Q3 2022 Trade Desk Inc Earnings Call
[music].
Good day, ladies and gentlemen, and welcome to the trade desk third quarter 2022 earnings Conference call.
At this time, all participants have been placed on a listen only mode and we will open up the floor for questions and comments after the presentation.
It is now my pleasure to turn the floor over to your host Chris chose Vice.
President Investor Relations, Sir the floor is yours.
Thank you operator, Hello, and good day to everyone and welcome to the trade desk third quarter 2022 earnings Conference calls.
On the call today from our Singapore office, our founder and CEO , Jeff Green, Chief Financial Officer, Blake, Grayson, and our Chief revenue Officer, Tim Tim.
A copy of our earnings press release can be found on our website at the trade desk Dot com in the Investor Relations section.
Four 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.
Forward looking statements represent our beliefs and assumptions only as of the date such statements are made actual results may vary significantly and we expressly assumes no obligation to update any forward looking statements should any of our beliefs or assumptions prove to be incorrect actual financial results could differ.
<unk> 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 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 provides a more meaningful representation of the company's operational performance with that I'll now turn the.
Call over to founder and CEO , Jeff Green Jeff.
Thanks, Chris and thank you all for joining us as Chris mentioned I'm thrilled to be speaking with you today from our Singapore Office, our South Asia headquarters. This is the first time that I've been in Asia. Since January of 2020 due to the global pandemic and it's been great to reconnect with our team.
Our clients and our partners here in person less weak Asia as a whole is crucial to our long term growth and it's always inspiring to spend time here more on that later, but first onto our results.
As you've seen as it relates to trade desk posted another very strong quarter with revenue growth up 31% year over year, we continued to gain share as advertisers embraced the precision and relevance of data driven advertising on the open internet via our platform.
Throughout 2022 and in particular in Q3, the trade desk has significantly outperformed seemingly all other forms of digital with a significant contrast to walled gardens and our ability to win advertising budgets.
It is very clear that under the current operating conditions, we are significantly outpacing the market regardless of the macro environment.
Our vision and business strategy continues to be validated by our advertising clients. Nearly every single major advertiser wants a world where the open internet thrives, where competition and price discovery thrive. They want great measurement that works across store web so that they can compare the performance of each site app or destination to all the others.
They want an internet where relative value can be found as we've predicted CTV is a catalyst for massive change on the internet when possible.
The power balance is shifting to the open internet away from opaque walled gardens and systems that arent comparable to others in short more and more our clients embrace the value of the open internet compared to the limitations of walled gardens and they are embracing the trade desk is the default platform to execute on the <unk>.
Open Internet.
This is resulting in closer relationships with the largest brands and agencies in the world our client relationships are stronger than ever because they are based on shared values and goals are strong buy side roadmap and internet where relative value an objective measurement can thrive with data driven empowerment for brands and advertisers rather than a tech company.
Who is just asking the brand or agency to outsource media buying to them and send their first party data down a one way street.
Cause of this contrast, we are signing joint business plans with brands at a record pace.
Some of the largest GBP signed this year represents spend of over a $1 billion in the future.
In this way not only do these J b piece position the trade desk for future growth, but they also create an environment for joint programmatic innovation J B piece represents strong alignment with brands that only come as a result of not owning media whether its decision in CTV new approaches to identity Unleashing first party data.
<unk> advanced data in retail marketplaces, our clients are working with us to.
Ryan near the future of digital advertising.
With this context, hopefully you can see why we continue to outperform the industry and gain share and why we are confident that our future growth outpaces the projections of almost everyone else in our industry.
Just one more data point on the market overall and how we are performing Wpb's group M predicted worldwide advertising will increased eight 4% in 2022, and we are growing at more than three times that rate.
CTV continues to be a key growth driver and our shopper marketing initiatives are yielding very encouraging results while still early it's only our third full quarter.
Total shopper marketing spend increased nearly three X from Q2 to Q3.
As we said at Investor Day, we believe that more than 80% of the largest retailers in the United States partner with the trade desk.
And more of the world's leading retailers are also now following suit.
Lawrence of retailers, making retail measurement available is furthering the power and benefits of an open competitive internet, while CTV may be the biggest force of change for the open Internet, perhaps retail media and its accompanying data is a close second.
Political also continues to perform well midterm election over mid term election, we have exponentially grown our business. We're proud of the work we do in political advertising, particularly our focus on helping provide a better advertising process for all political candidates. We are an objective and independent platform.
<unk> open to registered candidates on both sides with all of this in mind I believe that through the first nine months of the year. We have gained more market share grab more land than at any point in our history.
To provide more color on why I'd like to touch on three areas first is the growing importance of programmatic on the open internet even in a volatile macro environment second is the transformational role of CTV and showcasing that value and last is the critical mass of support that is growing around unified I'd to and why this is so.
Important in building the new identity fabric of the Internet.
So first in terms of the macro environment increasingly advertisers view programmatic as one of the most effective ways to drive relevance and differentiation, especially in times of market volatility and perhaps even more importantly, they believe that the open internet is the best place to create that value compared to the limitations.
Of the walled gardens.
You only have to look at a couple of comments made by the CFO of P&G. During the most recent earnings call. A couple of weeks ago. As you May know Procter and Gamble is one of the world's largest and most progressive advertisers. He said and I quote it is difficult to describe media sufficiency in dollars, especially when we are actively shifting our spending from Lin.
<unk> non targeted television into programmatic and into digital spend.
That is a lot more targeted and a lot more precise in terms of delivering reach and quality of reach where we need it.
We now have more than 50% of our media spend in digital we are increasing our first party data and our digital capabilities to increase precision of reach not only in the U S or in Europe , but around the world and that is allowing us to drive significant productivity, while increasing reach while increasing quality.
City of reach and while more precisely targeting our consumers.
Back in early 2020, as we entered that short lived COVID-19 that I talked about how easy it was for large brands to turn off programmatic.
With the firsthand of uncertainty, but what youre hearing from P&G, there and what I hear from major brands around the World. Every day now is that programmatic is a central and critical component of any campaign.
The world's most sophisticated advertisers understand that as they get more pressure from their CFO is to demonstrate the value and return of every advertising dollar one of the best places to do that is on our platform. We provide objective transparent measurement, we provide precision and relevance we allow advertisers to optimize.
<unk> based on real time performance and we provide access to the world's most advanced data marketplace, including many of the world's biggest retailers.
<unk> and Cfos are carefully watching costs and spend at this moment. It is why we are particularly excited by the growth on our platform this quarter.
This moment is also a time when advertisers have clear goals.
And our objective partnership is really important to them achieving those goals.
We recently ran a campaign for clearance.
One of the world's largest multinational cosmetic companies.
They wanted to reach career women with a specific new product in the U K. They wanted to do it cost effectively with minimal waste with optimal precision using our platform. They were able to launch a multichannel campaign, including mobile CTV digital out of home and audio they were able to pivot based on channel performance and re target based on.
As a result, they were able to drive significant new traffic to their website, 8% of whom purchased the product driving an exponential sales increase.
All as part of a highly decision campaign that was automatically optimize on the fly to maximize performance and minimize waste and.
In an environment with ROI scrutiny of every advertising dollar. This is exactly the kind of campaign optimization that Cmos are looking for and as a result, they are increasingly gravitating to our platform nowhere is this more apparent than CTV.
The second area I want to cover once again CTV was our fastest growing channel and it has rapidly become our largest.
For years now we've been talking about how the English speaking markets have been leading the adoption of CTV advertising.
The U S and Australia have been great leaders and case studies for the world.
Both benefiting from the fragmented and competitive nature of content in their markets.
But now CTV adoption is going global.
Perhaps the most bullish statement I'll make this year is that our CTV spend grew and the majority of our international markets faster than it did in the United States.
Said previously that the U S and Australia are leading the way on CTV and that markets like the U K and France are following fast.
But the pace is picking up in all corners of the world, especially as advertisers look for more relevance and precision.
And their biggest campaign category.
Let me give you a couple of quick examples.
When Mercedes launched a new C class model in Australia. This year, they wanted to lift brand awareness among the key demographics working with US they were able to deploy a CTV strategy that reached $1 5 million households, with precision and which ultimately increased brand awareness, 11% among their key targets <unk>.
<unk> is a multinational electronics company headquartered in Taiwan They.
Wanted to launch a new monitor aimed at gamers in key markets, such as India, The Philippines, Germany and UK.
Working with us they launched the CTV campaign, which was constantly optimized via colour on our platform letting them iterate based on campaign performance and engagement. They saw significant improvements in all aspects of the campaign performance from reach to cost effectiveness compared to industry benchmarks. They were also able to.
Thousands of new engagements on their product website directly to the campaign.
Back in the U S. Let's us wanted to reach a new generation of millennial buyers for their luxury cars, most of whom have abandoned linear TV and moved in mass to streaming platforms. They were able to target key audiences with little to no waste and effective frequency management, they were able to reach 15 million potential new customers.
Customers driving five times more website traffic than the previous year with an astonishing 67% improvement in purchase intent among key targets.
Our success in CTV is multifaceted on.
On our platform, we have built the optimization tools that enable advertisers to drive these kind of results with precision as part of an omnichannel strategy.
But on the inventory side, we have developed very close working partnerships with pretty much every premium CTV provider worldwide. While much has been said about Netflix move into advertising and we are excited about what that opportunity means for our industry and our business. There are many leading content providers that are driving innovation and see.
Television.
Not enough has been said in recent months about what is happening from the content creators, who have long histories and advertising and what they're doing to continue to innovate.
Disney will launch advertising on the Disney plus platform in December and they are incredibly progressive and how they are enabling advertisers to leverage their own first party data via <unk>.
We are very proud to be their partner.
Transaction volume will grow overtime, and Theyre standards on AD load and the use of <unk> will put pressure on the rest of the industry to think about CTV in a way that maximizes advertiser value and Optimizes. The consumer's experience Peacock is one of our longest standing CTV partners as.
With many broadcasters who begin the CTV journey much of our work with them was initially in a fixed price context testing the market, but I'm thrilled to report today. The vast majority of Peacock inventory that flows through our system is fully decision and Biddable and as a result, cpm's have increased significantly.
While advertisers are spending more and of course seeing more value CTV providers that understand the benefits and gains are fully billable and decision inventory will win over time, they will maximize revenue by helping advertisers drive precision and relevance.
<unk> is rapidly emerging as a key new CTV identity currency as I predicted it would let's remember that cookies are not present in CTV. There's nothing about the role of <unk> two in CTV that is a response to the deprecation of cookies.
<unk>. It is recognition among CTV leaders that they need a way to provide advertisers with relevance in a way that protects consumer privacy as part of Omnichannel campaigns.
One of the first CTV platforms to embrace <unk> two was frugal and the results. They have seen have been incredibly impressive bubo itself has seen AD revenues on our platform increased 113% faster than impression growth.
Advertising spend on food bolt on our platform has increased more than 60% in cpm's are up significantly.
And with <unk>. They are also able to deliver more value to advertisers one e-commerce retailers saw a 25% improvement in conversion rate and a 14% improvement in return on ad spend.
There is a tremendous amount of transformation happening in our industry and on our platform the adoption of <unk> by the infrastructure of the Internet is transforming the open internet.
And where marketers put their very first dollar in.
In the coming quarters, we will talk more about all of the amazing changes happening in identity, often driven by CTV.
Thousand 23 will likely have more market changes that create secular shifts in our direction with more data more decisioning better results and the best CTV experience consumers could ever have.
One of the key factors in our progress with <unk> two has been our success with the world's leading data aggregators, such as AWS Snowflake, Salesforce Adobe and many many others.
Simply these companies How's the first party data of the worlds leading advertisers.
With you I'd to advertisers can transact on that Dana without ever leaving home.
Because of this progress I predict that more than half of the data inventory flowing through our platform by early next year will be <unk> to tagged with more and more of our publishers inventory also UAV tagged that means the value of Advertiser first party data increases exponentially.
<unk> on our platform more than 10 X next year compared to this year.
With this progress the strategic value of USD, two and helping advertisers drive relevance in a privacy centric manner becomes undeniable, while most of our advertisers are already transacting on UAV too.
On our platform in some way I expect they will fully embrace it next year.
<unk> with precision and of course do that more effectively than ever.
This gives me tremendous confidence for 2023 and beyond.
I'd like to close by just touching on our business here in Asia as I've spent time with our teams here over the last few days.
We are seeing great momentum across the region. We've recently posted some of the biggest months ever in offices, such as Melbourne, and New Delhi, as we benefited from new <unk> and msas across the region.
We have built strategic partnerships with major inventory players in all of our key markets here.
As I said during Investor day, most publishers I speak with complain that they do not believe that they are getting their fair share of spend today relative to the walled gardens. That's true here in Asia too I met with one of the largest publishers here and they understand they need to maximize revenue on their digital content, but they need greater access to globe.
Advertiser demand.
Many inventory partners in Asia are facing the same problem.
As a result, they are looking to partner with the trade desk a partner they can trust to be objective and transparent and delivering maximum advertiser value.
On the demand side Asia. It is witnessing the emergence of the largest middle class population in history. It is essential for brands to reach these consumers through the channels. They used most in Asia that mean, CTV for OTT or mobile and of course premium video on mobile.
Because we made investments early across the Asia Pacific region and in many key channels, such as mobile OTT and digital out of home. We are in a great position to build on those investments in the years ahead.
To come back to where I started in Asia and around the world. The biggest brands in the world increasingly appreciate the value of data driven advertising on our platform. We have established trust with advertisers and their agencies that we can deliver growth for their business in any macroeconomic environment. Many of them are now trusting us with significant.
Multiyear partnerships.
This means we have very high client retention rates. It means we can innovate with our clients to deliver premium value our focus on profitability funds that innovation and ensures that we will remain at the bleeding edge of our industry and that we'd never have to compromise our beliefs.
As a result, we are one of the few high growth technology companies that consistently generate strong adjusted EBITDA and free cash flow.
While I don't often comment on competitors' performance.
Do you think it's worth noting again.
In an environment, where many of our competitors have contracted or grew in the single digit range, we grew 31%.
That shows that we are outperforming the market and that we're gaining share.
Even in what many are calling a challenging macro environment.
While we will never be immune from those macro challenges. We are confident that we will continue to outperform I could not be more confident and excited about how we are positioned for 2023 and beyond.
Our business has many growth drivers as we've discussed today and we will continue to innovate to lead the market and I'm confident that the worlds, leading advertisers will continue to default to our platform as they seek to drive their own business growth via advertising.
With that I'll hand, the call over to Blake, who will give you more color on the quarter.
Thank you, Jeff and good morning, everyone first it was great to see so many of you at our Investor Day last month in New York City, We always appreciate the opportunity to dive deeper into the drivers of our business and discuss our strategy in more detail.
As our performance in Q3 shows we continue to execute extremely well in the current environment, we continue to grab share and significantly outpace our peers, we again delivered year over year revenue growth well into the double digits, while many companies in the AD funded space have seen low single digit or even negative year.
Year over year revenue growth. We've also manage our expenses efficiently delivering strong adjusted EBITDA and cash flow. Once again, our results reflect the continued shift from advertisers toward data driven advertising and the open internet as they continue to shift away from linear channels and walled gardens.
Revenue in Q3 was $395 million, representing an increase of 31% year over year, while the macro environment has created some uncertainty, which we are not immune to our platform continues to deliver value for advertisers and we are building trust with our clients for the long term.
During the quarter growth was broad based across channels and verticals. We saw continued strength from CTV, which again led our growth from a scaled channel perspective, we're seeing progress in our shopper marketing business as our customers deploy retail data and more and more of their campaigns and we continue to see positive results of adverse.
Kaiser's utilize so omar to sharpen campaign goals and activate our industry leading AI.
Q3 was another example of our ability to grow top line, while scaling our cost structure efficiently, helping to drive a meaningfully positive EBITDA and cash flow third quarter. Adjusted EBITDA was $163 million, representing a margin of 41% I am proud of our sustained efforts to.
System, we've generated strong EBITDA, while continuing to invest in the critical areas of our business that will prepare us for the tidal wave of opportunity ahead.
Still producing cash flow that helps fund our future growth our trailing 12 month free cash flow of nearly $500 million is up 53% from a year ago.
While there will always be periods, where we may lean into investment due to the opportunity over the long term the best business models in the world generate long term growth profits and cash and I'm fortunate to be part of a team that considers all of these in our investment decisions.
From a channel perspective, CTV by a wide margin led our growth again during the quarter.
Existing Q3 video, which includes CTV represented a low <unk> percentage share of our business and continues to grow rapidly as a percentage of our mix.
Mobile represented a high 30 percentage share of spend during the quarter as growth was again solid across both in App and mobile video.
Display represented a low teens percent of our business and audio represented around 5%.
Geographically North America represented about 90% of spend and international represented about 10% of spend in Q3 spend.
<unk> growth in North America was resilient as we continue to win new business and gain share.
Across southeast Asia, and Europe was very strong during the quarter growing faster than any other region, while still small compared to CTV spend in North America, we're encouraged with CCTV in both Europe , and southeast Asia rapidly increase year over year relative to their overall spend.
Despite an uncertain macro environment, particularly in Europe , we remain focused on the long term investments that will position us for strength when conditions improve in an uncertain environment like today advertisers become more deliberate with their AD spend scrutinizing the effectiveness of their AD budgets much more carefully than they have done previously.
As we have shown during similar environments in the past as advertisers become more deliberate and data driven with their AD spend the trade desk wins more budget every AD run on our platform is measurable and we are focused on driving the highest returns for every campaign is our clients are.
As we're starting to hear more publicly from the largest and most sophisticated advertisers in the world. They are beginning to prioritize programmatic decisions advertising investments first because it delivers higher returns and they have seen in other channels add on top of that our company's unbiased partnership with them and that we don't own any.
<unk>, we don't compete with our customers and we offer an unrivaled data marketplace, where they can inspect measure and enhanced campaigns and wave that walled gardens, either refused to offer or merely cannot match creates a durable advantage that we believe makes the future very bright for us and for our customers.
In terms of the verticals that represent at least 1% of our spend travel more than doubled compared with a year ago food and drink automotive and technology were also very strong our automotive vertical is seeing a bit of a resurgence as a result of winning new business with large automotive manufacturers and the easing of supply chain issues.
The industry has seen over the better part of the last two and a half years.
Hobbies and interests and education were both below the average. Additionally, as expected political was strong and represented a low single digit percent of spend in Q3. We continue to believe there is still potential for share gain and improvement in most of our verticals.
Turning now to expenses Q3 operating expenses, excluding stock based compensation were $245 million up 32% year over year.
Operating expenses during the quarter were primarily driven by investments in our team, particularly in areas like sales and marketing as we scale prudently to support long term growth as well as return to office expenses.
Income tax was $15 million for the quarter adjusted.
Adjusted net income was 129 million or <unk> 26 cents per fully diluted share net cash provided by operating activities was 137 million for Q3 and free cash flow was $112 million.
<unk> exited the quarter with 92 days up five days from a year ago <unk> were 74 days up one day from a year ago, we exited Q3 with a strong cash and liquidity position cash cash equivalents and short term investments ended the quarter at $1 3 billion.
We have no debt on the balance sheet.
Turning to our outlook for the fourth quarter, we estimate Q4 revenue to be at least $490 million, which would represent growth of 24% on a year over year basis. In Q4, we anticipate U S political midterm election spend to about double compared with the prior quarter.
We estimate adjusted EBITDA to be approximately $229 million in Q4.
From a stock based compensation perspective, we expect absolute stock based compensation expense to decline year over year in Q4 due to the timing of the CEO performance Awards granted in Q4 of 2021.
While uncertainty about the macro environment remains we continue to feel confident in our ability to execute and gained share in the quarters and years ahead given.
Given the large and growing addressable market in front of us, we see significant opportunities to prudently invest for our business to innovate and to widen the distance between ourselves and our competition.
In closing we are extremely pleased with our strong performance in the third quarter. We continued to demonstrate our ability to drive both profitable growth and achieve significant share gains with large growth drivers, including the secular shift to CTV, attracting more shopper marketing budgets scaling our international operations to be ready when the <unk>.
CRO environment improves innovating the data marketplace. The U S midterm election cycle as well as elevated pressure on walled gardens, we remain optimistic for the remainder of Q4 and into 2023.
That concludes our prepared remarks with that operator, let's open up the call for questions.
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 ask that while posing your question. Please pickup your handset if listening on speaker phone to provide optimum sound quality.
Please hold while we poll for questions.
Your first question for today is coming from Sean Patel.
Hey.
Okay.
Hey, guys nice job on the execution I had a couple of questions.
Yes.
You expand and talk a little bit more about what youre seeing with the macro.
And then separately just how you see the setup.
As we go into next year and then just as a quick follow up Blake could you just talk a little bit more about the <unk> guide into some of your assumptions there. Thank you guys.
Thanks, Sean I appreciate the question. So let me first start with the macro.
And talking about this year, so I don't know that I have ever been more proud of our performance than what we just put up in Q3 and that's in large part because of the relative outperformance.
Most other stocks are either negative or for reporting single digit growth, we put up 31% and we're doing that in an environment that is a little bit more uncertain.
If there was an advertising VIX it would be at an all time high.
And it's hard to say, whether that's because of macro headwinds or mostly macro uncertainty, but it would be high because of one of those.
Teams in each case, but because we're definitely in an environment, regardless of where that's coming from where advertisers have to do more with less that means more that were winning share in this environment and I definitely believe that we're grabbing land.
So.
I take a lot of comfort in what Procter and Gamble said in their earnings report, which we are actively shifting our spend from linear to non target and non target being TV into programmatic and digital that has a lot more precise.
When you look at just the overall macro environment I just think we're just doing so incredibly well on a relative basis.
It's hard not to be proud, it's hard not to look at what we've done and see.
Grabbing land, but when you turn our attention to 2023.
Start to look at all the new inventory, that's going to come in to CTV, whether that's from Disney plus our additional inventory for peacock or HBO, or Netflix or Paramount, plus a fox or ESPN or Hulu or the fact that we reported in earnings this year 11 markets outside the United States outperformed the United States in Premier.
M video and TV.
And then you look at the <unk> that we have we just surpassed 600 partners.
<unk> E and that we're activating data at an unprecedented level, we're going to go from a minority of.
Our idea or I'm, sorry of our data on our platform being enabled by <unk> to the majority of our third party data being enabled by the beginning of next year. So we'll finish that work this year going from minority to majority I do believe that in 2023 will have the best data marketplace of the ecosystem has ever had I think we will have the best first.
Data onboarding that we've ever had.
And that's not even talking about open path, which we didn't really have time to talk about in our prepared remarks, which will be direct integrations with hundreds of the world's largest content owners and that will accelerate our growth in land grabbing around the world irrespective of the macro environment in 2023.
And of course last but not least with us partnering with over 80% of the largest retailers in the United States and of course partnering with many all over the world all of those trends point to an incredible opportunity for us in 2023.
That wouldn't be possible without the grabbing a blend that we're doing right now.
So with that I'll pass it over to Blake to just talk a little bit more about.
The second part of your question.
Sean for the question.
So your question on Q4, just to start off on Q3, again fundamentally great quarter actually pretty steady two which was great to see.
31% revenue growth off a relatively hard comp last year of 39% in.
Political is ramp up for us as well so.
But you've already seen stand out performance versus peers, who are growing.
Much smaller or negative rates.
Again, CTV led the way still opportunity their shopper marketing is ramping up well for us to the solar more adoptions exciting we've got the momentum on <unk> as well.
And so just grabbing share from company, Joe and you've heard us talk about the JV piece as well that that's also been ramping and have been strong and so as you think about as we think about going into Q4 and our setup.
Again relative to the rest of the industry in Q4 were growing significantly faster, which in my mind just confirms we're grabbing share advertisers are being more deliberate.
Personally believe we're in a better position now than we were coming out of Covid.
The Chief financial officer or CFO .
I definitely appreciate the uncertainty that so many of my peers are facing right now the best Cfos are actively working to rationalize the investments that they're making and they are prioritizing the ones that have proven measurable returns in that environment. The trade as we gained share because companies are now prioritize.
Programmatic is the first place to invest that first dollar.
So while you can you've been obviously dialed programmatic up and down quickly, it's doing really well for us and to me that just shows the power and the value of this model now specifically with regards to Q4, a couple of thoughts.
Not only is our Q4 sequential growth well into the double digits as many outbound the companies or flat or negative we're actually forecasting accelerating growth on a year over year basis in Q4, and I recognize that there is a political impact in there, but when I just step back a bit.
Look at a year over year acceleration in Q4 in this environment to me that's a standout performance for us and it gives us a lot of optimism about our future and the momentum.
We've got.
I hope that helps.
Thanks, Tom.
Yeah.
Next question Ali.
Your next question is coming from Youssef Squali at Truest Securities.
Great. Thank you very much I have two questions first maybe Blake can you talk about the.
How you look at the expense structure for 'twenty.
2023.
Talk about the puts and takes growth versus the need to invest more do you expect margins to improve relative to where you are for or will you end up in 2022, and Jeff maybe going back to connected TV.
Very impressive kind of both numbers and color commentary.
Can you maybe speak to the competitive positioning that you guys have relative to other CTV players and do you believe that you are actually gaining share or losing share relative to other players that arguably are also benefiting from growth in CTV next year. Thank you.
You bet.
Understood and then ill pick the tech tenants.
Tim If you don't mind, adding color off driving on CTV sure.
Thanks for the question so with regards to thinking about the expense structure in 2023 and such.
I really just like stepping back a bit.
I'll remind everyone that the business model and with situations.
It's a highly desirable right, we've got a situation, where we're driving high top line growth, we've got higher adjusted EBITDA growth with strong margins and we've got not only strong free cash flow generation, but consistent free cash flow generation. So having all of those working together, which they are it gives us an opportunity the ability to.
Deliberate with the choices that we make.
I'm just also super proud of our ability to stay disciplined with our investments regardless of the operating environment.
A lot of companies out there that might have more resources that are pausing or even cutting their resources, because they potentially invested too aggressively.
We didn't get ahead of ourselves the last couple of years I think maybe like some of these companies did and.
Thats paid off for us.
We have the ability to stay the course and be deliberate about our investments that includes hiring.
We think about 2023, specifically should we see any significant changes in the situation. We definitely have levers available to make changes if we need to you saw us do that in 2020 during the Covid, we can adapt but.
Bill the expense structure of the company today is better than it was pre pandemic.
But overall, though and I've said this on the number of calls we're always looking for ways to invest and drive growth that we pace that we think pays off for the long run.
For 2023, specifically I would say a couple of things that we do expect return to office expenses like travel and live events to return to pre COVID-19 levels and the other thing to keep in mind as I would expect seasonality of our expenses next year to be a bit more like 2016 to 2019 than they were in 2000 22021.
For example, we have our large company event that will finally move back to its regular timing in Q1. It was held in Q2 of this year.
That's just a great opportunity to bring our team together, especially after what's gone on the past few years, where there were no.
Solidifying our culture Reframing, our strategy versus the opportunity we've got and also just highlighting again the disciplined perspective, we take as a company about driving profitable growth.
And so looking into 2023, I think we're in a great position to drive more scale and efficiency and free cash flow and we have so many opportunity areas to focus on I'm really excited about that.
Yes.
I'll start on so it can be and then Tim.
You want to speak to it as well so.
I really think there's two parts to talk about on the <unk> question. The first is just talk about the category a little bit and then also to just talk about why we win.
Specifically inside the category. So of course right now at the trade desk, we're living a secular tailwind that I don't know that we've ever seen before and I don't know that we'll ever see again and that is going to continue into 2023, largely because of the amount of inventory that is coming online.
But also as you look across the open internet and whether thats inside of display or native or audio or any other channel.
CTV is leading the way in forging the future of identity.
CTV is not just leading in our business and not just the most interesting things happening in programmatic, but it's the most interesting thing happening and AD funded media.
And so as a result of CTV is the first is quickly becoming the place where people spend their very first dollar.
<unk>.
Was not surprised at all to see our partner Disney Plus report 12 million new subscribers.
And of course, Netflix added a couple of million themselves on just the promise.
I have an AD funded option.
Coming soon.
So.
There is more inventory coming online.
Programmatic.
We'll just continue to drive CTV and I do believe that very soon CTV will be the most data driven channel.
That to me is one of the things to really just focus on in terms of why we're winning.
Inside of CTV. So why are we winning above everyone else. So in order to be competitive you do have to be omnichannel. So you can't just be focused on CTV, because you take the data and the learnings from all other channels and then apply those to CTV, where CTG is a top of the funnel activity, where you're typically creating awareness and.
All the other channels are follow ups, if you will to that really effective moving picture and sound that happens inside of CTV and so in order to be most effective you have to be holistic.
So you have to be Omnichannel, but you also have to be global and then very importantly, you have to be objective, which means you can't compete with any of the content owners, which is one of the things that is really a problem for most of the walled gardens, especially Google which is that of course, they have their own media and Youtube and so.
Content creators or not.
Eager to part with somebody or to partner with somebody that they compete with.
Theyre very.
In the core of their business.
So by being objective and not competing with them by being global by being the Omnichannel and then there is something that we say all the time to every content owner on the Internet and that is that you have to have an authentication strategy and you have to have an identity strategy.
We're able to go to the content owners and partner with them on on both of those things.
You see this with Disney.
Disney is doing extremely well we've been very vocal they have been very vocal about our partnership on the UAV. It as a part of their authentication and identity strategy. If that is what makes personalized ads possible. That's what makes high ppm as possible, that's what make low AD loads possible. So we become a really critical partner for them while not <unk>.
Leading with them because we're objective you put all that together and that's the reason, we're winning but I'm sure you can say more about this yes. You said thanks for the question and as I look out next year and kind of why I think were differentiated and in a position to win it's a little bit of what Jeff said, so a lot more inventory coming online so as Jeff pointed out we've got Disney plus.
Netflix they get a lot of the word count and the ecosystem right now, but lets not forget HBO Max Paramount NBC you Fox the rest of Disney Hulu, ESPN, ABC et cetera are continuing to lean into programmatic and the reason that they lean into us is that when you think about it from their perspective and they look back at the ecosystem of people, who do what we do.
A lot of those companies are competing with them. So they lean in heavily with us and they partnered with us in a number of different ways, including an identity. So <unk> two.
Through our partnership with Disney I think it's going to be a major catalyst for the <unk> category. As a result that inventory is going to have much richer decisioning going into next year across the entire category. So when I think about 2023. There is this like perfect collision of addressable audience scale in the premium content state that we've never seen before and I think that's going to be.
Huge benefit.
The trade desk, because it's mostly to date business CTV story and I think in 2023, it's going to be a programmatic CTV story and so I'm really excited for that in 2023, because I think all of these things combining that addressable and that scale is going to create.
Thats, an environment for CTV and be the most data driven channel in programmatic next year and I'm really excited for that and as a result, I think CTD is going to very quickly become the first dollar spent in digital media and I think the trade desk is well positioned going into next year.
So we're upbeat.
To your question Howard.
Your next question for today is coming from Laura Martin with Needham.
Hey, Jeff just following up on your comment.
Comments about I D on connected TV.
This shows that 80% of viewing on connected TV is shared which does seem to undermine some of the targeting benefits that we had on individual devices like smartphones and tablets. That's my first question.
And then my second is China.
Sitting in Singapore, and you were noticeably silent on China. So could you give us an update on what's going on with China and your business. These days. Thank you.
Fantastic. Thanks, Laura really appreciate the question.
So.
When it comes to share viewing or the impact that that has on.
<unk>.
On CPM or or does it pose a threat to the ecosystem or is it a problem for CTV. Let me just first sort of answered that emphatically by saying, it's not a problem for the for the ecosystem.
Whether you would frame it as CTV worth it the answer is yes does it have a frequency Kevin problem. The answer is no.
The bottom line is.
When we are considering.
Targeting or customizing ads there is an individual graph theres a household got both of those gift.
Are considered when we're making the placement of ads and shared viewing doesn't necessarily mean that.
But it's worth any less.
That's what we're competing with is an environment in linear broadcast television, there's almost always shared viewing but it's not measurable.
Finally, we have the ability to measure when it's being shared and when it's not and of course a lot of premium video is on personalized devices and I've been reminded of that again and again this week.
Here in Asia, and reminded how much premium video is consumed on mobile devices. So household and individual gas are both considered but when you compare the sort of spray and pray a broadcast our traditional TV to the efficacy the targeting that identity driven.
Lower AD loads with content that is more premium you put all of that together the impact on digital is exponentially more valuable than a linear broadcast and the efficacy has gone up way more than the cost and as that phenomenon continues to unfold in 2020.
Three that Tim was just describing really well.
It's becoming a programmatic story, where there's more inventory and we can select more and more from the.
The sort of wider selection, Nevada, the personalization customization to efficacy is only going to continue to go up so it's absolutely worth it to Sharon viewing.
I don't even.
View of an issue I don't I don't spend time thinking about it.
As it relates to China.
China is of course, one of the largest markets of the world.
We are constantly keeping our eye on the fact that while as a media market. It's about half the size of the United States is growing at twice the pace.
As you recall last year.
Kinda was our fastest growing office in the world. This year that hasnt been true, but that's largely just because of macroeconomic headwinds and geopolitical issues. So we have been quiet in large part because of those geopolitical issues and because there has been some slowdown if the geopolitical issues weren't enough Theres also COVID-19 lockdown that it has affected.
And a very significant way, but we've been.
Quarter over quarter up over 100% in this environment.
Hi is no longer.
Our smallest office, which it was just 18 months ago.
And we just we continue to believe that while the English speaking world has led much of CTV.
The Chinese speaking World. This is the second most important as it relates to the premium video play and that we continue to look at China and all the Chinese speaking nations of the World.
Very important battleground for the future of global TV and premium video.
Still excited and bullish just a bunch of things that make a fair amount of uncertainty.
Thanks, a lot I appreciate the question.
Next question Alex.
Your next question is coming from Justin Patterson at Keybanc.
Great. Thank you very much two if I can Jeff as you exit the year and have these data initiatives and open path kicking into gear, how should we think about the competitive landscape and how that looks in 2023 versus what we've observed in the past.
I look at some recent commentary by Procter and Gamble. It seems like there's a lot more programmatic budget and relationships up for grabs I think into next year and then Blake I. Appreciate your color on the Q4 guide could you. Please put a finer point on some of the trends observed quarter to date and how we should think about growth for the rest of the quarter. Thank you.
Yes so.
I think youre right in that.
There is more and more budget thats going into programmatic I think the commentary that we've heard from Procter and gamble is indicative of that.
As you've heard us say before the supply chains of the open internet, but moving supply chains of the entire.
I'd funded internet have become a little bit murky.
As often happens when markets mature become much more complicated.
I've said before that I think one way to characterize the success of Amazon.
Is that they've had an executive team that has just obsessed about the supply chain and just making certain that theyre getting things as efficiently as possible. So that they can deliver to their consumers.
The best product as fast as possible for the best possible price.
Yes.
We applied that same sort of obsession to the immediate supply chain, which in some ways even more complicated.
And we've said as often as possible we want to make certain that no one in the middle.
Taking more in fees are tasks than theyre, adding value.
And we do believe that that happens a fair amount of time, because the complication and because of.
Sort of draconian pockets of some of the biggest tech players in the world are way of combating that is to release products like open path, where we plug in directly with the biggest publishers in the world. We've had a number of conversations with content creators, whether that's in CTV or in mobile apps or in traditional web development.
Davidson they don't feel like anyone is representing them the way they would like to and they would like to do their own yield management and plug in with us directly.
Creates a more efficient supply chain, while also maintaining our role on the buy side as well as our objectivity. So when you couple that with all the data initiatives going into 2023.
I said in the prepared remarks, but I believe because of the unified I'd.
Data, especially first party data will be 10 times more valuable in 2023, that's ever been historically and that's largely just because of.
All of the math of UAV and the scale of <unk> and not having the same like we did in cookies not only as we ended up getting an update because we're going from an opt out to an opt in internet, but we're also getting rid of some of the clunkiness that cookies had which makes a data driven internet just so much more.
And of course, it's better for consumers wanted to opt in and you put all that together, we have a more effective supply chain.
Budgets are up for grabs we think that we're more likely to get the first dollar than anyone else and what has happened over the most of the history of the trade desk is that we.
Got the leftovers from search and social and the walled gardens on whats starting to happen now as we're getting the very first dollar that's happening more and more we expect that to continue as the secular tailwind of CTV continues. So I. Appreciate the question and then Paul just on your question on the Q4 trend one way to maybe to think about it is it's a <unk>.
Bit of a tale of two cities like and you've heard us say this before.
Okay shape recovery, if you will for certain verticals.
Some areas like travel and auto are outperforming and Theyre, making up for lost time. Some areas are more challenged you've heard us talk about Europe , but as we've said that before but specific to Europe as we.
We've seen incredible CTV growth, there, which is amazing in light of the macro challenges. So it makes me super optimistic.
The future for US there and then the.
The automotive growth, especially it's been especially exciting to see some gains there.
We've won new business and then some more existing from existing customers after a period of <unk>.
Volatility over the past two or so years and so I think that and then if even if you've talked about CPG companies. You've got some that are doing incredibly well and then some that still have some supply chain challenges as well so I think that the.
The breadth of the advertisers in the vertical that we represent both super well for us and like there is still areas of opportunity for us to gain share there too.
Thanks, Justin.
Your next question for today is coming from Tom White at D. A Davidson.
Oh, great. Thanks, given the elections here yesterday I thought I'd ask a question on political Jeff any big takeaways around political AD spend this cycle any learnings that we should kind of takeaway that you are taking away.
The future of political AD spend on CTV and I guess just digital broadly.
Thanks.
You bet so.
One thing that's happened in the past is that we've seen them sort of focus on social and other parts of political but what we've definitely seen the time that CTV is the preferred channel for political advertisers and is playing a larger role in every election cycle.
One thing that is just really important for me to note.
That.
Theres been more and more mistrust of specific type platforms in the political environment. We are really proud of the work that we've done.
To focus on providing them better a democratic process.
For both sides of the aisle and making certain that our platform is objective and independent so that we can power both Democrats and Republicans.
Body else for that matter and I think our team has done a phenomenal job over really the last decade in winning trust.
And providing reassurance to both sides.
We're going to provide them with an objective platform, that's going to make it possible for them to do.
The very best and sort of let the process.
Do I think it's our job to run a better process not to advocate for specific candidates or to get in the middle.
Our politics, more specifically and as a result of creating that arm's length relationship. We once again believe we run a better process and been a key contributor to running a healthy election, we expect that to grow in 2024 as we move into the next presidential cycle.
But once again CTV plays a very significant role and we think it will play a bigger role every election going forward and we're really excited to see the election over election growth and expect that to continue into the future. So I appreciate the question.
Thanks, Tom.
Your next question is coming from Brian Fitzgerald at Wells Fargo.
Thanks, Jeff we want to know if you could talk about your decisioning intensity in CTV, maybe versus other channels, particularly in the context of.
Private marketplace deals and things of that ilk.
As much heavy lifting there versus other channels and do you get pushback on pricing on any differences in the intensity there and also in Cps.
Yes.
Appreciate the question Brian .
So.
We've been asked some form of this question over time.
In various ways.
Essential to say.
Do we add less value in CTV or should we be charging less so it is hard to just two different ways of asking that question.
And I would argue that we add more value in CTV than we do in any other channel and also.
The value that we're adding is going to up overtime.
So the first part of that is the reason why we're adding more value. It's because the stakes are higher.
<unk>.
A few.
And the stock market, if you buy stocks at random or you'd buy them all in Etfs.
Tend to go up over time, but if you buy ads at random you'll get your <expletive> kicked every single time, you have to select very carefully and in the world of CTV, when youre buying very high highly expensive or high cost impressions.
The stakes are higher you have to make certain that you use data to buy the right ones you have to get reach and frequency right.
I would argue the only platform in the world that manages reaching frequency well on CTV.
As the trade desk.
So we add more value and as time goes on when you add more impressions, there's more opportunity to outperform and select more carefully.
So.
While there have been a series of.
<unk> or or ways of buying and limited.
Decisioning.
Methodologies.
Those have gone down over time and those are typically training wheels are on ramps for advertisers that overtime are replaced with just high Decisioning and Thats, where all of our biggest advertisers are heading that's where our product has gone and we think over time that we just continue to add more value.
For essentially the same cost as we do and everything else with our take rate having made the same pretty much our entire existence.
As a publicly traded company.
So I think it's something that's been important for us to clarify and so I really appreciate the question Brian .
Thanks, Jeff.
Next queue Holly.
Next question for today is coming from Jason <unk> with Oppenheimer.
Thanks, Jeff.
I'd follow up we've heard concerns that publishers are being slow to adopt.
Can you do to speed up adoption and how you're thinking about this.
Great. Thanks.
You bet so.
Yes.
I'm constantly reminded that if you sat me down a year ago, and said, Jeff right up in a dream list.
Of adopters.
I don't think I could have a fictionalized or made up a list that is more impressive than those that we've actually added.
AWS Salesforce Snowflake Adobe, you've heard us say a year ago that we needed to add the infrastructure of the internet and those and hundreds of others represent that infrastructure.
What now.
Approaching 600 partners and that doesn't even underscore the entire infrastructure of the of the data ecosystem of the Internet names like Experian, our infill some are so many others.
So.
With all of those coming online and then you add the CTV players.
It's like Disney who have adopted it and it'll be just really critical next year.
That all CTV players are leveraging <unk> in order to get the personalization and the high CPM is that they all desperately need to compete when.
When you put all that together I actually don't have any idea where that is.
<unk> is coming from the publishers are going slow the only way that I could.
Possibly make sense.
And just some of them it takes a little bit of time to prioritize and actually implement but in terms of commitment or signing or or or prioritizing.
They are across the board and we have so much momentum on the issue.
I honestly a year ago wouldn't have thought it's possible for us to have the momentum that we have now.
And I believe it's just critical for companies, especially content owners to be leveraging that in order to do well and youll see us in 2023 pushed really hard to enable advertisers to bring their first party data to bear and I do think that that will represent.
Very strong.
Bottle.
The value propositions of walled gardens, and the leverage of first party data and their ecosystems because here they will get to put their first party data to work and then measure relative performance learned from it take the learnings with them. So that they can continue to improve their marketing and not just outsource advertising or marketing to walled gardens, which is historically.
And the only option that they've had so UAV plays it really critical role in the future of the open Internet and it's doing its job.
Thanks, Jason let's take one more question holiday.
Your final question for today is coming from Michael Morris at Guggenheim.
Thank you good morning, guys I have two topics I'd like to ask about one about the joint business plan momentum and one about Asia.
On the first topic of the JV piece.
Love to hear how if there's somebody you can quantify or help us understand how much more valuable.
Partnership through a GBP as compared to sort of your run rate business or somebody a partner who is not involved in one of those how.
How much value does it add and also how penetrated is the market at this point for those.
How much more runway do you feel you have with respect to the kind of addressable market for partners that are of the size that it makes sense for so that's the first topic and then the second just on Asia, Jeff you did spend a lot of time talking about the opportunity there.
The Asia Pac market historically has been a pretty tough market.
Sure.
Western companies they compete with local players so I'd love to hear a little bit about it.
Why do you think you can be successful where maybe some some companies in the past about thank you.
You bet. Thank you.
Tim take the first part of the question on the JV piece, then I'll add some color and talk about Asia.
Ill.
Trying to cover everything that you mentioned there so first starting with what's the difference between the GBP and in typical a typical engagement.
One of the major differences in the JV piece is that these tend to be multiyear agreements between the trade desk and a brand or agency and they tend to set kind of a partnership framework that often includes milestones for that partnership over that multi year agreement, which is typically a longer period of time than a standard MSA that we would sign with the client so within that framework.
The way that these work is that the advertiser, we sit down and we set goals for ourselves around things like how do we move more spend into the platform. How do we think about adjusting their investment mix moving it towards more data driven advertising how do we think about using platform features that they may be under utilizing it as a really great framework to structure how we.
Build a stronger partnership with that brand or agency over a longer period of time and one of the incredible benefits of that as it creates a lot of stickiness and engagement with our partners over that period of time, because we're constantly checking in on achievement against those milestones and I think the way that we look at those as just the longer term engagements is it really creep.
<unk> a lot of the.
Deeper conversation with our partners. So that we can really figure out how we're structuring these that are going to be in the best interest of their business and how we can kind of jointly agree on what we're going to try to achieve together over a multi year period, so any and all of that leads to a much more interesting and dynamic conversation and discussion over time, and we're really excited about the MAU.
Minimum that we have right now and we're expecting to continue to build on that into the future with more diabetes with more clients.
Thanks, Tim well said I don't have anything to add on the JV piece.
I'm excited to weigh in on Asia, though because I really appreciate your question and of course, we're also all sitting here in Singapore.
And nearing our 10 year anniversary of being here in <unk>.
In.
Asia market, where we started here in Singapore.
So we have a saying that our company that we are not an American company. We're a global company that happens to be based in the United States.
And can we be successful in Asia My responses, we already are.
11 markets in CTV or premium video grew faster than the United States for us. So when I say 11 markets I'm not again I'm not talking about in general I'm talking about the trade desks markets.
Our spend grew faster in 11 markets for for premium video outside the United States.
Then it did inside the United States.
The fastest region for growth around the World Southeast Asia.
Grew faster than Australia grew faster than North Asia grew faster than Europe grew faster than north or South America.
And that's in large part because.
Just like in every other market, creating alternatives, especially UGC for you too.
To put a very dominant position in many of the markets here.
But also you are seeing from the content creators that historically they've had sort of.
Our regional benefit whereas theirs.
Licensing that has prevented.
U S companies from competing with them in their markets.
One of the reasons why you've seen Australia close rival.
Leading in terms of size or percentage of market moving to CTV with the U S. Those two leading the way.
Is because.
With English English language content, no longer having regional barriers English content is competing all over the world and the same thing is happening with Chinese content and content and all others. So what youre seeing is that the content owners are no longer viewing their next door neighbor.
Sort of broadcast.
Their biggest competitors, but instead looking at companies like Disney and Netflix is their biggest competitors around the world. So they're all looking at the AD funded options that those companies are trading around the world and saying that we quickly have to follow in order to compete and so as a result, we're getting partnerships all over the world, we're setting up <unk>.
Ships that is the reason our executive team is here in the Asia is because it's not lost on us, but most of the GDP growth for the next 10 years is going to come out of Asia, and then in order for us to capture our fair share of that trillion Tam we have to be competitive in Asia as well as in other regions of the world.
<unk>.
We're already doing that.
And we've been doing that in this market despite things like the strong dollar and economic headwinds and some geopolitical issues, but we continue to do that because of strong partnership and a global mindset and of course, we represent most of the largest brands in the world and whether Youre talking about Procter <unk> Gamble Coca Cola Mcdonald's.
These brands advertise all over the world and it's not lost on them that GDP growth is going to come out of Asia. It's not lost on them that the fastest growing middle class in the world is here in Asia.
So you put all that together, it's a market that we're already winning them and we'll continue to do so we have over invested if you look at our employee count versus our revenue of course, we are early not late and that's a good thing not a bad thing. Thank you.
Thanks, Michael Thanks, Paul you can close out the call.
Thank you ladies and gentlemen, this does conclude today's conference call. You may disconnect. Your phone lines at this time and have a wonderful day.
You for your participation.
Goodbye.