately reassuring them that we will not own content and we do that so that we can create a more effective supply chain, but also so that we can partner with them.
Be very upfront about who we are and what we do because we think that's the best way to be competitive today.
And so.
We think that there to some extent doing the exact same thing.
Even even companies like Netflix that were somewhat hybrid content and technology companies.
Largely become.
Content manufacturing machine.
And so it just creates opportunity for us to partner because we're all becoming very clear on who we are what we do rather than some tech behemoths that wants to be everything right that Amazon competes with nearly every business and the S&P 500 at this point and I think that becomes increasingly problematic.
Especially in the intersection of media and Tech.
Thanks.
Thank you.
And the next question is coming from Brent Thill from Jefferies. Brent Your line is less.
Thanks, Jeff maybe if you could give us a quick update on Walmart in any critical milestones.
<unk> hidden in how people look at that through the second half of 'twenty two.
You bet, yes.
As any topics that didn't get its due.
I don't know its arrival between our data marketplace and our shopper marketing efforts.
As I did mention though.
We just finished our first full quarter with Walmart.
We saw over 200 advertisers and these are all very large brands.
Provide test budgets during that time.
We expect even more large brands and more expansion.
As we continue forward and we think that this is going to be just an amazing growth driver over the next five years.
We of course saw some early tests and some amazing results from Cpg's as you might expect.
But I don't know that enough has been said about what is being done by companies like Walgreens.
And target and Drizzly and this is targets division round out.
Because what they are largely doing.
It's really changing the way measurement works in CPG and really anything that's primarily Phil I'm, sorry bought offline.
Because.
What it made possible as the ability to measure.
From the time you showed the app to the time somebody buys the product.
And measure that end to end using retail data instead of.
Walled garden or a technology companies.
Creating their own homework data.
And so by having that collection there we now put together this mosaic that really create amazing marketplace.
We even call it the measurement marketplace.
For anybody that's selling products that are largely bought and those those stores and then of course those stores.
Spin their flywheel faster.
So the green shoots are fantastic with merely scratched the surface.
But we're very excited about the start that we've had and very excited about our partnerships with Walmart Walgreens Drizzly and round out and go jet and fly Bys and so many others.
I'm not even lifting half of the internationals.
But very excited about all the progress.
Thank you.
Thank you and the next question is coming from Mark <unk> from the Benchmark company Mark Your line is live.
Thanks, so much.
Jeff I was just hoping you could maybe define.
What you consider the large publisher market in terms of.
Of having I guess, the majority of loyal signed in users and how many.
You think you need to sign on to <unk> two.
For your platform to come close to replacing.
Cookie.
Cookie scale.
When and if Google.
Google shuts down cookies and then.
Just in terms of USD two whats the status on finding an administrator for you I D, two and particularly the importance of that in Europe .
I appreciate it.
The answers to both things.
You bet.
In terms of loyal signed on users, it's actually a fairly complicated question because there is the question.
How many users are signed on but then there's also I would like how connected are those to Simon's on on other websites.
So.
Just sort of boil it down to what I think is the most important.
Easiest to explain concept.
There is some amount.
Of the internet that needs to be logged in in order to create.
The ability to model or predict what's happening on the rest of it incidentally. This is exactly the same way that debt.
Companies that use logins today like.
Google or Facebook is there.
Primary identity mechanism rather than cookies.
Exactly why they are in a good position is that they'll use that and then model on some.
Additional percentage.
Yeah.
In general we've seen this from some of the independent data companies, you really need that only about 10% to be logged in in order to model well on all of the rest of it.
I actually think that.
The numbers can end up being much much higher than that in terms of what will actually be logged in and what will actually be available.
I'd.
If the trends that we predict continue.
So that's the first part of your question.
Can you remind me the second part of your question.
Yeah. So I was just wondering if you would.
The progress isn't funny and administrator.
Are you ready to buy administrator, meaning somebody who's willing to accept a liability for violations of GDP.
Yes so.
Because of that.
First there's a European issue and then there's the administrator.
Issue in other parts of the world as well, including in the United States.
What's the position that we've taken so far is that we wanted to make UAV to an open source projects. So that it was available to everybody.
And then sort of administering or or managing that codebase. So there could be available to everybody.
The most important first order of business.
That we've done with the Iab and we've done that.
Based here in the United States, but it's available everywhere in the world.
As it relates to administration.
Its operation.
Because essentially youre handing over control at that point, it's a double edged sword, you can handover and liability we can also.
And over some of its future.
That's something that we want to be very certain is as good and secure before we hand that off so we're in no rush to do that whether that's with IV.
The United States or any entity in Europe , because in Europe .
Everybody is essentially taking.
Some amount of risk.
If you take on the.
The role of controller.
So I don't believe that it's an effective way to distribute or mitigate risks at this point.
So there's nothing we're in no rush to do that and instead, what we want to make certain that we do especially in Europe really everywhere around the world.
Developed a system that can scale and make sure that early on we partner with companies that we believe are being responsible that are doing the right thing and that we established very clearly the quid pro quo and opt outs that are in compliance with GDP are and we believe that <unk> is the most cdpr.
And in the world, but we will make an interoperable with others that we believe are also doing the right thing and thats going to create a better internet.
It is really important.
For Europe .
And optimistic that we'll continue to see scale.
But we're much more early days in EU IV.
Yes.
Then we are in USD, two because theres, just a lot more things to consider.
And so a much more political environment.
I'm just excited at the progress at this point.
Thanks Mark.
Paul we have time for one more question I know, we've gone over a little bit, but thanks for everyone for hanging with us, but one more question Paul and then we can close it out.
Absolutely. The final question will be coming from Michael Morris from Guggenheim Michael Your line is nice.
Thank you good afternoon, I'll try to squeeze in two final questions.
The first one is on a pretty consistent comment that you made Jeff about the trade that's being the default DSP for the open Internet.
This implies.
Potential for pretty universal adoption across buyers. So I'm curious if you can elaborate on where you are now in terms of partner penetration you referenced the over 1000 customers, but any frame of reference for what that means for full penetration sort of how that's been trending would be helpful. And the second question is a little bit of elaboration on the.
<unk> of Netflix and other peers, introducing these global AD supported businesses, which are pretty <unk>.
Due to the market of course does this drive an acceleration in your investment internationally any other kind of fundamental changes.
This makes it the industry. Thank you.
You bet.
So as it relates to partner penetration I'm trying to think of the the best way to quantify it.
In general I believe that we have only scratched the surface on sometimes referencing.
Last year, we had over 6 billion closer to the platform, but we're still looking at a nearly trillion dollar Tam in terms of what's spent in total global advertising.
So we're still just.
Merely scratching the surface.
And a tiny amount of what what's possible. When you look at how many of those dollars are spent in the fortune 500.
While we're very encouraged by what we what we've done inside of the Fortune 500, among the biggest advertisers when you become the default for them and learn how to support the most sophisticated in the world of course.
And then gives you room to do similar things for mid sized businesses midsized agencies as we've always supported.
Agencies.
We continue to expand among.
More and more mid size agencies, and that's giving us a wider variety of clients, which is why we had so many.
Advertisers, both directly and through agencies.
In Q1 so.
Think.
This was a quarter, where we added more to the to the.
Sort of quantity of advertisers and agencies can we usually have.
But then tees up the opportunity for us to then get a greater share of wallet.
I think there is just still way more upside.
Then.
And then sort of dollars we already have.
Yes.
Yes.
The expansion that we're seeing especially from these global CTV players.
If that will increase our investment around the world.
I do think it will.
Maybe not immediately but.
I believe that investment will happen in the coming months.
Quarters.
And that's largely because.
It's difficult to pay for a subscription and avoid the ads.
Prepared remarks, I made the reference for the analogy to traditional TV.
Where is it really a luxury to pay for a station that doesn't have any ads.
It costs more.
And so if you think about most markets outside the United States have a median household income that is lower than the United States and so as a result.
Most of them would prefer.
Pay by seeing ads than by paying a premium.
And especially if you're fighting like Hell to go get more subscribers.
That becomes the very best way for you to grow.
New markets Incidentally advertisers also loved that especially when youre looking at places like Asia.
But even some of the markets in Europe .
<unk>.
There's just such a growth of middle class about to occur were occurring right now.
That just is.
Is a great time to advertise.
When.
When People's wealth is growing.
For the first time to levels that give them sort of unprecedented purchasing power. So.
I definitely think that will result in investments from us around the world.
And I do think it will change the CTV landscape.
Around the world to have.
So where historically U S companies.
We continue to become.
More of a force internationally.
Think.
AD supported business models will make them stronger competitors around the world not weak.
Thanks, Mike.
Thank you.
Thank you ladies and gentlemen, this does conclude today's conference you may disconnect. Your lines at this time and have a wonderful day. Thank you for your participation.