Q4 2022 Trade Desk Inc Earnings Call
Please note this conference is being recorded.
I will now turn the conference over to your host Chris chose you may begin.
Thank you operator, Hello, and good day to everyone and welcome to the trade desk fourth quarter 2022 earnings conference call on the call today, <unk> founder and CEO , Jeff Green and Chief Financial Officer, Blake Grayson, a copy of our earnings press release can be found on our website at the trade desk com in the Investor Relations.
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.
We're looking statements represent our belief and assumptions only as of the date such statements are made actual results could vary significantly and we expressly assumes no obligation to update any of our forward looking.
Statements should any of our beliefs or assumptions prove to be incorrect actual financial results could differ materially from our projections or those implied by these forward looking statements I encourage you to refer to the risk factors referenced in our press release.
And included in our most recent SEC filings.
In addition to reporting our GAAP financial results present supplemental non-GAAP financial data a reconciliation of the GAAP to non-GAAP measure can be found in our earnings release, we believe that providing non-GAAP measures combined with our GAAP results provides a more meaningful representation of the company's operating performance.
With that I'll now turn the call over to founder and CEO , Jeff Green Jeff.
Thanks, Chris and thanks, everyone for joining us today, and let me start by highlighting the numbers.
And on the platform in 2020 with nearly seven 8 billion a record for us fourth.
Fourth quarter revenue alone was $491 million also a record.
CTV continues to be our strongest growth driver as more content owners from around the world. We can beyond AD free subscription models and offering AD supported options for viewers.
And once again.
The uncertainty of the year, we delivered strong profitability highlighting the operating leverage we have in that business. Our results are often benchmarked against the rule of 40 and compared to other high growth companies in that benchmark health of a technology company is expressed at the start of a company's growth rate and <unk>.
Our margin in 2022, we finished well over that benchmark again.
The second year in a row, we were 115% all while we continue to invest to drive future value and growth.
In terms of market uncertainty, perhaps its most useful to look at how we are performing compared to the broader industry.
According to estimates by Denton total mobile AD spend increased 8% last year.
Spend on our platform grew more than three times that with.
With uncertain macro conditions are most marketers are unpressurized to do more with less we continue to outperform and gain share.
I'd like to focus on winning market share. During this time of uncertainty as I think it gives a sense of the dynamics in our industry right now, which I expect to be in place foreseeable future.
Specifically in the last six months of 2022.
The trade desk, starting to separate for much of the digital advertising market in terms of relative outperformance in.
In the third quarter, we reported 31% growth, while our competitors were either in retreat posting single digit comp.
That trend continued into the fourth quarter as we grew 24%.
Most of our large competitors posting between negative nine and negative 2% growth.
I don't think we've ever had at the level of industry outperformance in our six years or so as a public company as we did in 2022.
And it means that we can be very confident that we're gaining share and that our platform continues to gain traction with advertisers Ira.
I remain convinced that in times of uncertainty as marketers look to do more with less they are continuing to prioritize decision media on the open internet with the trade desk in the open Internet marketers can measure ROI and value with more objectivity and that means they'll prioritize us over the limit.
Patients of walled gardens.
Without any insider intelligence reported a couple weeks ago that 2022 represented the first year in a decade that matter and Google do not account for more than half of the digital advertising market between them.
That shift comes as the digital advertising market continues to expand for.
For the pandemic digital advertising accounted for around half of total market spend last year and represented more than two thirds of the market. According to <unk>.
What's driving these two trends well as I've said many times before CTV is changing everything in advertising not only is the shift from linear to CTV driving significant growth in digital spend as advertisers shift dollars from linear TV connected TV, but more spend is happening outside.
Did the walled gardens as advertiser spend from user generated content premium streaming content.
I'd like to expand on this in a couple of dimensions, because I think and we will give you a sense of why I'm, so optimistic about our potential to grow this year and beyond.
First I'd like to touch on USD, two because so much has happened around identity in recent months that points to how the industry is evolving.
I believe we are starting to see advertisers challenge the walled garden business model more systematically than ever and it's because they have premium alternatives at scale in fast growing markets, such as CTV and retail media.
And last I'd like to touch on what all of this means for us in 2023, So let's start with you I do too.
First as a reminder of what <unk> is a few years ago, we created in collaboration with other open Internet companies.
Steady currency for the open Internet based on either an email address or a phone number.
Each is anchored on those two consumer data points, so that consumers can own and manage their identity around internet rather than managing privacy settings for each device or ecosystem like Apple or Google.
Our goal to create a personalization technology that was more privacy safe than cookies and better at empowering consumers than any alternative in the market.
<unk> was built the technology was open sourced and we welcome the partnership of Internet governing bodies as well as the broader digital advertising ecosystem, including agency brands content providers AD Tech companies and data partners. We have always believed a critical mass of adoption would lay the foundation.
Of our massively upgraded internet on that Incent more competition and improves privacy standards.
Actually what we're starting to see if.
If you had told me at this time last year, how much progress the industry would've made on <unk> in 2022, I don't think I would have believed you.
At the beginning of our fourth quarter last year around 15% of the third party data ecosystem was activating on <unk>. This is essentially a very large sample of the entire ecosystem of the entire internet.
First half of this year, we expect we will be in the 75% range.
Levels of activation that pie.
We solved the identity matching challenge of the entire open internet.
On a scale well beyond anything cookies have ever accomplished and all while providing consumers with much greater control over their privacy.
To be clear I'm talking about companies adopting <unk>, such as AWS and Snowflake Salesforce and Adobe.
We always said this change to the internet required adoption of the infrastructure players internet not.
Knocking on 2 million publisher content owners doors.
Upgrading the data infrastructure of the Internet there is now a significant mathematical incentive.
For every reputable player involved in digital advertising to lean in <unk>.
This is already happening with thousands of publishers in all channels of the open Internet.
<unk> two adoption by publishers is creating the richest most privacy centric identity environment, we've ever seen for advertisers and it also means and advertisers first party data becomes exponentially more valuable and I would say again that it becomes about 10.
<unk> is more valuable than with cookies simply because you need to solve the needle in the haystack problem that came with cookies because advertisers can now matched their customer data with accuracy across the open internet more effectively than ever before they can make much better decisions in every aspect of campaign optimization.
Including attribution and measurement.
And they can do so without ever compromising the consumer trust.
Went years, sometimes decades, establishing.
<unk> Advertiser take advantage of this new value at CES, We announced Galileo a new service that helps advertisers easily onboard and activate the first party data.
Galileo is only because of all of those integrations. We worked on last year across the data ecosystem Galileo starts with advertisers activating their first party data.
<unk> can be applied to ensure data can be used in a privacy safe way.
Of course, it's not just on the data side that we're seeing critical mass of <unk> adoption <unk> is starting to change the value of the inventory on the internet.
CTV is almost 100% authenticated CTV is being upgraded while non personalized ads on the web mobile and UGC sites are being downgraded.
As a result increasingly the world leading publishers are embracing <unk> with.
With CTV, we've talked previously about how Disney in applying <unk> across its media portfolio.
Just a few weeks ago, Paramount announced their integration with USD two across their IQ inventory, which includes Paramount plus Pluto TV BTT CBS news CBS sports.
Comedy Central MTV, Paramount network, VH, one and many others.
I shared the stage at CES with Paramount advertising President John Haley.
He talked about the importance of unified identity, and helping agencies and brands together campaigns in a fragmented omnichannel environment.
<unk> agree more with his sentiment <unk> will continue to grow as cookies become less important and CTV will continue to lead the charge here because right now there is economic pressure on everyone in the advertising ecosystem.
There is pressure on consumer who increasingly want AD supported lower cost options because of the strain on their wallets.
There is pressure from content providers, who need high CPM to fund their premium content.
In the arms race for new subscribers.
And there is pressure on advertisers, many of whom need to do more with less.
All of that creates opportunity for CTV.
At a moment when advertisers need to value and why there is more.
More opportunity than ever to advertise via CTV and a more data driven way.
Pioneer advertisers are already taking action for example, leading advertisers running campaigns and Disney leveraging <unk>.
Have been 12 times more effective in reaching target audience than without new IGT.
Astonishing progress and it's just the beginning much more will be said this year about the impact <unk> is having on the biggest brands and media companies in the world.
TB is the key for the open Internet and I believe its size its efficacy and its value will be transformational and showcasing the power of the open internet to advertisers.
Eventually it will force many welcome.
The lower the barriers.
This will happen in part because CTV is perfectly fragmented.
But collectively huge it's not so fragmented that you need millions of parties to coordinate but its fragments had enough that no. One has enough power to be draconian and go it alone.
As a result, everyone is rational enough to make the right decisions for the ecosystem to optimize the experience for viewers advertisers and of course media companies.
Because of these dynamics I also believe that 2023 will be the year that everything in television changes.
We now have premium CTV inventory at scale.
Most all of them is authenticated and we'll see more of a premium attached to inventory.
Creates new identifiers, such as <unk>, but.
But in order to get the best out of data driven TV advertising you cannot use a forward market that was invented in 1962 by the way that's the same year the cassette tape was introduced.
Because that tape has evolved in fact, the way we consume music has evolved many many times over the last 60 years, but the upfront.
The market needs and upfront that is always on but also leverages data so that content owners sell fewer more relevant ads at a higher CPM and advertisers get more efficacy.
Just for high CPM and CTV today advertisers are asking us for a new cohort market, where they can leverage data on an everyday always bond basis.
Advertisers have to make their ads more effective to justify higher AD prices. It takes a long time to unwind the culture of multibillion dollar commitment signed during a few days each spring and bring the process into today's digital environment.
This is already starting to happen and media companies can no longer justify the <unk> required to power today's content arms race without a contemporary forward market where advertisers leverage.
We will talk more about our CTV forward strategy at an event, we will host in early March in advance of the upfront season. This is the first time hosting this kind of event, where our streaming inventory partners will be able to showcase their value and innovation to our top clients.
And what's interesting about this event.
Is that I don't think there's any company in the industry can convene this level of media and advertising leadership to have this discussion.
Given this event market inflection point for the trade desk, but I will also underscore the pin pull that CTV. This plane in the broad information of digital advertising.
Showcase the emergence of premium inventory at enough scale to provide a compelling alternative to the limitations of walled gardens and theyre generated content.
Not just here in the United States CTV and premium video is the fastest growing digital advertising channel world.
And it didn't Asia, we recently ran a premium video campaign for <unk>.
Global food giant.
Using our platform on the lease was able to target specific audiences on premium video content from media companies such as video we TV iPhone X for this campaign monthly shifted spend from popular user generated content platforms.
And the results were very positive outcome and rates were eight times higher than what they've been achieving against user generated content and through rate.
15 times higher.
In addition to CTV one of the rapidly emerging areas digital advertising shopper marketing shopper marketing of course, several components to it probably the most interesting part is retail media segment.
Interestingly the dynamics of the market are not dissimilar to CTV retailers realize that they cannot maximize the value of their shopper data by building walls around it.
Stan to drive much greater growth opening their data up to advertisers.
Safeway.
Advertisers understand much clearly how their campaigns are driving actual online and in store sales.
That they can optimize and in ways that simply weren't possible a few years ago.
The current recently published a story about how Coca Cola one of the world's largest advertisers is thinking about shopper marketing.
We are activating campaign.
More than 25 retail media networks, including Kroger target, Walmart Amazon door Dash and instant card.
Since folks.
Building out its retail media strategy, a few years ago.
Seeing that major uptick in return on AD spend and increments beach as well as its ability to determine over up in audience across more than 130 million households, United States.
This approach has helped us to better pinpoint audiences targeted channels like programmatic display connected television and social media.
I'd like to.
<unk> Neal.
The <unk> commerce lead for Coke in North America.
Detailed media networks no. So intimately the behaviors of consumers that predict models data really help us identify what are those right touch points.
To say.
This is a great time to remind you that theres, a coca Cola product for you.
Retail media networks are another proof point that advertisers when they can apply data to their campaigns and because of this ex CTV retail will also prove to everyone in the advertising ecosystem that building walls around data and inventory is ultimately a flawed strategy.
As I said last quarter, we now provide access in our platform to about 80% of the leading retailers in the United States and.
Our international footprint and three months.
For example, we recently announced partnerships with test.
The largest grocery groups in Europe and fair price.
Grocery chain and Singapore as.
As a result, these integrations measurement from impressions all the way to the point of sale can be connected by better reporting analytics and attribution across the open internet.
As our advertising clients with new measurement capabilities that don't exist anywhere else on the digital landscape, including inside walled gardens.
Once again, we are pioneering data driven strategies now tens of thousands of brands that sell in retail environment better more objective data driven alternatives to walled gardens and unfair opaque marketplaces.
So what does all this mean for us in 2023.
From an industry perspective, we had a lot of tailwind.
The shift from linear TV to CTV continues to accelerate and I predict that at some point in the near future, we will reach a precipitous tipping point.
Won't be a long gradual shift to CTV and will be an acceleration and then a full launch in.
One of the things I am preparing for as the CEO is making sure that you have the resources and scale in place to help our clients through that shift.
Retail media networks will continue to grow in influence in part because they offer something revolutionary in terms of measurement.
That advertisers have been craving for years.
That direct relationship between spend and action.
But partly as a result of those trends I also believe we will see a couple of additional important shifts in our industry in 2023, particularly when it comes to how marketers think about programmatic.
First as advertisers have more opportunity to deploy data more fully and their omnichannel campaigns. Their focus will continue to shift from price to value.
They will always want to make sure that they are buying impressions at the right price.
But that won't be the leading indicator anymore.
Should have been.
They will continue to put much more priority on what Adam Oppressions delivered the right.
For that price in other words.
Hugh.
Second.
In the pursuit of value advertisers decisioning ship from inventory audience, instead of focusing on buying certain show a certain piece of inventory advertisers, but much more priority on audience precision regardless of channel.
Data enables them to do that this is especially important as the industry moves from a once a year upfront to an always on for the market.
And make progress on initiatives and as advertisers have embraced the value of the open internet.
Also predict that more walled gardens will begin to take on some of the barriers they will see that incremental demand and higher CPM.
That companies like the trade desk can generate with a focus on advertiser goals data in the open internet.
I'll close by highlighting that while we have those industry tailwind, we are not immune to the general economic headwinds.
Dozens of Cmo's through the first few weeks of 2023 and there is some level of uncertainty.
They all are under pressure to do more with less.
And precisely because of those pressures CMO are gravitating places.
Can be more deliberate and where they can apply data and decisioning and in fast growing channels like CTV or finding data driven advertising opportunities at massive scale.
CMS also understand while the current macro environment may be uncertain.
We will emerge from it and they are all preparing to be in a position of strength as that happens.
Most of them are getting ready some are granted and lands now nearly all of them are getting a better grasp on their first party data they are working with new identity solutions.
Leveraging more direct pass to premium inventory such as opening.
The world's leading media companies are integrating with us. So they are best positioned to access demand from advertisers.
Our integrated <unk> as well as new innovations such as open paths, which create simple authentication for their consumers as the shift away from cookies, but more logged in consent based model.
One moment.
A moment to prepare for a more data driven decisions advertising environment.
This also means that the strategy is broken down everyone needs more demand advertisers want more objectivity and value.
It is becoming increasingly difficult.
Aaron's to be draconian, especially now that advertisers have premium options at scale on the open Internet right.
Right now the biggest threat to the walled gardens is an open internet centered around TV and retail media.
The disparity and what advertisers yet from the Internet in terms of measurement and performance compared to gardens is growing every day.
See it, especially in television and increasingly you see it in retail.
Of course, I would be remiss to not mention the recent department of Justice lawsuit against Google.
Comprehensive look at how we will operate.
<unk> many of the draconian measures.
Lamented to tilt the market in the paper.
The trade desk has not been as impacted as much as others in the ecosystem and I believe that's because our mission has always been to provide an open objective and transparent alternatives to olive gardens.
We focus on objectively serves the buy side and with that objectivity, we win no matter what.
To be clear this is not us versus Google, it's the value opportunity of the open internet versus the limitations of walled gardens.
We have been winning for years and unfair market with some systemic obstructions working against us.
Imagine what we can do as the market becomes prefer which.
Which we predict it will one way or another.
I could not be more excited about the direction, we are heading minutes and the value that our advertising clients are realizing on the open internet because of all the progress we've talked about today, our focus on profitability ensures that we will remain at the cutting edge of our industry.
To many others in our industry over the last three years, who did not overextend ourselves in terms of hiring we have been deliberate and prudent keeping a laser focus on the long term opportunities in front of us as a result, we are one of a few high growth technology companies that consistently generates strong adjusted EBITDA.
And free cash flow.
You may have seen in our press release, our strong profitability and cash flow enables us to return capital to shareholders with $700 million share repurchase program.
While I generally don't like to comment on competitors' performance. It is worth noting again that in an environment, where many of our competitors contracted.
Our revenue grew 24% in the fourth quarter.
I believe that level of relative outperformance, which was evident throughout 2022 is indicative of the value we are delivering to our clients even in a challenging environment.
We continue to sign Gbp's with brands and their agencies and a very strong pace.
Billions of dollars transacted through these agreements last year.
I believe 2023 will be a tipping point year in many ways and I expect that advertisers will emerge more empowered than ever to drive data driven precision.
As a result, we will continue to gain share.
Let me wrap this up by borrowing a phrase from one of our clubs and largest since he partners.
I have a strong sense of hesitant.
About what 2023 holds for our industry.
And ill it over to <unk> for.
The financials.
Thank you.
Good morning, everyone.
As you already heard from Jeff We had a strong 2022, demonstrating another year of continued execution and growth for the trade desk, despite economic headwinds around the world.
Q4 revenue was $491 million or 24% increase year over year. Once again in Q4, we continued to grow share and significantly outpace our peers with the top line delivering growth well into the double digits.
I am also particularly proud of the 245 million of adjusted EBITDA, we generated during the quarter, representing a margin of 50% that helped drive trailing 12 month free cash flow of over $450 million.
Our results in both Q4 and for the full year 2022, where test to our ability to grow our topline efficiently, while generating substantial adjusted EBITDA and cash flow.
For 2022, we ended the year with nearly $7 8 billion in spend on our platform and about $1 6 billion in revenue representing 32% revenue growth.
During the year, we produced adjusted EBITDA of 668 million or 42% of revenue.
As we continue to generate very strong profitability rates despite macro challenges.
Our results reflect the ongoing strength of programmatic advertising and the increasing value that the trade desk provides thousands of agencies and brands as they connect with their customers across our platform every day.
As expected for the ninth year in a row, our take rate remains within a very consistent historical range, while over the same timeframe the value that our platform provides for our customers has increased dramatically.
More than ever advertisers earned recently, we use of data and value added services to increase their advertising efficacy.
Deliberately choosing to leverage more data and value added services is a win win for advertisers.
Higher Rois content partners in terms of higher CPM and the trade desk in terms of our business model.
We remain focused on our proven strategy of being the default DSP for the open internet only representing the buy side and avoiding conflicts too often prevalent in our industry as we continue our progression towards a total addressable market that is on track to reach $1 trillion.
The shift of advertising dollars from linear to connected TV continues to be a core driver of our business in.
In Q4, CTV again represented our fastest growing channel of scale around the world and year over year growth for CTV stayed consistent versus Q3, despite the level of uncertainty in the global economy.
Our shopper marketing business also continues to progress nicely as more and more advertisers who are retail data in their campaigns and we continue to see positive results in utilization in our data marketplace as the enhancements that we've made throughout the year are helping deliver better outcomes for advertisers.
From a scaled channel perspective in Q4 video, which includes CTV represented a mid 40% share of our business and continues to grow as a percentage of our mix.
This represented a high 30 percentage share of spend and as growth was against solid crop in App and mobile video.
Display represented a low double digit percent share of our business and audio represented around 5%.
Geographically North America represented about 90% of spend and international represented about 10% of spend for the fourth.
Growth in North America was resilient with our New York office, leading the way in Q4.
It's worth noting CTV growth in EMEA and South Asia were very strong once again this quarter. We are encouraged to see our teams in these regions executing on this key growth driver.
In terms of the verticals that represent at least 1% of our spin travelled nearly tripled and spend in Q4 compared with a year ago as the sector continues to recover from the impacts related to the pandemic.
Automotive was also among our strongest verticals accelerating towards the highest year over year quarterly growth rate in 2022, as a result of winning new business and the easing of supply chain challenges across the industry.
Additionally, as expected political election spend about doubled quarter over quarter, representing a low single digit percent of spend in Q4.
We continue to believe there is still potential for us to gain share within most of our verticals.
Turning now to expenses Q4 operating expenses, excluding stock based compensation were $263 million of 22% from a year ago. During the quarter. We continued to prudently make investments in our team, particularly in areas like technology and development as we scale and position the organization.
Organizationally for long term growth.
Excluding stock based compensation the year over year growth in Q4 operating expenses for the third year over year head count growth, primarily due to lower costs, such as variable compensation, the timing of fixed marketing investments and employer taxes.
Unlike some AD funded new technology companies. However, we have responsibly manage our headcount and operating expenses over the past few years as our demonstrated revenue growth since 2019 is higher than both head count and operating expense growth excluding stock based compensation over the same period because of that continued focus.
On generating profitable growth, we enter 2023, and a very strong position sure and wind spend while still generating meaningful adjusted EBITDA.
Income tax was $31 million in the quarter, mainly due to lower tax benefits associated with employee stock based awards when compared to the prior year.
Timing of which can be variable.
Adjusted net income for the quarter was $190 million or <unk> 38 per fully diluted share.
Net cash provided by operating activities was $173 million and free cash flow was $123 million in Q4.
Capex during the quarter was driven primarily by data center infrastructure investments that while higher than the previous year due to the timing was in line with our expectations for the full year.
I would like to remind you that the timing of cash collections and payments can significantly impact cash from operating activities to free cash flow results on a quarterly basis.
Dsos exiting Q4 were 104 days down three days from a year ago GTO were 86 days down five days from a year ago.
We ended the year with a strong cash and liquidity position our balance sheet had $1 4 billion in cash cash equivalents and short term investments at the end of the quarter, we have no debt on the balance sheet.
And finally as you've seen in our press release, we announced a $700 million share repurchase program. This morning, our strong balance sheet, coupled with the strength of our business model that produces significant cash flow to a review of our capital allocation strategy.
Ill review jobs investments in our business, including managing our working capital the potential for acquisitions and for returning excess capital to our shareholders.
Starting in the first quarter of this year, we plan to opportunistically repurchase shares, including helping to offset dilution from employee stock issuances.
Turning now to our outlook.
We have started the year with good momentum for the first six weeks of the quarter spend growth on a year over year basis, each week, demonstrating consistent acceleration off a bit slower than normal month of December .
While macro conditions continue to remain uncertain, we are cautiously optimistic and to make Q1 revenue to be at least $363 million, which would represent growth of 15% on a year over year basis.
We estimate adjusted EBITDA to be approximately $78 million in Q1.
Turning to our operating expenses in 2023, excluding stock based compensation, we expect our operating expenses to increase on a year over year basis.
Plan to continue to invest in our business and grow head count. However, our current operating plan to grow our team at around half the rate we did in 2022.
Considering our unique ability to generate both strong top line growth and profitability. We continue to manage with a balanced perspective that allows us to prudently invest in our business to capture the immense opportunity in areas such as CTV, our shopper marketing, while retaining flexibility in light of the macro environment.
We're also happy to say that most of our teams around the world are now back working in person in our hybrid operating model and we have resumed log team events travel and other related activities with that in mind, our operating expense structure of the company is significantly better than it was prior to the pandemic.
We are proud that the trade desk is one of the few high growth technology companies consistently be able to generate growth profits and cash.
We expect 2023 capital expenditures and capitalized software investments to be around $80 million, we expect datacenter and infrastructure to drive the majority of our Capex spent in 2023 as it did in 2022.
In closing I am very pleased with our performance in 2022 and are set up into 'twenty three.
Executing captured key secular growth drivers like CTV and shopper marketing, we're amassing industry support and partnerships for you already to an open path and we're adding more value for our customers with the continuous innovation of our platform.
We enter 2023 in a strong position to grow and gain more share continue to.
To focus on both growth and profitability and remain highly optimistic about the prospects for our business this year and in the years to come.
That concludes our prepared remarks, and with that operator, let's open up the call for questions.
Certainly at this time will be conducting a question and answer session.
I would like to ask a question. Please press star one on your telephone keypad.
Thompson will indicate that Youre line is in the question queue.
Start to if you would like to be removed from the quest.
For participants using speaker equipment, it may be necessary to pick up your handset before.
Keith.
Please pull for questions.
Your first question for today is coming from Sean Patel.
<unk>.
Thank you.
Hey, guys. Congrats on the continued strong performance at <unk>.
Couple of questions.
Jeff can you talk a little bit more about what you're seeing and how youre thinking about the macro this year.
And then just as a quick follow up Blake can you provide a bit more color on the <unk> guide and anything in terms of linearity that's worth noting thank you.
First of all some thanks I appreciate the question kind word.
First let me just say that we're incredibly proud of our performance in 2022 and that starts in 2023 of course, especially on a relative basis.
So far of course relative to all other scale ad platforms.
And companies.
Or private.
Our relative outperformance was greater than <unk>.
Well 2022 as well so from 2023.
From a macro standpoint.
In early January .
Saw a little bit of a latest due to.
The calendar year, we also.
<unk>.
No.
The way that both brands and agencies work.
With a little bit delayed than we've seen things unlock can we saw instead of there being delays.
Instead of there being Catherine there was just delays and those will become paused and unknown.
As a result, we've seen.
More JBT and we've seen a lot more activity so far in 2023 than we've seen at any time to this point and any year previously.
Overall.
Very encouraged by the trend in 2023, so far and.
And extremely optimistic, especially as we continue to grab land relative to all of our <unk>.
Competitors.
Hey, Sean This is Blake I'll try to answer your second question just to go back a bit on Q4 real quick fundamentally great quarter, despite macro uncertainty.
With the 24% year over year growth as a standout versus our peers many of which seem to have shrunk in Q4, CTV again leads the way for us where Robin land now it lays the foundation for us to times or better.
In the prepared remarks, you heard me say data adoption was really encouraging as it spins our customers while wheels.
With regards to the linearity question.
Lay a little bit like what Jeff talked about a bit larger deceleration into December than normal from what we saw in October and November , but we've accelerated that pretty consistently so far here in Q1, which is really nice to see if I'm cautiously optimistic.
For the quarter.
Places more challenged because of that uncertainty, but we see strong growth, especially in CTV and relative to the industry, we're growing significantly faster than that.
So many of our peers.
Signal declining or negative growth and we're growing in.
Yes.
Which means just confirms that we are taking share and so even though there is uncertainty out there I think we can be in a better position now than we were coming out of Covid as advertisers are prioritizing programmatic spend more.
The only other thing I'd, maybe add about the Q1 guide just want a comp perspective is if you exclude the political election spend that.
That we had in Q4 of 2000 to that low single digit percent shares in.
Our quarter over seasonality is trending just slightly better than we've seen on a bridge. So I feel really good in Q1, so far and I'm optimistic about the quarter.
Thanks next question.
Next question for today is coming from Matt Swanson at RBC capital markets.
Yes. Thank you.
Congratulations on the execution as well.
Jeff I wanted to ask you on all the Google developments, we've seen in the quarter I think a lot of the revenue pieces on the subject.
<unk>, but could you elaborate a little bit on what you think the needs and long term impact on the market as of the antitrust suit.
Especially the comment you made about the market will become more care, one way or another and then if I can add a quick follow up there was a beta on privacy and box for Android launch site does this change any thoughts around maybe the potential cookie deprecation timeline or how likely this awkward.
Thanks, a lot for the time.
Words as well as the question. So let me first just talk about the department of Justice lawsuit against <unk>.
Let me just.
Punch line first which is that I believe we will win regardless of the outcome. So no matter what happens I think we're going to win.
We have been winning and unfair market. So.
Of course, if the market becomes more fair, which we think it will as a result of this like I said, one way or another.
Then of course.
Signifies significantly better environment for us to perform and the department of Justice has clearly done their homework on this.
Which I'm extremely encouraged by I know theres, some a Google who've tried to suggest that we've been through the three or four times book.
I do believe that this is fundamentally different.
And part of that is just because of how detailed I think the cases as outlined.
Do you believe there are multiple outcome here theres lots of people talking about breaking it up.
There is there's lots of other potential outcomes, but I do believe that in any case this will slowdown Google Theres, a 100% chance of that.
And so with them slowed down with the market moving towards.
Better competition and more fairness.
I believe there is no way this isn't good for us.
I just want to acknowledge that there's some pressure to just break up assets I don't believe that that alone is enough.
If that's all of this done I think technology could be replaced.
Some of the same practices that got us here.
It could happen again.
So to me the most important thing that happens here is that.
Any settlement or or or any conclusion to the case ends with more fairness.
Restrictions to make certain that the market stays fair, especially when leveraging assets.
That are extremely.
Luckily if you will so.
As it relates to privacy sandbox.
Then a lobster.
<unk> asked about privacy sandbox.
In the past it's often.
I think wrongly.
Compare to that.
The world doesn't.
It doesn't necessarily knowledge.
The importance of relevance in order to create a.
And the Internet.
So.
Subsidized to content that currently exist on the open internet.
So.
I actually think that that has much to do with the antitrust case or the deprecation of cookies or UAV too.
But certainly something to watch.
Okay.
Thanks, Matt next question.
Your next question is coming from Youssef Squali at <unk> Securities.
Great. Thank you very much guys and congrats again on the really strong execution all things considered so two questions one for Jeff one for Blake, Jeff can you, maybe just share with us.
Bake that based on the commentary you've made about walled gardens et cetera. What signals are you looking for as an indication that these walled gardens will begin to take down the barriers and what will.
That look like for you guys and then Blake can you maybe talk about your opex or just your margin expectations.
Q1 margin implies.
Basically you are back to pre COVID-19 levels.
Bachelor Lake 18, 19 to get down to those low twenty's margins is that kind of the right way of thinking about.
Cadence throughout the year and then do you expect.
Margin improvement this year relative to last year. Thank you.
First what I'll follow on with the question.
About walled gardens.
So.
Let me just let me just step back a second and I'll try to default.
Although the question to ask.
Just want to remind everyone about the power of the business model I'm, a huge fan of it hydrops.
Hi, topline growth generated solid adjusted EBITDA with strong margins.
Generate consistent free cash flow generation and I'm really proud of how we've stayed disciplined with our investments of the past few years, it's really paid off for us.
Unlike many companies either in the AD funded space in the technology space, we've been very responsible managing our head count and operating expense growth. Since 2019, we didn't get ahead of ourselves last couple of years. So.
While many companies are pulling back or making some very tough decisions about the resourcing, we're able to stay the course grabbed share combine that with us actually growing into the double digits, while others contract.
That's up really well as we think about our branch.
Next year, they will increase year over year, that's a combination of a couple of things. It's a combination of the 2022 hiring and flow through that we've got it's also a combination of return to office expenses, including both the live events, but again, we're going to be deliberate about our investments in hiring and you heard on the prepared remarks, we're going to grow.
So our head count in 2023, but as of right now we're thinking roughly half the rate of 2022, we still see significant opportunities to invest in areas like CTV and shopper marketing and be ready to capture those the other thing I would say about.
One is also just the seasonality of live events. There were live events that occurred in Q2 of 2022 and those will happen in Q1 of 2023, so the seasonality is important.
Yeah, a little bit of attention to.
Overall, the way I would just say it is we're comfortable with where things stand I am cautiously optimistic about our growth of the start of the year could we see a significant change we have levers available to us to make those changes that we need to you saw us do that in 2020.
With regards to Covid.
And I believe the operating expense structure of the company that actually is better than prior to the pandemic. When you deal with that kind of seasonality issue that I was talking about were in a great position to drive more long term scale and efficiency as well as free cash flow. So I feel pretty good about that so hooked up to the first part of the question.
Gets to walled garden so.
Just to remind everybody what a walled garden.
And I'll.
I'll give you just one of the definitions which is that this is a destination that is essentially a must have.
Media plan.
The owner of that destination, whether it's a social network or video platform or any other walled garden.
The owner of that cannot afford to be draconian and set their own rules.
Okay.
What's happening in part because of <unk>, because as I mentioned in the prepared remarks.
<unk> is perfectly fragmented.
And what it does is it makes it so.
There are enough players that no one can afford to be draconian.
Has enough market share to do that.
But it's also concentrated enough.
We have very large sophisticated players that are making decisions, they're all hyper competitive and actually hyper rational.
So what I think that does is it puts a lot of pressure on all gardens because of the fact that there is this alternative that is super competitive and Super efficient when you add to that CTV spend by nearly 100% authentication. It lends itself to just highly personalized content.
In a way that no other channel has to deal with whether we're talking about in the mobile environment. These are under pressure in part because of Google and Apple.
Or in housing web for the same reason.
We are.
We havent syndication nearly all the time. Additionally.
Additionally, because of the <unk>, we also have the opportunity for <unk>.
To do exceptionally well.
All of that puts pressure on wallboard.
Yes.
The open Internet now poses a very viable alternative.
Whether we're talking about CTV, whether we're talking about detail, although we're talking about the economic environment and the pressure that that puts on walled gardens to warm welcome incremental demand.
Points to an ecosystem, where more and more of them are considerably.
Going down the wall, leaving the largest of them so that they can welcome incremental demand and certainly in environments like this.
Most likely to see some of those changes.
So there is lots of activity considering sort of stuff.
I do believe you'll see.
23, suggesting more and more welcome and thanks for the question.
Okay.
No.
Next question for today is coming from vastly caris, yes at Cannonball research.
Good morning, Jeff can you. Please talk in more detail about the forward always connected event you mentioned in your prepared remarks, and then connected to that can you.
Talk about.
Forward the market product that you.
Today, and also I think I spoke about a couple of quarters ago, but it seems like a very interesting product.
Of course.
Hiding the upfront market.
Gargantuan task that Youre undertaking here.
Yes.
For.
Really appreciate the question.
You are right the upfront market.
Huge.
I see that as an opportunity one because of course adds to the Tam.
Also because as you pointed out in the prepared remarks, the upfront market Hasnt changed since 1962 months.
And really it's.
It's a shame that changed.
Because the way the Upfronts work today is that you can't really bring data to the table.
CTV.
Very interesting position right now which is.
But it has been getting a premium largely because there's a scarcity so consumers have moved into.
CTV into on demand over the Internet content.
As they've moved the number of ads available for advertisers to put in front of those consumers Hasnt gone up nearly as quickly as consumers have moved out.
So thats created a scarcity premium for all the ads, but.
We're seeing more and more inventory come alive.
And so some of the biggest.
Content owners in the world.
Having to find ways.
Maybe I could see justify those prices instead of scarcity.
Part of the reason we talked about that.
Amazing case study with Disney where they talked about 12 X more effective.
As a result of using <unk>.
And then alternative means.
Personalization.
<unk> is absolutely required to bridge that gap between what was coming from scarcity and now being provided efficacy.
So.
Core CTV more effective but if you don't have that same level of data to the upfronts.
Youre going to Miss out on must have a TV.
Yes.
We have designed.
Always on forward market, which is essentially just new version of the Upfronts.
But in this case, we're using technology to make it so that you can bring data to the table and because of the fact that we've already integrated with most of the largest content owners at least in North America and many of the leading CTV countries around the world.
We think we pointed out we're one of the unique companies to be able to.
Post an event like that.
Well as to to build the market that makes it possible.
For forward contracts to be established on an always on basis. So when I say on the upfront is done once a year.
Do you think about commodities and equities markets those markets are.
<unk>.
It doesn't really make sense to only do a one year.
And there is an opportunity before advertisers and content owners to constantly be evaluating the value engineering.
Commitment.
You can either get a discount he assures that youre going to sell all of your inventory.
I believe thats good.
An important role.
In television the same CTV, whether it was in traditional television.
But we need a product that brings data to the table otherwise it cannot.
The CPM.
Everyone have become accustomed to in CTV and of course advertisers pay.
CPM at the efficacy isn't there.
There is no way to bring all of the best parts of the digital to enable leveraging the outcomes the way that they've existed to date. So we're.
We're very excited about it we don't think that we have to compete with.
Anything other than a $19 62 product.
Is that by our Super low I think we're in a really phenomenal position.
Thanks.
Next question.
Your next question is coming from Jason <unk> at Oppenheimer.
Thanks, Jeff can you talk about the opportunity to go direct to publisher with open that and just broadly the benefits the publisher the advertiser and then trade desk as you think about measurement targeting and ex alright, so kind of as broad question on basically the pitch to everybody about open bad.
Yes.
Thanks, I really appreciate the question because I don't know that most understandable path is.
I appreciate the opportunity to just clarify.
Sorry.
From the very beginning of the company, we've been pretty obsessed with improve the supply chain.
And then another firms I often look at the biggest technology companies in the world and try to study.
What they've done successfully.
I find a lot of inspiration from Amazon and switches.
Just I think as a company one way to define their success is just they obsess over supply chain, how do we make it more effective for the end consumer.
Exactly the same thing that we have been doing.
In fact ecosystem there are a lot of steps between advertiser and publisher that are unnecessary at times.
And in some cases out there or that people are taking more.
And then they are adding and value.
And ultimately that that is.
To the detriment of.
Advertisers and agencies that we represent.
And also on the shelf and the exchanges there can be an auction that is unfair I mean to some extent that is exactly what the department of Justice is filings Google for is alleging an unfair auction dynamics.
So what we have been trying to do is create a supply chain that is fair and transparent.
Competitive we found in our discussions with publishers and content owners that often.
As frustrated as we are with the supply chain and saying why can't we just integrate directly.
So we've made very clear to the market, especially to SSP, but we're not interested in competing with access piece. We are not interested in doing the yield management for publishers.
When a publisher wants to do their own yield manage.
Happy to integrate with them directly so that together, we can ensure that the auction is fair.
And that the pipes are clean.
And as a result, we also think that not only what we clean up the supply chain to make certain that fees are extracts where they should be but we'll also have greater transparency and that will actually.
Create better CPM.
Because the efficacy will go up so, especially.
Important when we're talking about connected TV in part because so many of the content owners of purchases SSP.
So most of them owned it so they've already made the decision to get in the business of yield management.
We are extremely excited to be integrated in with some of the largest we've talked a lot about our partnership with Disney and that's in part because at Disney.
Thank you.
The largest amount.
Of CTV ads.
Anywhere on the Internet currently meaning.
Company.
With their commitment.
Uhm too, but as well as the integrating with US directly we think that that sets the tone and the pattern.
What will happen to everyone else.
Quarters.
Announced our partnerships on UAV too with Cvs and Caremark clubs.
And so many others, but that lay the groundwork for US to then continue to do the same open path. There is a long queue of publisher is not just in CTV, but in other channels that are also signed up with that.
And we think that represents the start of a much cleaner supply chain. The open internet. Thanks for the question.
Thanks, Jason next question please.
Your next question is coming from Brian Fitzgerald at Wells Fargo.
Thanks, Jeff we saw recent piece from the head of media at an average of Bush talking about her preferences for PMT deals, but then CTV versus programmatic guaranteed.
She said because it helps me manage reach and freak across CTV destinations better I E decisioning, but what trends are you seeing there are marketers shifting.
Programmatic guaranteed and saying, we need reach and frequency control what's marketer.
Stepped down the Decisioning path do they tend to use more of what you offer in terms of aggressiveness in personalization and getting into kind of open auction environments.
First of all thanks for that and second of all were impressed with how long do you understand.
And then just.
Just implicit in the question is.
A deep understanding of what's going on in the space Youre spot on the premise of your question is spot on which is.
Yes.
Inside of programmatic guaranteed you don't have the same amount of decisioning as an advertiser.
So it means that you are giving up your choices in terms of what you buy and youre, giving us the ability to control reach and frequency and just other things.
To me it doesn't make a lot of sense.
In equities markets you wouldn't necessarily.
I'll just hand over all Decisioning.
If you are a portfolio manager you can make your own decisions. He wanted decided theyre going to bottoms.
Thats exactly the people that we're appealing to those are the people you are talking about.
There are people, who can make decisions about what they are buying and selling and especially because.
If youre going to pay a premium do you want to make certain that you are controlling reaching frequency and that's the math just doesn't work.
Noncontrolling mutation frequency than the premium that you are paying to be in CTV is no longer justifiable.
And so.
<unk> is pushing people towards using and leveraging more decisioning, but also just people wanting to be more effective and that's the way they have the most amount of control.
And.
We're seeing more and more of a move towards PMT and just anything that is complete decision.
<unk> represents the most.
Opens in CTV on whether those <unk> are initiated by us others really doesn't matter.
Most important is that the advertiser themselves or their agency representing them the.
The full decisioning, and where they've decided to put the ads and when they have that that's why CTV is at its best that's where digital is at its best.
Got it thanks I appreciate it.
Thanks, Brian next question.
Next question for today is coming from Mark.
<unk> at the benchmark group.
Good morning, guys.
Just curious how much of your <unk> revenue you would attribute to USD two and what do you expect that number to look like in 2000 and for the year.
And then how many of the large of you ideas.
You are talking about are activated in your auction and then separately curious what you expect Apple will do with private relay this year and what Google will do with with its.
Okay.
Call It four months and how that May impact ROE is on your debt.
<unk>. Thanks.
You bet.
First the <unk>.
First part of the question was pretty hard to answer.
In terms of how much of it came from you already too.
And that's in part because of course <unk>.
That then leverages the graph and then that graph.
It's still cookie.
Cookies lots of other identifiers.
That.
Sure.
We look for now.
This is walter in the future.
But we of course do same thing with just slightly low statistical confidence.
And still have lots of room to provide personalization across the internet.
You don't really know how it seems.
Not there.
But.
<unk> continues to grow and profit base.
Boston.
Tissue between all of those other things.
And then when you couple the fact that Q4 only about 10% of our data.
Third party data.
We expect that to be over 7% first half of this year.
Dramatic upticks in what's happening with your IP.
And it gets rid of much of the matching problem, but we did see large upticks.
Data in the second half of the year largely because of <unk>.
So it's hard to quantify.
In terms of the.
Revenue impact, but in terms of impressions that are leveraging up.
It's substantial so the substantial part of our success today.
This is a huge driver for our business now and everyday that goes by it's more and more of the case.
And these are being leveraged more and more as time goes on.
And in fact, our own path.
Well.
So just yet.
Two <unk> <unk> 2023.
<unk> global placement.
Are being adopted.
Ah.
Around the Internet.
You said Google's ICD.
There's a bunch of different Google ideas of course Theres the single sign on of course, the Android, which.
A lot of discussion about.
It would be fair then of course there is.
All of those are largely control of Google.
One thing I think Google has done well on most of these.
Announcements and said, we're going to do that years from now and some of those days and a 2024. So we're talking about years from now.
It is reasonable to expect part of the reason why Google.
Online to out like that.
So that they can see what happens it seems like the department of Justice litigation, they want to see how that.
And there are tons between the wrong place as it relates to.
Protecting privacy also guarding against anti trust.
Sure.
So.
Davidson Google's interest to many of those all go away.
Some of the things.
Specific issue is that they have to consider the impact on the internet really on the open Internet and all the publishers of support and especially with the amount of scrutiny that they have right now the anti trust side I'm not sure that a doctor in their interest to see those fall away.
From from the open Internet.
<unk>.
I think another way to look at Google.
Google is hoping that things like <unk> to go really really well and it takes some pressure off of them.
So.
It sort of goes back to the plant or another they're going to get better.
I think with the pressure that Google is facing right now I think.
That's more true than ever.
Thanks Mark.
Next question Holly.
Your next question is coming from Laura Martin Needham.
Hey, Jeff.
On the D J.
It's 150 pages of how Google has been a busy now.
My question is have all the smart clients that could leave Google already come to the trade desk or do you feel that in 2023, you are going to be getting incoming calls.
Clients have read this 150 page.
Clearly youre kony and treatment of clients. So do you benefit from that is near term and then secondly, UGC. So I agree with you on the walled gardens have been writing a long time that walled garden.
Sure to the Internet.
See it's the first time you talk about that.
I guess I hadn't thought because I was thinking tick tock was take share from the two big guys, meaning Youtube and matter, but could you go more to why you think huge.
It is.
Losing share.
Because I don't really understand that one.
Sure so.
Okay.
On the part of the question related to the Department of Justice.
Litigation against Google and will benefit the trade desk, and our clients coming to us as a result.
I definitely.
It will continue.
As you know we have great relationships with most of the largest advertisers in the world.
So.
I wouldn't say that.
Many that are extremely large that would move over that hadn't.
Something with us.
But there are some that are.
Changing the politicians if you will.
Between less but doing more with us.
So I do think that there is an opportunity for that to be positive for us.
Okay.
Lee.
No.
As it relates to that.
The UGC side.
And.
I think.
There is a change happening with UGC and more moving premium let me just explain a little bit what I think is happening with the economics and a lot of it comes back to <unk>.
So because.
Depression that are being put on identity across the internet.
Even more premium.
Heading towards connect.
Connected TV, because it's nearly 100% authenticate it.
Because there are some applications that.
Enable consolidation.
Could it be changed are controlled.
By any one company.
Fragmentation, whether you're looking across operating systems or whether you're looking at a content owner.
Yes.
That's almost three times to watch content.
That enables a level of personal location and pushes people to the open internet while at the same time could you see us having oil supply.
Ever.
And.
Sure.
With.
Personalization of less control coming from advertisers.
Stark contrast between what the mobile and CTV and what's available and UGC set another way.
Viable scaled alternative to the massive UGC platforms that now make it so.
It's not quite it doesn't get quite the same loss rate to be draconian.
In those UGC platforms as you could be ultimately.
Thank you, thanks, and Holly we have time for one more question.
The next question is coming from Dan Salmon at New Street Research.
Hey, good morning, everyone.
Just one quick one for me.
Great David Matt consistent 20% range.
Ticked down a couple a little bit last couple of years pick back up again, you've talked about the balance of large and small clients driving that in the past.
Is there anything different going on there and I'd be interested just a little bit more about how youre GBP joint business plans compare.
<unk> business and if that's the important variable as well thanks guys.
Sure I'll take that.
Definitely unit power property.
Right.
2022, Mark I think the 90 the year, where we've had really consistent trends. If you look at the take rate.
Data from 2014, the 2022 over that eight year period I think.
Went up for years, and then went down to four years. So it's really been pretty consistently right around that 20% figure.
It goes a little bit sometimes it goes down a little bit, but the real important thing to note about the paper is that while it's been steady.
On the in the prepared remarks, we've made massive improvements for our platform <unk>.
<unk> products are adding feature.
Customers and we're effectively passing that surplus to them. So they can create value then gross for that and then in our flywheel.
And I don't think Theres any reason.
Range changes for the near future.
We continue to expect that we'll make further improvements to the platform and the data marketplace.
As always about being sure I'm thinking about margin dollars not just margin percentage.
With respect on the on the GBP side Theres a lot of assets go into that it's not just like a rate conversation.
We're incentivizing data usage, we're incentivizing the omnichannel benefit that we have as a company and so.
It's really not any type of Ah.
Drag because you look at our GBP as a percentage of our spend and it's been good.
Growing pretty nicely and we went through a little bit of that in <unk>.
Investor Day presentation.
Late last year.
I guess, the only thing I'll add is.
One off line a couple of important points here first.
Our take rate has gone up.
Three of the last six years and it has gone down three of the last six years stayed pretty much the same the entire time, we're a publicly traded company.
Important to note that during that time of course, we are.
A lot of software.
And what I have always been focused on and we talked about this during the IPO Roadshow, we wanted to make certain that we were always adding to consumer surplus and by consumers plus we mean, our users so that we're giving them more.
And yet the price is essentially staying the same.
I think we've done that over time and Thats, partly why are our client retention rate has been so high and satisfaction of our clients and so.
We expect to continue to add to that consumer surplus that we want to make certain that our clients want to stay we believe that.
The definition of economic sustainability.
More value than you extract and we've been doing that over.
Theres always a desire to try to figure out what are all the drivers of take rate what makes it go up and down there is a lot of things, whether it's about channel mix and geographical mix thereabouts.
What about size of clients, there's a whole bunch of things also do some data.
I think the single biggest contributor.
In 2022 any change in take rate was largely just the way the data marketplace changed.
And I expect changes in 'twenty three continued to affect that.
You're going to be looking for ways to get that data.
That is essentially the same in the consumer surplus so we spend the flywheel because at the end of the day, we're trying to grab land.
Okay very helpful. Thank you guys.
All you can close the call.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
The first question.
Bye.