Q1 2023 Trade Desk Inc Earnings Call

Speaker 1: Welcome to the Trade Desk first quarter 2023 earnings conference call.

Speaker 1: the formal presentation. If anyone should require operator assistance during the conference, please press store zero on your telephone keypad. Please note, this conference is being recorded. I will now turn the conference over to your host, Chris Toath. You may begin. Thank you operator. Hello and good day to everyone.

Speaker 2: Welcome to the Trade Desk first quarter, 2023 earnings conference call. On the call today, our founder and CEO , Jeff Green, Chief Financial Officer Blake Grayson, and Executive Vice President of Finance, Laura Shenkheim.

Speaker 2: A copy of our earnings press release can be found on our website at thetradedesk.com in the investor relations section. Before we begin, I would like to remind you that except for historical information, some of the discussion and our responses in Q&A may contain forward-looking statements which are dependent upon certain risks and uncertainties.

Speaker 2: These forward-looking statements represent our belief and assumptions only as of the date such statements are made.

Speaker 2: Actual results may vary significantly and we expressly assume no obligations 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

Speaker 2: 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 on 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.

Speaker 2: 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 today. As you've seen from our press release, we are off to a very strong start in 2023. We reported first quarter revenue of $383 million.

Speaker 2: representing growth of 21% compared with last year. Again, exceeding our own expectations and has been the case in the last few quarters. We continue to significantly outperform the digital advertising industry. We are gaining market share as advertisers embrace the precision and relevance of data driven advertising on the open Internet via our platform.

Speaker 2: signing multi-year joint business plans, JVPs, with the leading agencies and brands, some of which represent spend projections that exceed $1 billion.

Speaker 2: From the beginning, our goal has been to align our incentives with the buy side. This continues today. Because we do not own any media and because of our unwavering commitment to the demand side, our clients trust that we represent their interests alone. And we continue to innovate our platform to bring maximum value and ROI for their brand and agency campaigns.

Speaker 2: With that in mind, I'd like to focus my comments today on a few key areas. First, CTV, second, AI, including generative AI, third agility, and fourth, the combination of open path and identity.

Speaker 2: So first, the transformational impact of CTV. In the first quarter, video, which includes CTV, was the fastest growing channel of our business. And our CTV growth is not just here in the United States. CTV continues to grow rapidly both in EMEA and across Asia.

Speaker 2: As I've said before, the shift to CTV is driving significant change, not only in TV advertising, but also in Omnichannel advertising. In other words, our whole business.

Speaker 3: frequency.

Speaker 2: As part of an omnichannel campaign, these impressions are then followed up with less expensive display, audio, mobile, and native ads to move the user down the funnel.

Speaker 2: The focus on the transformational nature of CTV is never more apparent than at this time of year, as major networks work to sell as much of their inventory as possible in advance through the annual spring up front process.

Speaker 2: As the upfronts kick into gear, the role of programmatic CTV advertising is increasingly top of mind for our agency and brand clients. In recent years, upfronts have been charging higher CPMs for less reach and broadcast TV, which only serves to shine more clarity on the value of digital and the growth of timeless altered a microphone feature with different third party douche thru SHness helpful

Speaker 2: Add to that the current riders' strike, undoubtedly timed deliberately, and we expect more dollars to flow into the spot market, programmatic and decision TV.

Speaker 2: As a result, I expect CTV to play a more central role than ever in this year's Upfront.

Speaker 2: At age, summarize recent trends in an article a couple of weeks ago that I quote, advertisers are requesting new deal terms with the major streaming TV companies ahead of this year's spring ad haggle, including how brands spend through programmatic platforms.

Speaker 2: In some cases, brands and agencies are asking streaming publishers to let the trade desk be a part of the deals.

Speaker 2: The shift to decision CTV was reinforced at our recent forward 23 CTV event in New York City, where most of the major streaming media companies joined us on stage to talk about how they are innovating in CTV to bring value to the world's top advertisers. Paramount talked about how advertisers are incorporating data identity and optimization.

Speaker 2: integrating new ID too in order to ensure a premium CTV experience with low ad loads and frequency controls for advertisers.

Speaker 2: Across the board, UID2 is accelerating as the primary currency for CTV decisioning.

Speaker 2: As we've discussed previously, bid-able marketplaces are inevitable for media companies to maximize demand and compete in the CTV content arms race. This only becomes more true as the streaming wars intensify each year. By the way, this also makes integration with the trade desk somewhat inevitable for...

Speaker 2: is more valuable to them than the ad-free subscriber. Hulu has said the same thing for years. Even in the early days of the market, ad-supported streaming is proving to be the most effective engine for growth and value. And that is even before Netflix brings the power of identity and biddable marketplaces to the table.

Speaker 2: With a critical mass of premium CTV inventory available across a wide range of platforms, our advertising clients are eager to embrace the power of decisioning in their TV campaigns. And many of them are working with us to drive new innovations in CTV to get the maximum value from their investments.

Speaker 2: advertisers understand the quality of the ad experience that the consumer is having. The index analyzes consumer perceptions of different streaming platforms, ad relevance, and publisher signals to ensure that each campaign targets the most relevant inventory to any specific audience group.

Speaker 2: It also helps advertisers compare the impact of premium video against the sea of UGC skippable ads.

Speaker 2: large global banking customers.

Speaker 2: ToneBruss wanted to understand how CTV could help increase brand awareness and favorability. With TVQI, ToneBruss was able to see where increases in the index score drove meaningfully higher brand lists.

Speaker 2: In this particular campaign, Tombress was able to drive a 22.5% lift in awareness and a 17% improvement in favorability by focusing on high-scoring inventory from HBO Max and Discovery Plus based on TVQI.

Speaker 2: The TV inventory quality is particularly important to advertisers when thinking about premium CTV content compared to the user generated video content that often characterizes walled gardens. This was a priority for Sydney Realty, one of the top real estate companies in Taiwan for an omnichannel campaign that they recently ran on the trade desk.

Speaker 2: Cine wanted to boost its business by reaching more sellers and they had previously relied on social media marketing against UGC. With the Trade Desk, however, Cine was able to significantly expand targeted reach and improve performance with an omnichannel campaign that embraced CTV, online video, and display advertising.

Speaker 2: and related topics, including consumers who had recently purchased home decoration products. With this approach, Cine was able to significantly expand their target audience, outperforming every one of their key KPIs. Indeed, Cine's video advertising assets performed twice as well as their previous UGC campaigns.

Speaker 2: I think it's also worth noting that while we spend a lot of time talking about the transformational nature of CTV, Sydney's experience is a typical one of many of our clients. As I mentioned before, CTV is often just a starting point. Very few advertisers execute in CTV alone.

Speaker 2: Almost all of them want to bring decisioning to their TV spend so that they can be more data driven across all advertising channels. And the emergence of premium CTV inventory at scale now enables that omni-channel optimization. Next, I'd like to talk about artificial intelligence and our focus on innovation.

Speaker 2: AI has always been a very strategic focus of the trade desk and we're confident that once again we're in a leading position. In our original business plan, we said that our technology had to be a fusion of human and machine. Our initial products reflected that paradigm. is shared with the world for the job.

Speaker 2: Humans are often best at creating hypotheses, especially about how to emotionally connect with other people, something that is key to the success of any advertising campaign.

Speaker 2: At the same time, machines can often test those hypotheses.

Speaker 2: and constantly learn from new data. In 2018, AI was deployed throughout the Trade Desk product in enough places that we launched a brand that year, Towa. To our users, Towa denotes the presence of TCD's proprietary AI learning technology that generates recommendations.

Speaker 2: have these features turned on as a default because they know that they're getting AI driven insights and optimizations constantly applied to their campaigns.

Speaker 2: I love what the CEO of Coca-Cola said publicly after their earnings a few weeks ago, and I quote, Much has been said about AI and it's certainly going to obey the maxim, Profound transformative technology is often overestimated in its impact in the short term and underestimated in the long term.

Speaker 2: business operates but also how we engage with consumers. He then added, I think AI is going to make a huge impact in marketing.

Speaker 2: With that in mind, not enough has been said about what it takes to make great AI.

Speaker 2: ChatGPT is an amazing technology, but its usefulness is conditioned on the quality of the data set it is pointed at. Regurgitating bad data, bad opinions, or fake news, or AI-generated deep fakes, for example, will be a problem that all generative AI will likely be dealing with for decades to come.

Speaker 2: We believe many of the novel AI use cases in market today will face challenges with monetization and copyright and data integrity or truth.

Speaker 2: And scale. By contrast, we are so excited about our position in the advertising ecosystem when it comes to AI. We look at over 10 million ad requests every second. Those requests in some represent a very robust.

Speaker 2: and very unique data set with incredible integrity. We can point generative AI at that data set with confidence for years to come.

Speaker 2: We know that our size, our data set size and integrity, our profitability, and our team will make COA and generative AI a promising part of our future.

Speaker 2: In the future, you'll also hear us talk about other applications of AI in our business. These include generating code faster, changing the way customers understand and interact with their own data, generating new and more targeted creatives, especially for video and CTV, and using virtual assistants get to know their customers and encourage them to use AI.

Speaker 2: to shorten the learning curve that comes with the complicated world of programmatic advertising by optimizing the documentation process and making it more engaging. We'll have a lot more to say about the role of AI, particularly how it is getting more distributed within our system, as well as many other game-changing innovations at our next...

Speaker 2: platform launch event on 6.6 in New York. It will be the largest platform launch in our history, and I even hesitate to call it an upgrade because it is so much more than that. It will encompass a new approach to collaborative innovation, breakthroughs in how we surface value for advertisers, and expanding accessibility as marketers of all types.

Speaker 2: embrace the power of programmatic. The new release is called co-chi and we look forward to sharing new product announcements, new ways for partners and clients to adopt and integrate with the trade desk and even deeper relationships as a result. For the third topic today, I'd like to talk briefly about agility. In our work with the thousands of agencies and brands that utilize our platform

Speaker 2: of the role that advertising continues to play in helping them drive growth and differentiate their businesses even in times of uncertainty.

Speaker 2: Because of this, marketing leaders need to be deliberate with advertising budgets. More and more, they are looking to understand where they can shift investments and where they can be more flexible, agile, and data-driven to find those important opportunities to differentiate and drive growth to their business.

Speaker 2: to month increments versus a year-long or six-month plan.

Speaker 2: A great example of this is FairPrice in Singapore. You may remember that FairPrice is one of our retail media partners.

Speaker 2: They are the largest grocery chain in Singapore. They are also an advertiser on our platform.

Speaker 2: data from their loyalty program which comprises more than 2 million customers.

Speaker 2: Using UID2, they were able to do lookalike modeling to understand where additional potential customers might be targeted. Potential customers who share some characteristics of their most loyal customers.

Speaker 2: and the results were very impressive. When using UID2 to execute that modeling, fair prices acquisition cost per customer was one third lower than with traditional identifiers, but also with twice the scale. The same trend is happening around the world. One of the world's largest CPG companies, also one of our largest clients.

Speaker 2: recently highlighted this on their earnings call. They talked about how programmatic was helping them drive significant campaign and media efficiencies, maximizing the ROI of every campaign dollar. This efficiency helped them reinvest in more media and innovation, driving competitive differentiation.

Speaker 2: The trend toward agility and flexibility plays into the strengths of the trade desk. In fact, I would argue that at a time when it can be harder than ever to predict macro market trends, the ability to drive a growth and competitive differentiation agenda using our platform becomes more compelling than ever. And we expect this trend to continue regardless of the macro environment.

Speaker 2: More and more marketing leaders from CMOs to agency leaders to media planners understand the power of programmatic to thoughtfully drive value.

Speaker 2: and they are leaning in, whether it's in CTV, retail media, UID2, or any number of other key programmatic innovations. Finally, I'd like to discuss UID2 and the Open Path. I've mentioned UID a few times on this call already, but I'd like to touch on the progress we've made there and with Open Path in the last few months as well. Much has been written about these innovations in recent weeks, especially about what they might mean for the evolving roles

Speaker 2: internet continues to grow and evolve, it's essential that we develop new identity currencies that help us preserve the vital value exchange of relevant advertising for free content.

Speaker 2: Last quarter, I said we expect 75% of the third-party data ecosystem to be activating on UID2 by the middle of the year.

Speaker 2: I'm proud to report today that we are now right at that level, with most major third-party data providers leveraging UID2s on our platform.

Speaker 2: A growing number of publishers are also sending UID2s, providing advertisers with greater insight into audience engagement and campaign performance. And as a result, ad spend is increasingly gravitating towards ad impressions that include UID2. It's worth noting that in some cases we may see the same ad impression from up to eight or nine SSP supply paths on our platform. Jack

Speaker 2: When this occurs, our clients are more likely to transact on impressions that incorporate UID2 because they have a clearer sense of exactly which audience they are reaching and how those ads are performing. A few weeks ago, for example, Unilever announced that ad impressions including UID2 on Disney

Speaker 2: were 12 times more effective in reaching their target audience than those with traditional identifiers. This is not atypical and our advertisers are willing to pay for the value of that precision. Indeed, CPMs on the ad impressions containing UID2 are meaningfully higher than those without in most channels.

Speaker 2: In this way, UID2 simply helps advertisers drive as much value as possible from every advertising dollar. The same can be said of OpenPath. To begin the discussion on OpenPath, let me first remind you of what it is. OpenPath is a direct integration from our platform into publisher inventory.

Speaker 2: It provides our clients with a direct line of sight in the premium inventory across channels, and it provides publishers with a direct view of what advertisers are willing to pay for their impressions. In no way, shape or form is open path and effort by the trade desk to enter the supply side of digital advertising. That is not in our interest.

Speaker 2: To explain that a bit more clearly, it's worth spending a moment on some of the industry dynamics that make OpenPath compelling for our clients.

Speaker 2: OpenPath was born of an advertiser interest in having a more clear and transparent path to publisher inventory.

Speaker 2: where every participant in the supply path is contributing more value than they are extracting in fees. Advertisers have long been aware that there are quite a few hops in the advertising supply chain. And neither the price nor the value of each hop has ever been completely clear. We share this concern.

Speaker 2: And in this way, OpenPath is very consistent with our long-term commitment to make supply chain optimization and efficiency a reality.

Speaker 2: Advertisers, eagerness for more transparency came at a time when publishers were becoming increasingly frustrated in their ability to manage yield in the complex world of programmatic. Indeed, many of them were starting to do it themselves with some even launching their own ad servers. And why were they frustrated? It really has a lot to do with Google's dominance of the supply side and the draconian measures they...

Speaker 2: or DFP should have more and better competition from SSPs just as we tried to provide on the demand side.

Speaker 2: But given the state of the supply chain in Programmatic, which is one where either companies have the power to create change and don't want to, or they are too small to have the power to create the change,

Speaker 2: Advertisers want direct integrations and publishers are welcoming them. Many publishers representing thousands of media properties across CTV, mobile and display have already integrated with Open Path. And our advertisers are increasingly prioritizing direct channels where they have a clear view of value.

Speaker 2: For all of the publishers that have integrated, we have a multiple of that number going through the process of getting on board right now. So let me bring this all to a close by highlighting that our work in these areas is made possible by our focus on profitability. In the first quarter, once again, the trade desk generated strong adjusted EBITDA and free cash flow.

Speaker 2: We remain one of the very few high-growth technology companies to consistently do so year after year.

Speaker 2: Our strong profitability allows us to invest in emerging technologies such as OpenPath and UID2 and deliver them to market, even if development resources are in short supply across our clients and partners. It means we can continue to invest in innovations, and we can continue to invest in the innovation of our clients.

Speaker 2: such as our retail media marketplace enabling our clients to more effectively measure how specific campaigns drive in-store or online purchases. Just a couple of days ago, we announced a new retail partnership with Macy's here in the United States. In Europe , we recently announced a new partnership with Ocado, a joint venture involving Marks & Spencer.

Speaker 2: one of UK's fastest growing grocery groups. We now work with many of the world's leading retailers to activate their data for our advertisers. And our clients are embracing the opportunity to apply more performance and measurement precision to their retail campaigns. In many cases, this is incremental market opportunity for us.

Speaker 2: It also means we continue to advance our industry leadership in AI, which I mentioned earlier, and which we will talk about more on June 6th with the launch of CoCHI.

Speaker 2: Our commitment to industry leading innovation underpins everything we do. In the first quarter, we once again outperform the market with 21% revenue growth, meaning we continue to gain market share at an impressive pace because we consistently bring innovation value to our clients every single day.

Speaker 2: The innovation acceleration and programmatic will only continue in 2023, as more advertisers embrace breakthroughs in CTV, retail, identity, and so many other areas.

Speaker 2: The trade desk will stay at the believing edge of this innovation curve and in doing so, I'm optimistic that we will continue to outperform the market, deliver more value to our clients than we extract and gain share.

Speaker 2: As I hand over the microphone to Blake Grayson, I'd like to underscore an announcement that we made in our press release. I'm so thrilled to announce the promotion of Laura Shankine to become our new Chief Financial Officer, succeeding Blake who will be leaving the company for a senior finance role outside of the ad tech industry.

Speaker 2: First, I'd like to thank Blake for the amazing contribution that he's made to this company during his time here the last few years. I can't imagine having been through this with anyone else, never expected to experience the effects of the pandemic, some very difficult decisions in the middle of 2020 around resource allocation.

Speaker 2: a grow as a leader.

Speaker 2: I think it's fair to say that one of the most significant achievements of Blake during his time here is how much he has mentored and helped Laura to grow.

Speaker 2: Laura understands our business and on a personal note, because I've worked with Laura for a decade.

Speaker 2: I've come to trust her strategic counsel and her recommendations. I'm very proud to call her my partner and our new CFO .

Speaker 2: And with that, I'll hand it over to Blake to say a few words and cover our financials.

Speaker 2: Thank you, Jeff, for the kind words and good afternoon, everyone. I am immensely proud of our achievements as a company, and it has been an honor to work with Jeff and the leadership team, as well as so many talented individuals at the Trade Desk.

Speaker 4: I'm leaving for a new challenge knowing the company is well positioned for the future.

Speaker 4: Laura is an extremely well-respected and accomplished colleague and has my full confidence as she assumes her new role. Now, onto our results.

Speaker 4: Q1 was an exceptional quarter of financial performance and execution for the trade desk. Q1 revenue was $383 million, a 21% increase year over year.

Speaker 4: marketers have become more agile and deliberate with their digital advertising.

Speaker 4: While some macro uncertainty in the market has led to relatively uneven ad budgets, we are seeing increasing numbers of marketers embrace our platform to take advantage of our flexible and data-driven approach.

Speaker 4: media, further solidifying our position as a leading player in the industry.

Speaker 4: Strong growth returned to many of our key international offices. The growing adoption of UID2 by major advertisers and publishers speaks to the value that is placed on identity in the open internet ecosystem. In addition, we deepened our partnerships with clients by expanding our joint business plans on a global level, a testament to our unwavering commitment to providing outstanding value and results.

Speaker 4: This outperformance led to record free cash flow of 177 million in Q1, marking nearly 500 million in free cash flow on a trailing 12-month basis, which is nearly 10 times the free cash flow we generated just three years ago.

Speaker 4: In the current environment, our consistent ability to grow our top-line revenue while generating meaningfully positive adjusted EBITDA and cash flow puts us in a strong position to continue investing for growth and grabbing land while others are forced to pull back. Additionally, I am proud that our robust cash generation allowed us to return excess capital to shareholders and to our customers.

Speaker 4: the first time via our share repurchase program. In Q1, growth was broad based across channels. The shift of advertising dollars from linear to connected TV continued to be a core driver of our business. From a scaled channel perspective, video, which includes CTV, represented a mid 40s percentage share of our business and continues to grow rapidly as a percentage of our mix.

Speaker 4: Mobile Representative mid-30s percentage shares spend as growth was again solid across in-app and mobile video. Display Representative low double digit percent share of our business and audio represented around 5%.

Speaker 4: Geographically, North America accounted for 88% of our Q1 spend, with international representing the remaining 12%. We're pleased to report that international growth slightly outpaced North America during this period, with particularly strong performance in EMEA. Our CTV business in Europe grew well into the triple digits year over year.

Speaker 4: continue to improve.

Speaker 4: As customers seek to optimize their ad spend, the trade desk is well positioned to deliver value and drive ROI as we demonstrated in late 2020. In terms of the verticals that represent at least one percent of our spend, travel nearly tripled in spending Q1 compared to a year ago, as the sector continues to recover from the pandemic. Food and drink, automotive and home and garden were also among our strongest-

Speaker 4: and our team during the quarter to support our long-term growth objectives.

Speaker 4: The year-over-year increase in operating expenses, excluding stock-based compensation, was partly due to in-person events and travel that did not take place in Q1 of the prior year, as we had not yet fully resumed back-to-office work or in-person events.

Speaker 4: Unlike many ad-funded and technology peers, we have responsibly managed headcount and operating expenses over the past few years, maintaining a focus on profitable growth.

Speaker 4: As a result, we are well positioned to capture market share and increase spend while generating significant adjusted EBITDA. Our income tax benefit was $19 million in the quarter, mainly due to the tax benefits associated with employee stock-based awards, the timing of which can be variable. Adjusted net income for the quarter was $114 million or $0.23.

Speaker 4: for fully diluted share. Net cash provided by operating activities was a record 188 million and free cash flow was a record 177 million in Q1. DSOs exiting the quarter were 88 days and DPOs were 72 days.

Speaker 4: We exited Q1 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. In February , upon review of our capital allocation strategy, we announced a $700 million share repurchase program. In Q1, we repurchased 5.1 million shares of Class A common stock and $1.3 million in Q1.

Speaker 4: for an aggregate amount of $293 million. The company will continue to approach the repurchase program opportunistically depending on market conditions and capital priorities. Before I pass the microphone to Laura to cover the outlook for Q2, I'll summarize by saying the trade desk is off to a fantastic start in 2023 with strong momentum across the business. Our robust business model and solid balance sheet have positioned us well.

Speaker 4: and capturing market share in the years ahead. And with that, I'll hand it over to Laura.

Speaker 5: the CFO role starting next month. I feel fortunate to have worked with Blake these last three and a half years. It's because of his and Jeff's mentorship that I feel well prepared to take the baton and build upon the strong foundation they've set for TTD's future.

Speaker 5: Turning now to our outlook for the second quarter. While macro conditions remain uncertain, visibility has improved slightly since the beginning of the year. We are cautiously optimistic and estimate Q2 revenue to be at least $452 million.

Speaker 5: which would represent growth of 20% on a year-over-year basis. Excluding U.S. political election spend, which represented a low single-digit percent of spend in Q2 2022, our estimated revenue growth rate in Q2 of this year would be about 21% on a year-over-year basis.

Speaker 5: We estimate adjusted EBITDA to be approximately $160 million in Q2. As Jeff has outlined, with the large addressable market in front of us, we see significant growth opportunities and continue to invest thoughtfully in the business. We continue to be one of the few technology companies capable of consistently generating high top-line growth.

Speaker 5: significant adjusted EBITDA margins and free cash flow. This enables us to continue distancing ourselves from the competition in areas such as platform innovation, customer service, identity, and supply chain optimization. In addition, this year we remain focused on hiring to support future growth, although at about half the rate of 2022. As we expect our year-to-year headcount growth to continue to decelerate as we proceed.

Speaker 1: You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Speaker 4: One moment please while we poll for questions. Our first question comes from Sham Patel with Susquehanna. Please proceed. Hey guys, congrats on the strong performance and Laura congrats to you and Blake all the best. I just have one question.

Speaker 6: Jeff, we're hearing a lot about wall gardens starting to open up and this is something that you've talked about for a while now. Could you just talk about, you know, what you're actually seeing on this front and, you know, how you think about the benefits and the timing of benefits to Trade Desk from this from this move? Thank you. Thanks, Sean. I appreciate the kind words and also the question.

Speaker 2: So let me start by just restating something that I've said many times over the years. I do not believe the walled garden strategy is a good long term strategy for anybody. That includes even the biggest, the Googles and Facebooks and Vaidus, Alibabas and Ten Cents of the world. But it's especially bad.

Speaker 2: for the smaller walled gardens. And there are a lot of players that have been essentially copying the Google Facebook playbook and

Speaker 2: creating friction to buy their inventory. And as I've said before, I think that the cracks in that strategy are in those walls.

Speaker 2: show up in proportion to size and they're the result of sort of economic pressure.

Speaker 2: show up in proportion to size and that they're the result of sort of economic pressure. That when you have more supply than demand.

Speaker 2: You want to welcome more demand and not make it harder to buy your inventory

Speaker 2: So it's natural that in an environment where there's a lot of pressure and certainly that the advent of CTV makes it so there's more options in the open internet than there's ever been before. But that puts pressure on all walled gardens, but especially those that are smaller.

So you might be commenting on a number of specific companies who've been more public in the market talking about how they're opening up and they're using phrases like we're opening to other demand.

And that's very exciting for us and I do think that's indicative of what's to come. One thing I just want to encourage everybody to do though is to scrutinize the type of demand that they're opening up when inventory is available in price discoverable ways where we can bid on it and understand exactly what we're bidding and not just plug into an API and transfer budgets.

but to actually know what we're buying and do what we do on the rest of the Internet and with our core business. That is extremely exciting to us. When you can layer on top of an identity, which of course we're going to talk more about in UID undoubtedly, that also creates just opportunity for higher prices for them.

more price discovery for us and that's the sort of everyone wins situation. And we're seeing more and more talk about moving in that direction. We're seeing some movements heading in that direction. I'm very optimistic that that will continue. But right now there's a lot of early discussions and that's just the byproduct I think of just some of the economic pressures.

and the alternatives, and also the advent and success of UID2. So all of that together, I think, is really creating yet another secular tailwind in our favor. So very excited about it and appreciate the questions, Sean. Thank you.

Thanks, Sean. Next question. The next question comes from Justin Patterson with KeyBank. Please proceed.

Great. Thank you very much and good afternoon. I'd also like to issue my congratulations to Laura and best wishes to Blake. My question for Jeff, there's a perception that shopper marketing is just a new form of retargeting. Could you express your views on this and just how measurement in the approach to marketing efficacy has.

change with this approach versus that retargeting model of the past. Thank you. Thank you again for the kind words, and I really appreciate this question. If I do this well, I can avoid writing another offense because this is something that's been on my mind for a little while. And I'm just I'm so glad you've asked the question.

So, those that have argued that chopper marketing is just a new form of retargeting, don't really understand the significance of what is happening in chopper marketing.

So if you first of all sort of visualize the purchase funnel where at the top you're creating awareness, it's also where most of the surface area of the funnel is, and that the bottom is where a purchase gets made.

Retargeting is a small sliver in the middle of that purchase funnel. Where somebody has expressed interest, they went to the shopping cart, they filled it out, but then they didn't actually purchase. And so then you, if you do it badly the way often our industry does, you just harass the person until they buy it. If you do it well, then you do that in a metered approach. But it is just a small sliver of the marketing budget.

that is spent to get the customers that almost got to the finish line but didn't. Shopper marketing is the entire funnel. It is a new segment that widens the entire funnel.

where first of all you're able to measure all the way to the very bottom of the funnel. So you're able to see who actually went to Walmart and bought the razor.

And if they did buy the razor, now I can look a like model and go find 100,000 people that look just like them. And then I go create new awareness and I move them down the funnel. Will retargeting be a part of that? Of course, just like all the other effective parts of the purchasing funnel.

But the real beauty of shopper marketing is that you're creating new lookalike modeling at the very top of the funnel to find 100,000 people or more that look just like the people that bought the product. And then you're able to measure all the way down to the bottom and say these are the people that actually bought the product.

And it's that last piece that has been missing. There's been a whole bunch of proxy metrics and measurement that has been used to argue, especially from Walgardons, that they're the ones that have driven all the sales. And this is really the first and very best way at scale to say we're selling product that is directly related to the marketing that we've been doing before.

So if you're anything that sells product in brick and mortar, and I don't want to suggest that it's isolated to brick and mortar. It's not. You can do the exact same thing online. But there's just such a strategic pressure on those that are in brick and mortar. When you think about, for instance, Walmart or Target, who are both partners of course.

trying to compete with Amazon that the way that they leverage their strengths in being in brick and mortar where Amazon mostly isn't is for them to see how they can take offline measurement and apply it to online marketing and complete the entire purchase funnel and quite literally widen that purchase funnel.

Lastly, I just want to underscore that in a very short amount of time, this has become a big part of our business. Not only has it widened the TAM, but we just have amazing success stories with Wal-Mart, and Target, and Walgreens, and Albertsons, and Kroger, and then so many others, the Flybys, the Boots, so many others around the world. But I'm very excited about our most recent announcement just a few days ago with Macy's.

where so much of what we've been doing is in grocery stores and convenience stores and those types, albeit all over the world, including like the Gojecs of Indonesia and just so many others. But Macy's is the first time that we're really getting into more clothing and fashion and a totally different part of the economy than we expect.

that partnership to continue to pay dividends for years to come. So, very excited about it. I really appreciate the question because it is so much more than simply retargeting. So I appreciate the opportunity to clarify. Thanks for sending me an op-ed. and I hope to finish up something in the future that you will do for me to help you to continue to get the business taught at that point.

Thanks, Jeff. Okay, the next question comes from Vasily Karasyav with Cannonball Research. Please proceed.

Good afternoon. So I wanted to ask a question about Open Path and SBO. When I read the industry blogs and press, it seems like they're pitting DSPs and SSPs against each other as competitors. There is a narrative or talk about

each player trying to dis-intimidate each other player. So it seems very hostile environment in the industry right now, according to the industry press. So Jeff, could you provide us your view on what really is going on there, and where we are going with respect to supply chain optimization here?

Absolutely. Thank you for the question. It's funny. In the last one I said, thanks for saving me an op-ed. I'm almost done with the op-ed on this one, which will come out early next week on the current. But I really appreciate the question because I do feel like there's a phenomenon here that feels a little bit like...

reality TV or something where there's just so much effort to create drama in our space including in places where there is in drama that I appreciate the chance to clarify. So let me just reiterate what we said in the prepared remarks. Open path is a product that directly integrates.

with publishers and content owners so that they can see the demand that we're bringing. It is not us getting into yield management where we're providing the service to publishers and content owners to get them the highest CPM possible. Because for the most part, we're trying to get a lower CPMs on behalf of buyers. They want the best value, which is they want something that's going to perform and give them great brand equity.

but they want to pay as little as they have to to get that. That's for the most part the exact opposite of what publishers want. So we can't play both sides without creating a conflict of interest that we're extremely critical of in walled gardens. So we wouldn't sign up to go do that given how public we are in our criticisms of those that try.

So, but I will say that the supply chain of digital advertising is extremely convoluted. And there's lots of inefficiencies and complexity. I think it's one of the most complicated supply chains of any scale market in the world. And I do believe that it's impossible to talk about this.

this topic without talking about Google because they often sit in the middle.

largely because of the technology that was formerly called DFP that now is part of GAM, a Google ad manager, that according to the Department of Justice lawsuit has almost 90% market share.

So when they have that sort of market share and they have a business model that is deliberately opaque, it becomes very difficult to see what everyone else is doing.

So there are a number of initiatives to create greater transparency. You've heard about ClearLine from MagNite potentially. You've heard about a new product called Authenticate from Pubmatic. But really what everybody's trying to do is create a better safe and efficient environment for yourinters. And appropriately, we've had some good events throughout the past year where we've had a lot sucker for creating a better edge and with that, the size and the complexity of the things we're looking for here at team of version teams in Alaska and other places that we're trying to

clearer supply chains and make it so that there are less hoops and duplication that every single impression is running through.

When I say everyone is trying to do that, I think those that are being loudest and those that are biggest. There are of course players in the supply chain that are trying to exploit the opaqueness. And there are small players and big players trying to do that. And so what OpenPath does is it creates a baseline to compare all those against.

Over time, we'll continue to make certain that we don't spend on paths that are less efficient. And OpenPass gives us that benchmark or that baseline to make certain that we don't do that. And we think over time, those that are trying to do the right thing and create a more effective supply chain, they're going to be rewarded by our efforts and their efforts to be more transparent and more open about what we're buying and selling.

hard on some days to tell who's trying to do the right thing and who's doing the wrong thing. So we just developed the technology that exposes the math, that makes certain that price discovery wins, that makes certain that people are passing the metadata so that price discovery can actually happen because on a significant amount of impressions it doesn't.

And over time, you're going to see us just continue to reward those players that enable price discovery and punish those that don't, as it relates to where we take our business. But I expect the supply chain to continue to get more effective. Open Path is a critical part of that. We're excited to have the support of most of...

the scaled open internet ad tech. And every now and again, there's something critical written in the press. And honestly, I think that's often them looking for drama. And I think they've learned over time that if you write something about the trade desk, you get clicks.

But that's different than what's actually happening sometimes. Thank you. Okay, the next question comes from Yusef Squally with Truist. Please proceed.

Great, thank you very much and congrats on the solid quarter Blake. Best of luck and Laura congrats on the new assignment. So Jeff on AI I think we can all see the potential impacts on content creation, ad copy, A-B testing etc. etc. I'd love to hear your thought as to how AI is likely to potentially...

inserting more and more of the new capabilities into your product roadmap. Thank you.

Amazing. First of all, thank you so much for the question. If I could have chosen the questions today, I probably would have chosen those similar to this. I probably would have moved AI up, actually up. I'm almost shocked that we got through three questions without talking about AI. I'm so excited to talk about it. I've never seen a topic that is

that is so hot or hotter than what A is right now, not cloud, not blockchain. I don't even know that dot com 20 years ago was hotter than AI is right now. So I'm excited that we are talking about it, but this is not a new topic for us. So first of all, when we first wrote our business plan, we talked about how

This was the fusion of man and machine. And the analogy that we used in the very beginning was that of pilot and co-pilot, where human beings are often good at creating hypotheses and especially given that we operate in an industry that is about essentially predicting and influencing human behavior, that there is always an opportunity.

for us human beings to create the emotional and make an emotional appeal. But after you do that, there are of course, as a rule, for machines to play, in following the data, in learning, reviving those hypotheses, in iterating, testing blue-cray versus the red-cray, and of course, blue and red.

in terms of the different types of creative have evolved into all different types of generative AI where creatives can do a whole bunch of different things. There is so much opportunity for AI to play a significant role. You may also recall that when we launched a new product in 2018 that we called it COA.

And it was our AI solution that helped advertisers optimize campaigns on our platform. We in fact there used the analogy of co-pilot, which of course Microsoft is using today as their analogy to help engineers write code, which incidentally I think is one of the most...

interesting ways that people are actually monetizing AI. Almost all the discussion about generative AI is on things that I think are doing that have difficulty in actually monetizing. But co-pilot or Microsoft, I think, is an opportunity to actually monetize and I think it will help our team write code faster.

But there is a couple things that I just want to highlight that I do not believe are happening in the public discussion adequately today. The first is there's this mindset of winner take all and that, you know, there's this Google versus Microsoft way of looking at things. And I just don't think that's the right paradigm.

I think we should look at AI like very expensive code. It is expensive to write and it is very expensive to process. It takes more compute power. And because the reason it's more expensive to write is partly because of how complicated it is and the implications especially of generative AI. So because it's very expensive to both write and to execute.

It is an opportunity for bigger companies, or at least those that are profitable, to do very well. And the fact that we have been operating so properly for so long puts us in an amazing position.

Additionally, there's this topic of the quality of our data sets. And I just want to remind everybody that the Internet has been struggling for a very long time with the concept of truth. Think back to social networks in the last election cycle, and how much discussion was spent on fake news and all these topics that really center around truth. Now that you're able to crawl so much of the Internet to generate, essentially,

artificially intelligence driven opinions, it is very difficult to figure out what is true. It's even harder than before. And I wouldn't say that the internet did a phenomenal job before. So now where we're all sitting.

is we're looking at the data sets that we rely on and say, how good are they? Because the AI will never be better than the quality of our data sets. And that is the reason why I think we are in a phenomenal position. Because so much of the data that we're looking at is number one, something that we get directly from the data source itself. So we're listening to every ad request on the open internet. And from that, we have essentially a pure data set that we can reach conclusions on. We're not scraping user-generated content. We're not scraping the comments section of every...

of AI in advertising and just to rattle off a few ways that that can have, can play a role in our business. We can have an AI assistant for traders and essentially create a better ability to talk to the data. We can automate the building of ad groups and campaigns to find the audience's to make recommendations. We can do a better job of creating

not just internal information seeking where you write a search query, although we can of course make it easier to query, but we can also do a more personal job of summarizing that. And maybe the thing that I'm most excited about is the creative generation where we can create more variety.

But also, we can make it really easy to create ads, especially for video and CTV, for medium and even smaller businesses that I think can lower the barrier to entry for us to move from not just the biggest advertisers in the world, but to many, many others where the friction can be reduced.

Those are just a couple of ways that I think AI is going to play a substantial role. I just remind everybody of the comments that I quoted from the CEO of Coca-Cola in the prepared remarks. I think that captures very well just another opinion that I have on the topic. But hopefully that gives you a sense of why we're thinking about this so much, why we have been investing really from the very beginning.

about the benefits to advertisers from using trade desk offering for connected TV, PMP or kind of like, you know, this up-run product versus what the SSPs are pitching is their kind of, you know, PMP, oh, it's not really a PMP, but their kind of direct product.

And then kind of what the downside risk would be to the publisher from either solution. Yeah. So, there's a lot of risk. There are...

There is this opportunity for buyers to look across all reach and frequency and all the different places that they buy and summarize that all in one place. And that is one of the benefits that the trade desk brings to the table is that people tend to come to us and say, I need to have a holistic view and because CTV in particular . . .

is fragmented, as I've said before, perfectly. Meaning that it's not too small, that there's millions of websites. We have dozens of outlets.

But it's not too aggregated so that we only have one place to buy, which is not that dissimilar from what search is, where you buy from one place or what much of social is.

So by having it fragmented, that makes it so needing somebody to look across everything becomes very important. Now in the cases where you're buying programmatic guaranteed or you're buying at a fixed rate and you're not controlling frequency across all these different things.

Then you lose a lot of the benefits of programmatic and in fact you lose decision. So what is sometimes happening is people are buying at a fixed rate, they're going to the seller and saying, hey in the short term, I don't need to control recent frequency, I don't even care about decision. I'll let you, the seller, decide which impressions I get.

I just need to move this over from broadcast or traditional television into the digital ecosystem. And in that, given that you've sort of weakened the value proposition of programmatic, it is a bit of a jump-all. You could do that with an SSP or a DSP because you...

gotten rid of all the benefits or the best benefits of programmatic. So that's where others are stepping up and saying if you want to, you can temporarily use us to buy directly.

But even if you listen or read closely in, for instance, what a medic announced in the last couple days, authorize the same while people are just moving dollars over, we want to help them move them over. But we do believe

that in the medium and long term this will be very good for DSPs. And what they're acknowledging is that as soon as somebody wants to be holistic about their brine and they want to compare this buy to something else that they have to use a DSP in order to do that. And so because we're so convinced.

that the very best of programmatic and really what's in the best interest of buyers is for them to participate in decisioning. Not to give that away to the sell side, but for them to participate in decisioning. And while sometimes that means they have to pay a little bit more, including to us, that decisioning and what we bring to the table is always worth it.

And so it's because of that belief that the SSPs are highlighting that in the medium and long term the buyers are going to gravitate to the places where they have decisioning. But in the short term when people are just trying to move over from essentially an insertion order

and not control any amount of decisioning and just do so with sort of dumb pipes, that can be done with us or with somebody else. The advantage of doing it with somebody else is they might be able to save a point or two. The advantage of doing it with us is they'll have a more holistic view, but we think both medium and long term they're going to end up going to a place where they can...

a decision holistically and we think that means they end up with us, especially in the world of CTV.

Thanks, Jason. The next question is from Tim Nolan with Macquarie. Please proceed.

Great, thanks very much. I've got a CTV related question as well. You know, I was listening to the Disney call just before your call started here, and Bob Iger said some very interesting things related to CTV and Programmatic, I mean, including saying that they've added 1,000 new advertisers using Programmatic. A third of them are – a third of advertisers are trying Programmatic. They're talking about their pricing tiers.

seeing the value of programmatic ads in driving advertising revenue for them for their ad supported tier and so on. My question then is, given the forward market event that you had a month or two ago, and the conversation you've had Jeff with both sides, maybe if you could just give us a bit of insight into how you are working with Disney, or if you don't want to talk about Disney specifically, other network groups as to how to get them to offer more of their ad inventory in a biddable format, not just doing the insertion orders.

And if this is something that you're participating in actively in the upfront market, which is due to start next week. Absolutely. I really appreciate the question and I heard some of those remarks before I jumped over, of course, to focusing on ours and was very excited by the remarks that Bob made.

Let me first just say I I'm so proud of our partnership with Disney and what we've done there I'm also excited about the fact that both Paramount and NBC announced their their adoption of UID 2 in Q1 So as it relates to all the major content owners in the United States Everyone now!

has spoken publicly about their adoption of UID2. I think all of this, whether it's Bob's comments or the adoption of UID2, is a commentary on the state of streaming competition. And actually the numbers with Disney are also a commentary on that.

They're trying to grow but also be profitable and there's a lot of pressure on the current environment and on cost.

So what that means is that people need to do more with less. And especially the content owners, they need higher CPMs so that they can fund all the content and make the same money that they've been making as people continue to make more and more content and the market gets more competitive.

The only way to do that is to make the ads more relevant and more effective for the advertisers. The only way to do that is to leverage things like UID and transparency and biddable marketplaces so that we can participate and get that increased value.

What we're most excited about is all of these are moving more towards biddable. So in light of what we just said in the last question where we were talking about how when people don't want decisioning then they can use dumb pipes to execute that. That's not in anyone's best interest long-term because advertisers need efficacy. The publishers need higher CPMs. The only way that that works is in a highly decision, highly data driven

think helps us and connected TV because that amount of uncertainty makes it so that people are more likely to say you know what I'll just buy it in the spot market and the spot market is programmatic and that's great for everybody to be honest because it means

a bit of a data driven ecosystem. But the themes that we keep hearing is that they want the ability to activate their data, meaning advertisers want the ability to activate their data. We're seeing them buy on value more and more and not on price. And that often means that they're willing to pay a premium for decisioning. In fact, at our forward event, Vinny from Hershey's, I think articulated this about as well as anybody can.

And in this economic environment, we're seeing more and more people gravitate towards flexibility and having the ability to adjust. And when you add that cloud of rider strike, you also add just economic uncertainty. And then you of course add in biddable, you have the ability to bring data to the equation. That makes it so that everybody is looking more and more to programmatic as its future..

And I think, you know, when Bob Iger underlines that, I think it becomes easier for everybody to believe that in the marketplace. So, I was excited by his comments and appreciate your question. Thanks, Jeff. Next question is from Matthew Kost with Morgan Stanley . Please proceed. Hi, this is Chloe, On4Mat, and thank you for taking our question.

Just as we think about Opex leverage throughout the year, are there any areas that you would call out in the second quarter and going forward where you're looking potentially to gain a little bit of leverage in the model? And then second, on the key investment priorities, it sounds like you have so many exciting products for you.

and somebody moving parts between CTV, the retail media opportunity, UID2, OpenPad. There's a lot to unpack there that you're focused on. But what do you think is going to contribute most significantly to growth this year? What are you prioritizing? And then what's a little bit more of a longer-term project? Thank you. So on the offense, I'm going to ask Laura to take the first part of it and then...

I'll add a little color on that and then I'll also talk about the investment opportunities. Or feel free to chime in on both. Absolutely. Thank you, Clari, for the question. When we look at the big picture for Q2 and the rest of 2023, we're excited. We have a great luxury. We're high-growth. We've got profitability and we've got cash flow. I'm proud of how we've stayed disciplined with our investments over the past few years as it's really paid off. Unlike many of our ad-funded peers and other high-growth businesses,

we responsibly manage our headcount and operating expense growth since 2019. And since our revenue is still growing well in the double digits while others are contracting or in the low single digits, we intend to and can stay the course and grab share even while our peers are pulling back. So we do expect for 2023 that our operating expenses will increase year over year, both with and without stock-based compensation. And we continue to be extremely deliberate in our investments and our hiring. So our headcount will grow this year, but roughly at half the rate as it did last year.

which sets us up nicely for the rest of the year and for 2024. And on the second part of this question, we still see significant opportunities to invest in areas like CTV, data, and retail media. So as we've seen in the past, when we outperform on the top line, that usually drops through the bottom line. We saw that in Q1. And we are comfortable with players saying stand in cautiously optimistic about growth this year.

And say that, especially as we think about significant tailwinds in 2023 that set the trade dusk apart from other companies, and that can help offset anything we've seen in the mapper environment. And by that I'm talking about a strong JVP pipeline, which boasts very well for future growth. CTV is a channel continues to grow incredibly fast, and in the big picture, we sell a relatively small amount of share and lots of room to grow.

And then, as we've been talking about retail media, we're really just scratching the surface of a $100 billion plus incremental TAM opportunity and all of that makes us extremely excited. Jeff, I don't know if there's anything you'd add. That was amazing. Very impressive, Laura, thank you. I don't have anything to add on the OpEx. On the investment side, I'll just add, let me first just say, let me just say, let me just say,

I am so excited about the moment that we're in right now in the ecosystem as well as just all the macro conditions that sort of frame this moment for us. And I recognize that there's lots of uncertainty and, you know, managing that day to day isn't always fun.

But overall, it just creates this amazing opportunity for us. And I just want to explain why. So first, we have an opportunity to continue to invest in our people and to grow our culture.

So during the pandemic, managing our team and preserving our culture was really hard. Everybody was remote and things like that. It was very difficult.

But in part because of the decisions that Blake and I made to make certain that we didn't invest too aggressively, we never had to do a layoff. We never had to hit the brakes too hard. And now we're in a moment where we get to continue to hire. And he's really setting up well for me and Lord to continue on that path. We are hiring today.

And unlike a year and a half ago where we were competing with every other company seemingly in the world, especially in Silicon Valley, now we're hiring from those companies and we're not competing with them at all. And so we're able to very carefully choose people because we were one of the first to come back to the office. We have a culture that's really well intact and we're hiring into that.

and that allows us to grow. And when you're trying to hire engineers, especially when there's this opportunity to invest like in AI, this environment and this backdrop and our history makes it an amazing time and place to invest in people. As you know, just from knowing our financials at all, like that is our biggest investment is in our people. And it is also our greatest asset, no matter what the numbers say. I'll also just say, of course, we're gonna continue to invest in CTV.