Q2 2023 Trade Desk Inc Earnings Call
Greetings and welcome to the trade desk second quarter 2023 earnings Conference call.
At this time all participants are in a listen only mode.
A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
Please note this conference is being recorded.
I will now turn the conference over to your host.
Chris tooth.
Please proceed.
Thank you operator, Hello, and good afternoon, everyone welcome to the trade desk second quarter 2023 earnings conference call on.
On the call today are founder and CEO , Jeff Green and Chief Financial Officer, Laura Shanghai.
A copy of our earnings press release can be found on our website at the trade desk Dot com in the Investor Relations section.
Four we began 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. These forward looking statements represent our beliefs and assumptions only as of the date such statements are made.
Actual results may vary significantly and we expressly assumes no obligation to update any 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.
This release and included in our most recent SEC filings.
In addition to reporting our GAAP financial results, we present supplemental non-GAAP financial data a reconciliation of the GAAP to non-GAAP measures can be found in our earnings press release, we believe that providing non-GAAP measures combined with our GAAP results provide a more meaningful representation of the company's operational performance with that.
I will now turn the call over to founder and CEO , Jeff Green Jeff.
Thanks, Chris and thank you all for joining us today.
You've seen from our press release, we posted very strong growth in the second quarter, we reported revenue of $464 million growing 23% compared with last year. This also represents an acceleration in our growth rate compared with the first quarter.
And just like the last few quarters, we continue to significantly outperform the digital advertising industry.
What's particularly notable about our performance is that most advertisers are still dealing with some degree of uncertainty in their business.
Even though certain macro indicators are improving there are still a sense from many advertisers that we are in an unpredictable environment for them, it's hard to dismiss what we've been through over the last two to three years with a global pandemic rampant inflation supply chain crises.
And banking system uncertainty and of course global rebalancing none of these market dynamics have been very predictable. The last few years and this year like the last few has similarly had lots of never before macro events. So while many indicators and advertiser sentiments are improving theres also.
So a sense that it's more difficult than ever to predict what's coming next but in this environment marketers have learned that data driven precision can bring a sense of certainty and reliability to their advertising efforts because of the innovations we brought to market in areas such as retail media CTV identity and data.
Advertisers have a clearer sense than ever of the performance and the impact of their AD campaigns and with co. Cai we are delivering even more innovation all in service of helping advertisers drive precision relevance and certainty and everything they do.
As a result, we are winning more business with both new and existing customers. We are signing more multi year joint business plans or <unk> with leading agencies and brands representing spend projections in future years, well into the billions of dollars are relative outperformance over the last few quarters.
Means we are gaining more market share than in any other period in our company's history advertisers have become more deliberate with their spend and have an increasingly gravitated to our platform and as they understand more about the power of programmatic. They are choosing the objectivity and performance of our platform over the murky.
A walled gardens more than ever before.
Even as we continue to grow and scale around the world, We see no deviation from our 95% plus retention rate our clients rely on us more and more.
Oh is that they can't advertising festival, a few weeks ago and I could have filled my calendar several times over with brands Gmos agency leaders and Ceos of our key partners all of whom want to understand how we can work more closely together every year demand for the value that we deliver continues to grow.
Perhaps what's most interesting right now.
Is how marketers are seeking a sense of certainty in an uncertain environment.
Each of the product Rollouts in partnership growth. We've seen this year is because we are giving our clients certainty and reliability that they can't get elsewhere.
This shows up all over our client base and all over our platform, but I'd like to talk today about a few places where there is certainty and reliability is really driving our relative outperformance.
Particularly in retail media CTV and identity.
By discussing these three I believe it will provide some insight as to why we continue to outperform the market why I believe we will continue to outperform the market and why we continue to invest in our platform with all the innovations coming from Coca.
So first let me talk about retail media, which has become one of the fastest growing areas of our business.
It's like CTV, our rapid growth in retail media starts with our focus on objectivity retailers know, we're only here to serve advertisers and drive more precision in efficacy and AD campaigns, we don't compete with them and like all of our partners retailers know, we are careful and objective stewards of their day.
Peter.
As you know Walmart was one of the first early major retailers to understand the power of their data and to help advertisers understand and measure the connection between campaign spend an actual consumer purchases for many advertisers there's no clear our measurement of performance then that you can look at.
All kinds of traditional marketing kpis, but there's nothing more powerful than knowing that a consumer bought your products because of the ITU served and then using that data to improve marketing spend in the future.
One of the great. Recent examples of this as prudent alone working with their agency GSD N M protein a little I'm wanted to reach new and existing customers to increase sales with our back to school promotion. They were targeting a 200% return on AD spend or ROE as working with the Walmart DSP.
And the trade desk, they were able to predict audiences with much more precision and we're able to understand in real time.
Ads in different channels were performing.
Could then shift campaign dollars to those channels that were actually driving consumer purchases. This clear line of sight helps fruit it alone vastly exceed their campaign goals delivering at 12, 100% return on AD spend among existing customers and more than 1000% Roe as.
With new customers.
Eric Mahoney as protocol Loons digital marketing manager, he said and I quote historically, we've done a really good job of reaching our brand purchasers, but working with the Walmart DSP allowed us to reach that new consumer through predictive audience segments.
We could not have achieved these results without Walmart DSP and the trade desk. He also said they are working with the trade desk is like putting on a fresh pair of underwear of all the accolades. We've received over the years that is definitely one of my favorites ever so.
Gravitational pull of retail media is not limited to the U S retailers.
Around the world are working with the trade desk and different ways to unleash the power of their data to help advertisers bring more value to their campaigns in.
In Singapore, we partner with fair priced the largest grocery chain there with 570 stores, serving 90% of the country's population.
One of the first brands to leverage fair price shopper data on our platform was Coca Cola, who wanted to reach customers during the festive lunar new year season. They also wanted to be able to measure the performance of a low funnel marketing outreach across multiple channels, including OTT audio digital out of home and of course open Internet.
This way the campaign tapped into fair prices audience segments via our platform targeting fair price customers, who had purchased coke or other co products over the past one to three months.
We're able to target seasonal shoppers can purchase best in products and optimize in real time to the news and lifestyle channels that delivered the best results.
With their agency essence media com.
Coke was able to drive 189% uplift in sales during the campaign. They were also able to measure consumer reaction in a range of new ways, including the time it takes for a consumer to buy a product following different kinds of ad exposures.
Audience engagement from different channels and cart values of first time and repeat buyers.
The recent maybe opportunity is also growing exponentially for us in Europe in recent quarters, we've talked about our partnerships with leading retailers such as Ocado and Tesco.
And just a few weeks ago, we announced a partnership with Europe's largest retail group Schwartz, which includes major brands, such as Kaufman and little.
From an advertising perspective retail media is something that has really taken off over the last two years. It's no coincidence that the growing interest in retail media coincides with growing advertiser focus on authenticated AD environments with retail media advertisers can start with precise.
Vacated data whether that data is based on purchase history or loyalty data.
From there the advertiser can target based on what they know and then do more accurate data driven modeling to expand targeting segments with greater precision.
Some of the same dynamics are behind the rapid growth of CTV advertising.
As we have all seen in recent weeks there is a ton of focus right now on the business model of television.
What is the future of the linear TV model and how does the TV industry create sustainable profitable business models for streaming TV as viewers shifts there in mass.
I believe the answer will come and fully exploring the authenticate the viewer data that sits at the core of the CTV ecosystem, which is something that today's leading media companies are exploring.
For the past couple of years CTV has been one of our fastest growing channels at scale.
There are a range of reasons for that fundamentally video remains the most effective way for brands to influence the hearts and minds of consumers and with CTV brands can apply data to their TV campaigns and measure with much more precision the effectiveness of every dollar and much like retail.
Advertisers value the authenticated audiences that come with CP, we pretty much every streaming TV viewer is logged in with an email address for advertisers. This means more certainty that also creates a new starting point centered on data.
Dual forces of retail in CTV are truly bringing the power of data driven decisioning home for advertisers and it is accelerating their shift to programmatic on our platform.
Whereas in the early years of programmatic, we were looking to find ways to a fixed data to campaigns.
Today, we use data as a starting point for campaigns instead.
Instead of hunting for AD opportunities with data the trade desk and marketers are starting with data to know which media opportunities. We should hope for it's a different dynamic and it's one that's become more prominent as advertisers seek more certainty in an uncertain and unpredictable environment.
As I said media companies generally understand the value of authenticated user data.
This is a major reason why the top streaming companies in the U S have pretty much all integrated with <unk> or are planning to sell.
The latest was Warner brothers discovery, who announced that can that they will integrate UAV to across all of their streaming properties, including Max and discovery plus.
The broad embrace of USD two across the CTV ecosystem has been driven in part by our key economic factor streaming leaders need to unleash the value of their authenticated data for advertisers in order to create as much precision and relevance as possible, thereby maximizing their CP.
In order for the streaming business model to thrive and for media companies to keep pace in the content arms race, they need to maximize advertising revenue as.
As we have seen with every streaming platform launching an AD supported service or subscription based approach is not enough.
And the only way to maximize advertising revenue is the increased precision and relevance with <unk> to the advertiser can start with authenticated data enrich that with our own and third party data.
And then where they can find the right relevant audience. They will pay a meaningfully higher price as Tim outlined during our Investor day, where advertisers are able to bid with certainty based on relevance and precision the value of each impression increases significantly generally exponentially.
Ultimately this is how we will answer some of the vexing questions that have been swirling around the television industry recently.
And while we are still in the early days of the CTV advertising Revolution, I'm confident that emerging innovations on our platform such as a forward market for CTV advertising will only accelerate advertisers' ability and appetite to fund this amazing new Golden age of television.
Yeah.
It's also worth pointing out that this is an increasingly global trend at Tam. This year for example, we announced a new partnership with RTL, one of the largest pan European media companies through.
Through this partnership our international advertisers will have exclusive programmatic access to RTL as addressable linear and connected TV inventory.
Starting with inventory across Germany, Spain, France, and Australia with more European markets to Paula soon.
This represents our most significant step yet into the European CTV market.
It's also indicative of how the major European media companies are keeping pace with changing viewer preferences and advertiser demand to meet viewers, where they are and where they are most leaned in.
As many of you have seen we had a lot to say about retail in CTV. During our recent Coke high launch and I'd, just like to take a moment to put that in perspective.
As advertisers increasingly prioritized CTV and retail it's critical that we continue to innovate in our platform. So that we surface value for our users as intuitively as possible one way Coca accomplishes. This is with a series of new indexes, where benchmarks that help advertiser.
Understand and measure performance.
In the retail arena, we launched the retail sales index. The Rsi helps advertisers understand the impact of their retail media spend across multiple retailers at once in this way we are massively reducing the complexity of measuring AD campaigns that run across multiple <unk>.
Retail datasets.
Now advertisers can understand which retail environments performed better at different times, and which channels for which kinds of creative <unk>.
All in one place.
And in doing so we're providing the level of objectivity and measurement from the bottom of the funnel all the way to the top that is simply not possible within a walled garden.
In addition to that we also announced a few pioneering retailers who are making retail measurement available for free and our platform. If the advertiser has activated their retail data for targeting.
These retailers include Walgreens and dollar general and Albertsons. This is a major step forward in bringing the full value of retail media to bear in service of greater precision and certainty.
In the CTV space, we launched the TV quality index or TV <unk> as the CTV advertising market has multiply it in terms of inventory. There are some who would have you believe that a piece of user generated content has the same quality in the eyes of the viewer as professionally produced content where lives.
Yes, I know there are some UGC influencers, who have millions of followers that some brands may target from time to time, but thats, a very small slice of UGC. The vast bulk of it is very unattractive and sometimes even unsafe for brand advertisers to TV <unk>.
<unk> advertisers understand the value of the impressions they are buying in the context of the quality of the content. Those impressions are served against.
The index shows that for every 10 point improvement in quality. There is a 15 point improvement in <unk>.
Conversion rates, sometimes it's even higher than that and for our own campaigns for the trade desk in the second quarter of this year as we were beta testing TV <unk>. We found that a 19 point increase in the index score resulted in a 50 point improvement in our conversion rate.
If you are a marketing leader these are substantial performance improvements.
I mentioned those two elements of Coca because they are important to understand in the context of CPD and retailer as more advertisers gravitate to CTV and retail because they offer more certainty in starting advertising campaigns based on authenticated audience data. These coca innovations.
<unk> more certainty through the course of the campaign in terms of measurement and performance optimization.
Of course, there are many other aspects of Coke high that we unveiled on 606.
Some of which are live and many of which we will be launching in the next few months.
These indexes and other innovations, especially around the application of AI across our platform are helping us surface value more intuitively to advertisers. We are revamping our UX. So the campaign set up an optimization experience is even more intuitive with data and exited decisions at every step.
<unk>.
And we're making it easier than ever for thousands of data inventory measurement and media partners to integrate with us and doing so I believe that the trade desk will become an essential innovation hub of the open internet.
I'd like to end on this point because I think it's important to reiterate that there are many things we do at the trade desk that are not in our immediate business interest.
Two for example is an innovation we devised about three years ago and promptly gave it away to the industry, we're seeing broad adoption across the data and inventory ecosystems of the open internet and accelerating use by advertisers in many ways. The industry is looking at innovations like <unk>.
<unk> as a core element of the flight of certainty that is driving a lot of advertiser action today.
If an advertiser has certainty that they are reaching the right person across all channels, they will prioritize that ad buy.
CTV and retail are major advancements in this regard, but <unk> is a major building block of this new cross channel identity fabric too.
This is particularly important as there has recently been a lot of speculation regarding the potential demise of third party cookies in chrome in early 2020 for a lot of speculation reminds me of the frenzy in 2017, when Safari deprecated cookies or more recently in 2021, when Apple made at IBSA changes.
Each time I have stated that none of this will have a significant material effect on our business and that was true.
I've said, many times that I'm not sure that it's in Google's best interest to get rid of third party cookies because of the harmful impact it will likely have on publishers that have not implemented a strong identity strategy, but while it matters a lot to mini browser based publishers in the long run it really doesn't matter that much to us.
Advertisers will increasingly select AD opportunities, where they can act with certainty and leverage their own data.
That's why I've spent so much time today talking about CTV retail and UAV too as they become essential building blocks of the open internet.
On the supply side, we developed open path to provide our clients with a direct transparent path inventory. This is just the latest effort by the trade desk to improve supply side transparency and objectivity.
And we now have thousands of destinations across the open internet integrating with open path and when advertisers see in open path channel inventory they are more likely to select it versus the eight to 10 alternative paths to that same impression because theres more certainty.
And now integrating with UAV to open path or any number of other innovations we're offerings on our platform is easier than ever with Coca.
We believe that to truly optimize the value of the open internet there are many ways in which the industry needs to innovate together. So we can provide advertisers as an ecosystem with more certainty transparency and objectivity.
In recent weeks, we've heard even more about the alleged dubious behavior of walled gardens, whether it's from the European Commission or independent research reports.
Advertisers and media companies are increasingly aware that they need to work with technology Park partners, who represent their interests not conflicts of interest as a result advertising dollars are shifting to our platform.
And we will continue to invest in our platform and push the industry to create even more value for advertisers on the open internet.
Our recent outperformance is not a temporary blip I believe it is the start of a reassessment of the value of the internet, particularly from an advertiser's perspective, and I could not be more excited about the growth opportunity that is in front of us in the years ahead as a result, and with that I'll hand it.
Laura to cover our financials.
Thank you, Jeff and good afternoon, everyone.
For nearly the past 10 years I've experienced firsthand all of the incredible work from the trade desk teams around the world that produce our outstanding performance that have enabled us to manage the right balance between strong growth and significant profitability.
Proud to present, our results today and going forward.
With that onto the numbers.
As you've seen in our results Q2 was a strong quarter.
Revenue was $464 million representing growth of 23% year over year accelerating from the prior quarter.
Excluding U S political election spend which represented a low single digit percent of spend in Q2 2022, our revenue growth rate in Q2 of this year was about 24, 5% on a year over year basis.
Visibility in advertiser sentiment continue to improve throughout the quarter and we continue to gain share as marketers increasingly focus their investments on.
Areas, where data is deployed effectively where AI and decisioning produce high ROI and where results are measurable and transparent.
Our growth continued to be driven by the shift of budgets to connected TV and increasing use of retail data.
Because of our objectivity and our connectivity to nearly every major CTV content provider or platform is the most eligible for the tidal wave of demand as it shifts away from linear and Walt burdens.
In retail media many of the largest retailers around the world are now our partners and more and more brands and agencies are taking advantage of this powerful data in their campaigns.
We also continued to benefit from the trust, we built with our clients launching innovative products in the interest of the demand side paving cleaner path to supply and cultivating industry wide support for improved identity solutions like <unk> and <unk>.
During the second quarter growth was broad based across channels verticals and regions.
CTV, let our growth from a scaled channel perspective once again.
We saw strong momentum again in retail media as we launched integrations with more retailers and one incremental shopper marketing budgets.
International spend growth accelerated off of strong Q1, with notably strong performance in CTV.
And with the launch of Coke high in early June we are well positioned for the second half of the year in 2024 as visibility and advertiser sentiment improve.
With the strong top line performance in Q2, we generated approximately $180 million and adjusted EBITDA or about 39% of revenue.
When we outperform on the topline, we often see that outperformance throughout all of our financial statements as was the case again in Q2.
This outperformance led to free cash flow of $119 million in Q2.
Our unique ability to generate meaningfully positive EBITDA and cash flow continues to put us in a strong position as we look ahead and invest in the critical areas of the business that will drive our growth in the years to come.
This is an area I'm intently focused on making certain that our productivity and efficiency remains best in class as we scale as we manage both industry, leading growth and significant profitability.
I believe this is a critical factor to our success in the next phase of growth.
From a scaled channel perspective, CTV by a wide margin led our growth again during the quarter.
In Q2 video, which includes CTV represented a mid forty's percentage share of our business and continues to grow as a percentage of our mix.
Mobile represented a mid 30 percentage share of spend during the quarter.
Despite continued to represent a low double digit percent share of our business and audio represented around 5%.
Geographically North America represented about 88% of our business in Q2 and international represented about 12%.
We are pleased that international growth slightly outpaced North America for the second quarter in a row.
Looking ahead, we see significant opportunities to capture share in international markets as operating conditions continue to improve.
In terms of the verticals that represent at least 1% of our spend travel more than doubled compared with a year ago as the sector continues to recover.
Automotive was strong once again with growth accelerating each month during the quarter due to share gains and recovery.
We also saw strong performance in home and garden, and food and beverage while shopping and business were below the average.
We continue to believe there is still opportunity for us to gain share in most of our verticals.
Turning now to expenses.
Excluding stock based compensation operating expenses in Q2 were $305 million up 22% year over year.
There are ample opportunities to achieve significantly more leverage within our operating expenses. However, our primary objective remains on growing spend on our platform and grabbing land.
During the second quarter, we continued to invest in our team our platform and our infrastructure to support sustained growth.
The year over year increase in operating expenses, excluding stock based compensation included realized costs from our 2022 hiring ramp infrastructure investments and returned to office expenses.
Because we have responsibly manage head count and operating expenses over the last few years, we're in a strong position to continue innovating for clients growing our teams and why do you mean, the distance between us and our competitors.
Income tax expense was $27 million for the second quarter, driven primarily by our pretax profitability and non deductible stock based compensation.
Adjusted net income was 139 million or <unk> 28 per fully diluted share.
Net cash provided by operating activities was $128 million for Q2 and free cash flow was $119 million.
DSO is exiting the quarter were <unk> 92 days up about one day from year ago.
First 76 days up about three days from a year ago.
In Q2 via our share repurchase program, we repurchased and retired 595000 shares for an aggregate repurchase amount of $44 million.
We exited the quarter with a strong cash and liquidity position cash.
Cash cash equivalents and short term investments ended the quarter at $1 4 billion.
We have no debt on the balance sheet.
Turning to our outlook for the third quarter, while macro conditions remain uncertain visibility has improved slightly since the beginning of the year. We estimate Q3 revenue to be at least $485 million, which would represent growth of 23% on a year over year basis.
Excluding U S political election spend which represented a low single digit percent of spend in Q3 2022.
Estimated revenue growth rate in Q3 of this year would be about 25% on a year over year basis.
We estimate adjusted EBITDA to be approximately $185 million in Q3.
In closing, we're extremely pleased with our strong performance in the first half of the year.
I've always seen the immense opportunity. This company has and frankly that opportunity has never been clearer than it is today.
We have a large and growing addressable market in front of US we have a business model that is proven to generate strong topline growth. In addition to significant profitability and cash flow.
With growth drivers, including CTV retail media, our international business, a strong identity strategy 2024 U S election year cycle, and a significant product upgrade with Coke high among others, we remain highly optimistic about our future as we move through the second half of 2023 and into 2024.
That concludes our prepared remarks, and with that operator, let's open up the call for questions.
Thank you.
At this time, we will be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue for participants using speaker equipment and may be necessary to pick up your handset before pressing the starkey one moment. Please.
While we poll for questions.
The first question comes from Sean Patel from <unk>. Please proceed.
Okay.
Hey, guys congrats on another strong performance.
Had a two part question.
First.
Sure Jeff.
Could you provide your thoughts on the macro and in the current conditions.
And also your initial thoughts on next year in 2024.
Lora can you talk about how youre thinking about investments and expenses.
In the back half of this year, but also also next year as well. Thank you guys.
Thanks for the question Sean.
Great to hear from you.
I'll go first and then I'll just hand, it over to Laura talked about investments and expenses. So.
It's not news to anybody here that the last two or three years have been.
A few years of uncertainty and unpredictability for.
<unk>.
Advertisers in most of the Fortune 500.
As a result, I am extremely excited by the change in sentiment that we've seen in Q2.
Already in Q3 were CMO are doubling down on what's driving growth there.
And understanding of course that the markets have begun to recover and there is more certainty than they've had in the past, but they've also come to rely on data driven advertising during that time of uncertainty as a place for certainty and for results.
So we're seeing lots of shifts due to what they've experienced over the last few years in CTV and then of course this massive secular tailwind that comes from retail data as well as I've said before I believe ultimately.
The shape of the Internet changes dramatically as a result of CTV and retail media.
And then of course, we've also seen some.
Amazing results as a result.
<unk> adoption.
You might have.
<unk> cost during the prepared remarks that Warner brothers was kind of the last of the U S. Independent CTV players to adopt <unk>. So now in.
Wei UAV too is has the full collection here in the United States.
That has become the common currency to monetize CTV and the AD environment, we expect that trend to continue.
And we're seeing more and more of that for the second part of your question for me.
2024 is looking like the tidal wave of opportunity that is both Dom team as well as just massive in terms of.
Of what.
An incredible.
Chance this is for us.
Once again grab land.
So let me first just talk about <unk>.
Some of the backdrop for 2024, so theres been a lot of pressure on Google over the last few years as it relates to antitrust.
As well as privacy.
Of course, there is a balance between those two that a few years ago. There was a lot more pressure on the privacy side of that today. There is a lot more pressure on the antitrust side of that.
Which we think overall makes the market a bit more fair and makes it easier to predict google's decisions. It also makes it so that they are undoubtedly going slower and that creates opportunity for us to once again grab land.
I've said over and over again.
Is that linear TV is not going to be a steady decline.
Excuse me it ends with an explosion.
It's going to have.
Pretty steady then accelerating the K.
And then.
There is a point, where it stops being worth it for anybody.
Operating in this space.
You've kind of got a glimpse of that when Bob Iger was saying three weeks ago on CNBC. There is unsure about adt's future in their linear business model being broken but of course, the streaming and the studios are very important to the future of the business.
That business model is really talking about legacy linear broadcast TV.
And then of course, the future of streaming that represents one of the many opportunities for us in 2024.
Now as <unk>.
Our opportunity to demonstrate the power of Decisioning, which is really what our brand new product release Coco is all about we also have some major advances going into next year as it relates to the forward market, but when you add CTV retail media Coca UAV to open half international opportunities political the list goes on.
On and on of course, Disney announced today that well.
Rollout AD supported models internationally.
For Disney plus.
We think that's one of many opportunities around the world for us as it relates to CTV. So the secular tailwind just keep piling up.
Very excited about all of that I will turn it over to Laura to talk about investments and expenses.
Thanks, Jeff and thanks for the question in terms of our investments for the second half of 2023 and going into 2024 I'll start off just the big picture and then get into the specifics of what we're seeing.
So just I want to remind myself that we've got the great luxury of high growth profitability and cash flow.
We've been responsibly, managing our head count Opex growth and investments for many years now so in the first half of 2023, we grew revenue in the 20% range and we just guided to continued growth acceleration in revenue when you exclude U S election spend that we found the same period in 2022 for.
From my perspective, we're in an enviable position, while many of our other peers have struggled so when I look out at the rest of 2023 I just look at how we're being very deliberate in our investments and in our hiring and we still expect head count to grow this year, but roughly at half the rate as last year, which implies around 20% and that's.
Sets us up very nicely for 2024, just as I remind everyone that our people are our largest area of investment.
We're also investing heavily into our platform and our products specifically in areas like CTV and our forward market product and then retail media.
And as we're doing this we're focusing heavily on productivity and efficiency with all of our teams from our engineering teams to our go to market business sale.
Sales and trading teams to make sure that we believe that all of our teams are firing on all cylinders.
For this year, we also expect capex to be lower than last year. So last year, we came in with around $80 million of investments and I would expect that to be around $60 million in 2023, and just a reminder, our capex levels include all of our AI investments and we don't expect any significant step up in investments that you may have seen in some other firms.
So just to sum up and as it relates to our modeling as we've seen in the past when we outperform on the topline that usually drops down to the bottom lineup as happened in Q1, and Q2 of this year and we're very comfortable with where things stand and cautiously optimistic about our business for the rest of the year.
Great. Thank you guys.
The next question is from shorter because urea with Evercore ISI. Please proceed.
Okay. Thank you for taking my question, Jeff I have a question on Cookie deprecation. So you touched on this in your prepared remarks, and there's quite a bit of focus on it given that we're coming close to 2024 here and Google's planned to deprecate cookies, we'd love to hear your thoughts on how you think the magnet.
It does impact on trade desk in particular, why do you think it's not going to be meaningful and the overall industry. How you think about the impact.
That's it for me thank you.
You bet. Thanks, Ron I appreciate the question.
So first let me just say we've been down this path before so when Safari made cookies go away there was anxiety when Cdpr first came out there with anxiety.
Hey.
Removal happen there was anxiety and in every one of those cases our business.
Continuing to grow and we saw very little impact a speed bump.
At best.
So I see this is slightly.
Sure.
Alright got slightly.
Exactly the same as all of those other things.
But.
The reason for that is because.
A phenomenon that is different about our business than most other businesses that are in the space.
So we.
We look at 12 billion AD opportunities every second.
And we choose from those.
102 million that we want to buy if identity is is removed from from.
Instead of it being on $6 million is now on $3 million, and just informs which ones we buy differently.
It's still going to buy the same amount and we're still gonna be informed on the vast majority of those and in part because we've been so strong and growing CTV as well as leveraging UAV too we have an alternative and the biggest driver of our business in CTV that is present on nearly 100%.
Of impressions, which is way better than anything in the browsing the internet world.
Just to be clear, but this directly impacts as the browsing the internet world of everything that runs on top of crop.
So now let me talk for a second about the industry and be a bit more holistic.
Hopefully I've made my point that I don't believe this impacts us in any meaningful way.
And in fact, I think you can make the argument that.
Affects us in a positive way just as much as it does a negative way just because it would be negative to all the players that are dependent on cookies and because so much of our business now is driven off of USD two in CTV.
I think you can make the argument that we would benefit from from sort of hurting lots of the independent competition.
It is actually for that reason.
That I believe it is a strategic mistake for Google to get rid of cookies.
As they are facing more antitrust scrutiny, rather than any other regulatory scrutiny.
I don't think its in their best interest to do I think because of the way.
That's the case.
Data are stacking up that they won't likely make any decisions.
Until the end of Q1 next year, if they do make cookies go away then I do think it will be very bad for some publishers, especially those <unk>.
In journalism that were historically print.
Journalists I do believe that we will.
Really have about effect upon them and it won't have a great effect on the open internet.
But I do think it will be good for us I do think that many of the consumer data companies will actually be better off because nearly all of their data is anchored off of an email address.
And the way that we leverage data is just much much.
Better in a world built around <unk>. So I do think that it would accelerate the adoption of <unk> into the browsing the internet world not just among CTV and audio.
And that would ultimately be good for us, but I don't think that would be a quick recovery for many of the web based publishers, especially those affecting journalism and so it will be a net negative for the open internet, but probably a slight positive for us.
Okay. Thank you Jeff.
Thanks.
The next question is from partially cause you off from Cannonball Research. Please proceed.
Thank you Jeff wanted to ask you about recall move yet.
You spoke about the success, you're having with Walmart.
We know that last year, there was a group of retailers is that also came online.
So question number one how is that coming along.
The contribution to revenue next year from from both retailers and then given that would you be willing to update your thoughts on your behalf.
You gave us at your Investor Day last October Thank you.
You bet. Thank you.
So let me first explain one of the reasons why I think it's so exciting what's happening in shopper marketing. So of course, many retailers have been sitting on amazing data, where they know what's actually being purchased.
Especially for those products that you tend to buy at the store and not online.
So many of the products in grocery stores and pharmacies are still primarily purchased in.
Our store rather than online and then of course many of them have amazing.
Online presences as well.
As.
As of course brick and mortar offline.
So many of them are bringing their data.
Into the ecosystem and they've recognized that the way that they've operated in the past creates a bit of a needle in a haystack problem, where you take a small amount of data and you go look in that massive ocean of 12 million ads available every single second and you go look for the usually thousands or tens of thousands that have.
Your data on that and so you start with the data and you go hunting for us.
Well in this new world, where things are leveraging <unk> from the very beginning.
You get rid of the sort of nine dominoes that need to fall in the supply chain. So that you can then leverage the data, but instead you start.
With the data and Youre actually just looking at the opportunities that match that instead of going out looking for opportunities in that way. So.
By starting with the data you make it so that you get rid of the matching problems of cookies and you make it so that the flywheel spin faster for all of these businesses. So that theyre not just making additional money on a small amount of data, but there are actually selling more products across their entire company.
It's actually part of the reason why I believe that the moves that were made by three of the most.
The forward looking pioneers in the retail data space, which includes.
General Albertsons Walgreens.
We're all looking for an opportunity to do something new and data.
They made their data available for free so long as people will pay to use it for targeting so their data is available for measurement.
Advertisers can.
Without any significant opt in or any friction find out where they are selling products and their belief as well as ours that that will make it. So that people are automatically optimizing their advertising purchases to sell products in those three stores.
If we are all proven right. We think this represents a massive change to the way people leverage data in brick and mortar stores and retail and that just will continue to accelerate that flywheel is spinning and shopper marketing.
I just wanted to remind everybody of the shopper marketing is not just about shopper marketing itself. It is about improving the entire funnel. So every CPG has massive amounts of incremental data and insight to know where to spend their money and advertising so that they are being more.
Effective.
So all of this has the.
The sort of.
A flywheel effect of improving Decisioning moving more dollars to our platform, making efficacy go up across everything on our platform.
And then of course, there is an overlap between shopper marketing and CTV, where they both benefit from the from each other especially because in most cases their data is anchored off of USD two which.
Of course as email based in both the shopper marketing world and in the CTV World. So all of that together creates just yet another amazing secular tailwind for us in shopper marketing our retail banks.
Yes.
Thank you Sally.
Okay. The next question is from Matthew cost with Morgan Stanley . Please proceed.
Great Hi, everybody. Thanks for taking my question.
Maybe just on the CTV market when we think about what you've learned through the Upfronts. This year, how are you feeling about growth and trends in the market through the back half and into 'twenty four and then on a related note. If you could just give an update on the new forward market. What is the level of interest and how are those commerce.
<unk> is trending for that new product.
You bet. Thank you.
So let me just say that I have never been more bullish on CTV than we are right now.
It includes.
Sure.
All of the <unk>.
A major news and headlines that are contributing to the current environment Youre seeing.
<unk>.
In CTV.
Look to add <unk> enhance their AD funded options nearly all of them are doubling down on the AD funded options. So we're there.
A few years ago, there was a religion around only having subscriptions and not having ads.
That's gone across the board everybody is looking to add add to make them more effective.
So the secular tailwind on our business as great as it's ever been because of those things are.
Also.
There are of course.
Writers and actors strike.
That makes it much harder to sell at the Upfronts for all of these content owners, which of course, the upfronts was predominantly built.
For broadcast and legacy TV.
In order to take advantage of the very best of digital we need a more sophisticated forward market than just the upfront, which is effectively a party where transactions are done with handshakes and very high level data instead of the sort of precision that data driven advertising.
And our impression by impression and customized user by user.
That environment can bring.
No.
Our products that we have been working on literally for years.
On the forward market makes it possible for people to have a much more sophisticated upfront Bob.
So the early phases have gone well and it's still very early phase So I don't expect it to.
To see all of the fruit harvested and even in 2024. This is going to be something that we build up over the years, but I see it in the long term being a very significant portion of our business.
Thanks, Matt.
Our next question is from Justin Patterson with Keybanc. Please proceed.
Great. Thank you very much and good afternoon.
Jeff I was hoping you could talk about the Coke I launch I know its really early but would love to hear feedback on just initial reaction and how its compared to your expectations and just perhaps even stepping back some of the behaviors are observing from this versus what you've seen in some prior launches like <unk> and next waves.
A quick follow up for Lora could you talk a little bit about just linearity in June and July Theres been a couple of print so far this earning season and talking about a little bit more macro softness in there. So curious about any trends you're seeing there. Thanks so much.
You bet. Thanks, Justin for the question I'll take the first part and then.
Laura you take the second.
So far.
First let me explain about <unk> so coke.
Japanese word that means open for business or open waters.
And the reason why we chose that because we believe there. This is a very important moment in the open internet to make it possible for more and more companies to build to us in a variety of ways one of them being to sell their products. So we have value added resellers that are selling on our product all the time.
Whether that same data, whether that's an algo is theres a whole bunch of ways contextual data. So many ways and then the other.
As advertisers in particular, bringing their first party data to the table.
Yes.
With those as the overarching mission Coca is really built.
Got it.
In five major categories are pieces.
First is massive improvement to the use of data and so youll recall, we launched Galileo earlier this year and we also announced that <unk> the <unk>.
Creation of a partner portal, where people can integrate to onboard their first party data.
The second is the use of AI across our platform, you'll recall that we launched AI on our platform in 2018 before it was trending.
And.
We call. It then co op.
And distributing that AI across the platform in a variety of different ways.
Dan.
And different deep learning models.
So that we're using that for very specific applications.
Rather than trying to create one automotive roll them. All if you will which is something we.
So a very in a very disciplined way try to avoid so that we can credit checks and balances in the way that the test works and we can make certain that AI is always providing improvements by essentially having AAV testing and better audit ability.
The third thing is measurement. So so first we improved data Onboarding second we improved AI distributed throughout the system third we improved measurement.
We can measure the efficacy of ads, especially using retail data we came up with a couple new ways of measuring which is the retail sales index, where we take.
A variety of different retail retailers and put all of their data together, so they're way better than the sum of the parts and then TV <unk> TV quality index, where we're helping advertisers see the benefit of being a premium content versus cat videos or or worse that often comes from user.
<unk> content than four in the second half of the year there'll be a new user experience. So.
That's right around the corner of course, because were in the second half of the year. So.
They are very excited about what that means I believe this is our biggest and most impressive U S upgrade ever.
And it's going to create better behaviors among buyers.
Because it comes with much better forecasting they'll get to see the decisions, they're making and the impact before they even run which is new that is something much better than what we've had over the last 14 years.
I'm very excited about what that means.
And then.
Last but not least.
Is.
Integrations.
For better CTV.
Measurement and performance across the board as well so.
Lots to be excited about.
But <unk> is our biggest release I expect it to be our most successful, but I will say that because this requires adoption.
Sure.
During.
The busiest time of the year because because this requires a change in behavior I don't expect there to be lots of adoption during the busiest time of the year and so most of the benefits will be reached in 2024 and 2025, but we're seeing a lot of the rollout, especially in the first couple that I mentioned already.
<unk> seen some impact already seen some performance enhancements.
As we go into 2024, we expect this to once again change the way that media buying has performed.
Laura do you want to add in the second half of the question.
Yes, absolutely. Thanks, Justin linearity in June and July we've seen visibility improve as the year progressed, and we continued to see improving trends throughout Q2, where we saw our revenue growth accelerate to north of 23% year over year from around 21% in Q1.
We exited June on a great trajectory and that's continued so far in Q3, we expect a strong Q3 for the same reasons that we outperformed the rest of digital advertising over the last few quarters, which is that we're continuing to see strong growth in CTV and retail media and an international spend all of which have been accretive to us this year. So.
I believe we maintain we remain excuse me are well positioned for the second half of 2023, and even farther out as we move into 2024.
Thank you Paul.
The next question is from Brian Fitzgerald with Wells Fargo. Your line is live.
Thanks, Jeff we've seen some developments around quote unquote premium marketplaces in CTV built around Ssp's as you talk with marketers. If you get a sense that some may be willing to give up some of the precision or expressiveness, which they manage their programmatic CTV budgets in exchange for lower.
Text tax or are they really more focused on getting as precise as possible to maximize ROI.
Thanks.
Yes, thanks for the question so.
Sure.
Let me first just described conversation that I had with the CEO of one of the publicly traded ssp's.
Where we were just talking about PG or programmatic guaranteed.
Just talking about how he saw themes and Eni agreed that as people are moving budgets over from traditional.
Traditional TV or linear they are.
Sure.
Sorry.
As there as they're moving over budget.
From traditional TV or linear.
They are often looking for programmatic guaranteed as the place where they will spend first.
But as he and I both agree on.
And we're spending in decision because decision decisioning is much much better. So we've recently done some studies on decisioning across the platform and comparative for PG and we found that the value of decisioning or the performance of the Decisioning on a CPA basis is five <unk>.
<unk> better in general.
Or if you were to say it in terms of savings, it's an 83% phase.
In order to.
In CPA costs in order to decision so whatever incremental tax as you put it comes which is usually.
In our case.
20 percentage take rate.
That take rate is more than justified by the power of Decisioning that comes to the table and Thats exactly why even the SSP and their leadership are predicting that long term things move towards decisioning, but the PG as an on ramp with sometimes.
Compare it to a freeway, where it's an on ramp and you get on the freeway, but if you stay on the on ramp Youre doing it wrong.
And so that's.
That's what we see happening and that's what we think the SSP see happening, but there will be some moves in the very short term towards these premium pmt's.
That are centered around especially programmatic guaranteed that long term, we think move towards decisioning.
And.
And broader data usage.
Got it thanks, Jeff.
Thanks, Brian .
The next question is from Dan Salmon with New Street Research. Please proceed.
Okay.
Okay, great. Good afternoon, everyone. Thanks for taking the question I got a two parter here, Jeff maybe could you give us an update on any discussions youre, having with industry bodies to active public administrator for you I'd to various markets is that still an important goal or are you happy with existing relationships and obviously, you've got a lot of them.
Private integrations, you've done as well.
And then second you mentioned how identity is increasingly anchored by an E mail address.
Yes, it's pretty clear that Apple doesn't exactly loved the use of emails for marketing purposes is that something that matters to you or do you feel comfortable with the level of incentive to.
<unk> collects because Apple also seems fine with digital advertising uses consented first party data.
He is on that would be great. Thanks.
Yes.
Let me go in reverse order, just because I think the.
Significant.
Of your comments around the Apple is is it.
Important.
So.
Any of us that operate in the Apple ecosystem are putting in our Apple IV, which incidentally is an email address over and over and over again in fact, we're not even we don't even know why we're putting it in most of the time.
To put it in.
You say why.
And then you put it in and then you asked again and then you put it in.
Thank you.
Our asps again.
Apple has used there.
Their E mail based identifier to provide personalization.
They have.
Updated many of the things that they said they wouldn't do before so that they can leverage.
That.
Apple IV to provide personalization.
It is exactly.
That I think provides.
Validation.
<unk>.
Is one of the most privacy centric ways to provide personalization across the internet that used across many of the biggest platforms and with some of the biggest companies in the world, whether that's Amazon, whether thats at Snowflake, whether thats a Disney.
Hundreds of companies that are leveraging that which.
Of course is based on an email address not dissimilar from the massive empires at Google and Apple, which are also built around E mail based identifiers. So I.
Don't think the comparison that Apple is allergic to them.
Fair.
Our entire ecosystem is built on an E mail based identifier.
As it relates to the public administrator of UAV to honestly, it's not that important most of our integrations are done privately.
Of course, we are.
Happy to hand, it off and look for the right public administrator.
It continues to scale and as it becomes a more pressing issue.
But it hasnt been yet we want to make certain that somebody.
That is that public administrator.
<unk> shares the vision of protecting the open internet.
<unk> is willing to stand up and do the right thing even if it's not popular.
That can be very difficult to find.
So thats something that will be very deliberate about but it has not slowed down anything and not having that so we're not in any rush to change the status quo.
Thanks, Dan Thank you.
Our next question is from Mark <unk>.
With benchmark. Please proceed.
Thank you good evening, Jeff just regarding an earlier comment you made.
I was hoping to get clarification.
I think you had said you had two benefits you.
More than a cookie less world and I'm just curious how that is because it's predominantly use.
There's a matching mechanism between large pubs and <unk>.
Advertisers.
Data signals sort of previewed to you so I'm trying to just.
I understand that a bit more and then secondly regarding open path appears that theres, a natural hesitancy that we're hearing among publishers large pumps to giving you more view into there.
CTV inventory or for autonomy per se. So I'm just curious if you agree with that and how you overcome it.
Okay.
Yes, thanks for the question Mark so.
The reason why we benefit first.
From cookies potentially going away.
In the form of USD two is that we've been paying advertisers.
Every advertiser needs to have an identity strategy.
We've been saying that publishers every publisher needs to have an identity strategy and an authentication strategy and by identification. We mean there needs to be some way that you are encouraging people to log in and in the case that you have logins, finding some way to leverage that.
Very few companies on the Internet are leveraging their logins to provide personalization to the level that they could be.
And there are certainly hasnt been much effort.
To leverage those outside of their own.
Ecosystems or to make it possible for those that are bringing advertising demand to leverage.
The authentication on those particular publishers.
If cookies were to go away the need for the half goes up dramatically and so for many of the publishers and we saw that with GDP or we saw this with the <unk> movement. There are many publishers that are saying well wait until I have to all wait to make changes until I have two.
Okay.
When they have to they will make changes quickly we saw fire drill around GDP.
Among publishers or they were very quickly working to create the right personalization again.
And again I, just want to remind everybody what's at stake here.
Think of how many print journalism come.
Companies have struggled to stay in business due to the internet.
And if you take their CPM, where they get a significant amount of revenue.
From $5 per ads of $2 per hour because relevance goes down.
Dennis.
No longer can stay around and Thats, why I say that cookies going away poses a threat to journalism.
But that would make it so that theyre very quickly leveraging those logins and when youre, saying, Oh I get to see one out of three articles before.
I have to pay I think youll see a lot more.
Authentication at the beginning of almost every website not dissimilar from if you go to a furniture or clothing website. Today. The very first thing you see is type in your email address you get 10% off if you type in your email address only then will you get access to content that will create much more authentication.
<unk> across the browsing web and that will make it so that it can be end to end without the sinking problems that cookie has.
And those thinking problems going away would create a much more personalized internet and again, because we go from the $12 million as available every second.
Down to the million dollars that we buy if theres identity on a slightly fewer of those or in some cases slightly fewer but the signal is much much stronger and reliable.
That can be an upgrade so theres a whole bunch of room for upgrades.
As it relates to your open past question honestly I'm not really.
<unk> seen the same thing that you're describing in terms of.
The obstacles.
Theres lots of discussion around the way that we integrate.
There's lots of discussion around priority because many of the companies that are in the AD funded CTV space are trying to enhance their AD funded options and theyre working very quickly to try to enhance both the amount of pressure on streaming companies I would say is at an all time high right now.
To grow and to grow profitably and to fund the content.
And so oftentimes, they're looking at ways to create more efficiency and open path creates a more efficient supply chain, so something where there is a more severe.
More efficient supply chain, so that they take home a greater percentage of an AD dollar.
It is a very important next step in the evolution of CTV and streaming.
Thanks, Mark and John Let's just take one more question and then we can close out the call. Thank you.
Absolutely.
The next question is from Mark Kelley with Stifel. Please proceed.
Great. Thank you very much and I will stick to one since we're overtime here, but.
Jeff I wanted to ask you about if youre seeing any impact from the media math bankruptcy.
And any other thoughts on sure.
Share gains, whether it's from competing dsp's or Laura mentioned.
Some verticals.
So you think maybe you're under index any color there would be great. Thank you.
Yes, so we've definitely seen some impacts to our business. So let me first just say media math SM.
Essentially exponentially smaller than we are so.
Sure.
It's not a huge lift but there are definitely some benefits.
One of the first places.
With employees.
We have a lot of respect for what they have built.
And they get a lot of things right and they also had some different perspective.
Some things and we did so we're excited to have added a few people from from the <unk> team to our company.
Theres also been some cases, where theres business up for grabs.
In some cases, we won that business outright, but what most advertisers do especially those that are running anything sizable on media math is they run a process they test a variety of platforms.
<unk> put together a crawl walk run plans with each of them.
And I think we're benefiting from that as much as anybody.
In the space or in the world.
But as a result of those sort of deliberate cost.
<unk> from efforts I anticipate that it'll be sort of slow increase.
Once again C.
Benefits all different paces, but we expect to win more business as a result, especially in next year.
Thanks, Mark and John can you please close the call out.
Absolutely. This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
Okay.
Okay.