Q3 2023 Trade Desk Inc Earnings Call
Greetings and welcome to the trade desk third quarter 2023 earnings conference call.
At this time all participants are in a listen only mode.
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.
Please note this conference is being recorded.
I will now turn the conference over to your host.
Christos maybe.
You may begin.
Thank you operator, Hello, and good afternoon to everyone and welcome to the trade desk third quarter 2023 earnings conference call on the call today are our 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.
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 on 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 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 for those implied by these forward.
Looking statements I encourage you to refer to the risk factors referenced in our press release and included in our most recent SEC filings. In addition to reporting our GAAP financial results, we present supplemental non-GAAP financial data a reconciliation of the GAAP to non-GAAP measures can be found in our earnings press release, we believe that providing non-GAAP measures combined with our.
GAAP results provides a more meaningful representation of the company's operational performance with that I'll now turn the call over to founder and CEO, Jeff Green job.
Thanks, Chris and thank you all for joining us today as you've seen from our press release, we posted very strong growth in the third quarter, we reported revenue of $493 million growing 25% compared with last year.
Our third quarter again accelerated over the second quarter as we continued to significantly outperform the digital advertising industry.
We're growing our revenues and maintaining profitability and a strong balance sheet and making large investments and most importantly, we're gaining market share as we are outperforming our advertising peers, both big and small.
From a global view our industry is nearing the one trillion Tam we predicted when we launched as a public company seven years ago.
Inflation, a global pandemic, the streaming wars and retail media have all accelerated the expansion of that global tail, but it's especially accelerated the speed of the pace setter. The U S market Magna global estimates that the overall U S advertising industry is growing at 5% of this year.
In digital spend or the digital AD market pie is expected to grow by 10%.
We are significantly outperforming the rest of the advertising market.
This builds on our market share gains from last year, when we grew 20% plus each quarter and our competitors were posting negative to low single digit growth.
So even with a bit more uncertainty than usual Q4, we continue to gain significant share and we are set up exceptionally well for times of relative stability.
As I often share with the teams at TCT, we got here by aligning our interests with agencies and brands the buy side, we align our interest with them and then we obsess simply innovate for them, we create more value than we extract and we operate our business with a philosophy that is people first our bias is to find win win.
<unk> and all of our partnerships and our strong alignment with our customers is the foundation of our success and that foundation has created the opportunity for us to be a leader and innovator for the open internet.
2023 has already been the biggest year of innovation in the history of the trade desk and I'd like to share six or seven major categories of innovation and investment.
The first innovation I want to highlight today is a relatively new format for partnership our unmatched growth rate is fueled by signing joint business plans with major brands and agencies <unk> represent joined innovation partnerships with our clients agencies and brands worked closely with us to pioneer new ways of <unk>.
<unk> about data driven advertising and they are locking in that commitment as part of these JV piece, our largest GBP signed this year represent future annual spend of over a $1 billion per partnership yes, multiple partnerships have multiyear partnership agreements with Omnichannel plans.
To spend $1 billion plus in each of them.
Our strong relationships and share gains coupled with durable EBITDA and cash generation.
We can invest in innovation and service of our clients, while also maintaining strong profitability.
Our innovations in 2018, and 19 and 2020 helped us gain share during 2020 in 2021, and it's why I expect we will continue to gain share in Q4 of this year and 2024 and beyond.
As a global company in tough economic environments, we grab market share and vibrant economic environments, we aim to lead in absolute growth.
The second area of innovation I want to highlight is in AI.
We've approached AI the same way we approach building the initial buying platform 14 years ago, while everyone else was on stage talking about building we were back at the office actually building.
Ah has immense promise it will change the world again, but not everyone talking about AI is delivering something real or impactful we have been going through every part of our platform and making investments and our plans to inject AI in the places where datasets are rich big and high quality long.
Language models the basis of chat GPT arent, the highest priority places for us to make investments in AI right now deep learning models pointed at bidding pricing value and add relevance are perfect places for us to concentrate our investment in AI all four categories.
Private betas and some of the best engineers on the World pointed at these opportunities we've expanded koa our brand for AI products that we launched in 2018 and I believe this will unlock performance budgets on our platform in the years to come we will begin to see the impact of these 2023.
AI investments in 2024.
When I first mentioned the massive wave of opportunity in 2019, and 2021 of the major factors in the size of that wave was the rapidly emerging world of CTV as we all know the pandemic accelerated the shift to CTV from a viewer perspective and now we're at a point where more viewers are watching streaming services than traditional.
Linear television.
The global changes of 2020 in 2021 ushered in a period of innovation in CTV as an industry and as a company we crammed more advances into two years than might otherwise have been played out over a much longer period of time.
Where once the industry was taking a wait and see approach to the emergence of streaming suddenly everyone was innovating best Fortunately, we had a history of innovating ahead.
With that same foresight I believe the walled garden strategy will not work for most companies if any that end state competition innovation and the benefit of globally integrated markets outweigh the benefits of draconian wildcard is the surest way to prove the value of the open Internet is to continue to innovate in.
The third and fourth and fifth innovations, but I want to talk about today CTV identity and retail media.
Our innovations in CTV have fueled our outsized growth and made us a better partner for all of the content companies. The last few years consumers and media companies have been in the new Golden age of television content companies have been competing for streaming subscriber growth, which seemingly has provided the scoreboard determining winter.
Zen losers in the new digital era that competition to win subscribers has ratcheted up content costs higher content costs mean, raising prices or finding some way to raise revenue per user if media companies, we're going to continue to feed their content engine with a similar rate as <unk>.
Before <unk>.
Premium video content company from Disney to Paramount to NBC, you and Sky to Netflix have changed pricing and embraced advertising not all of them have yet embraced are centered around programmatic advertising, but we predict they will in order to get incremental subscribers they can't simply.
Cheap raising prices some consumers would rather spend a few extra minutes considering ads, they watch and pay more for subscriptions.
Hi price subscriptions alone will not provide the incremental subscribers media companies need to continue growing.
As recently reported by Hollywood reporter and I quote.
Executives at every major streaming giant with bolt on AD supported and an AD free tier, including Disney Netflix Paramount Warner Brothers Discovery and NBC, you say that the total revenue per user is higher on the AD supported plan than it is on the AD free plan.
Not only do media companies generate more revenue per user within an AD supported option, but the potential for growth is much greater ultimately theres a limit to how much viewers will spend on subscriptions economic pressures on the consumer right now are increasingly appeal of a free or low cost option.
That is supported by ads. However, this model is only sustainable if the AD load is significantly lower than traditional linear television and the only way we get there is if the ads are relevant to the viewer.
The advertisers are willing to pay more for each of them.
Why do we worked closely with the world's largest streaming services to fully realize the value of that exchange. This includes freeing up competitive biddable inventory advancing new approaches to identity unleashing the power of first and third party data and of course, the technology infrastructure to transact and measure.
In CTV, we have innovated by constructing a more efficient supply chain by creating a new product open path.
<unk> celebrated its first birthday this year and has already become a gold standard of transparency and auction integrity. We've also advanced television measurement with the launch of TV <unk>.
B quality index to showcase the value of premium television content over UGC platforms like Youtube that advertise on more questionable content for brands. We believe the ads we show in CTV in 2023 are more relevant in CTV than they've ever been before and TV or premium video.
As the value of these innovations has proven out in the CTV advertising market day. After day, we continue to see more premium inventory flow into our platform. Disney for example, just opened Disney plus inventory for us across Europe, more and more of live sports inventory, perhaps the crown jewel for most streaming providers.
<unk> is opening up for programmatic buying on our platform with billions of Avails every single week for the first few weeks of the football season. For example, we are averaging more than 300 advertisers activating on the NBC Sunday night football live stream.
A great example of an advertiser pioneering new approaches to television advertising with a focus on live sports is old Navy.
They have been a longtime participant in the upfront process with their agency ph D old Navy wanted to embrace CTV as more of their target audience has shifted to streaming.
At first they moved part of their spend from insertion order to programmatic guaranteed and consolidated spend on our platform and doing so they were able to mitigate audience overlap across TV providers and hold each provider more accountable for performance, but as old Navy quickly found out programmatic guaranteed has limitations program.
At a guaranteed or PG does not allow old Navy to get the full value of programmatic such as frequency management audience targeting and the ability to layer on their first party data. So they took the next step in the form of decision to biddable buying within the private marketplace and focused on lives.
Sports inventory.
CTV live sports advertising was appealing because it offered an opportunity to expose their brand against very high premium content that might be more restricted and expensive than a traditional linear environment.
They were able to use koa, the trade desks AI to optimize pacing and frequency management across the highest performing inventory.
As a result, they saw a 70% reduction in the cost to reach each unique household versus their programmatic guaranteed performance.
And we're just scratching the surface as recently reported in the current NBC Universal has teamed up with the Walmart DSP, which partners with the trade desk. So brands can now deliver targeted ads on Peacock live sports inventory using Walmart shopper data brands can then measure and provide attribution on the results of.
Those ads in terms of impact and in store and online sales.
Now North America, which includes brands such as Danon silk and at Teva reported at 30 plus percent increase in new to brand buyers from their CTV campaign earlier this year.
The next phase of innovation in CTV is the development of our core work market product on our platform. We are investing significant resources to build this product, which is akin to a futures market, but for a premium CTV inventory.
Here, we bring the best of the traditional upfront guarantee and combine it with the power of data driven decisioning our programmatic advertising.
Advertisers commit to certain levels of spend on specific audiences and a decision programmatic corporate market.
We are already active and live data with a number of CTV providers and advertisers and expect the testing to steadily increase throughout 2024.
We're excited to provide more details on our forward market innovations at our former 24 event in the first half of next year.
The advances in CTV in 2023 for the trade desk have been accelerated by the fourth category of innovation I want to discuss today identity.
But google's latest disclosure that they plan to deprecate cookies in 2024, the industry has been more focused than ever on coalescing around a better alternative nearer.
Nearly all of the major streaming companies in the U S have embraced <unk>.
They understand that if advertisers only advertise on users likely to be interested in their products and advertisers will pay meaningfully more for those impressions with.
With UAV to content owners don't have to share data instead advertisers can use their own data and to do so they are willing to pay more one leading streaming platform recently implemented <unk> and the results have been remarkable they're average daily revenue from the trade desk has increased 150%.
Their average daily revenue when those impressions are open and Biddable has increased 222% and all because they are able to offer advertisers a much clearer sense of relevance and addressable <unk> again, because of rising cost of content and less appetite from consumers to pay for more subscriptions.
Every global content company in the World is now rolling out in a programmatic advertising strategy and plan.
As a result, more and more publishers and advertisers are now deploying <unk> over the last couple of years, a who's who of major publishers advertisers and data partners have announced their commitment to <unk> and now we're seeing the positive impact of adoption on our platform.
Luxury escapes is a high end travel agency with more than 7 million customers worldwide. They activated their first party data on our platform and then used you I need you to help find potential new customers, who shared characteristics with the most loyal customers. They already had in this way their first party data.
Seed to grow their potential customer base and the results were very impressive in the U S alone. There are conversion rate with you I need two was more than 400% higher than with cookies that return on AD spend was 900% higher and their cost per acquisition was 83% lower for.
The first time ever in 2024, we expect the majority of CTV and premium video impressions to be bought on our platform using either EU IV or <unk>.
This innovation I wanted to highlight today is the rapid innovating, we're doing in retail media and retail data partnerships.
The fusion of retail and programmatic advertising has accelerated in the wake of the pandemic, our partnerships with Walmart target albertsons into cart and many many more have fueled the expansions of our Tam in the United States Schwartz and Ocado had been notable catalysts in the EU incidentally for EU.
Programmatic advertising ecosystem is showing signs of improvement in part brought on by the appeal of retail partnerships and.
And lastly, big basket and Taco PBF.
Our examples of growing synergies between programmatic advertising and retail media and some of the largest APAC markets.
Just as stay at home directives encourage many of us to shift our viewing habits to been streaming. They also of course many of us to shift our shopping habits to E. Commerce. According to the U S Census Bureau, ecommerce sales boomed, 43% in 2020 alone and it has continued to grow every year.
As a result advertising on e-commerce destinations have become more attractive and the value of data collected about purchase behaviors has become much more valuable.
All major retailers are working on activating that data for advertisers so brands kind of understand how their advertising dollars impact actual sales whether online or in store and most of them are partnering with us.
The significance of this shift should not go unstated all advertisers are focused at their core on driving sales growth, but until very recently, especially in the consumer space advertisers have been missing the link between their advertising dollars in the real world sales growth.
Instead, they have had to use proxy metrics to showcase the ROI of their campaigns.
How many click throughs that their AD strive for example.
Now, we can measure with much more precision whether the AD dollars actually led to a consumer purchase we can attribute value to all parts of the funnel not just the last touch we can understand the relevance of every AD impression more clearly and we can better prioritize the right channel at the right time for the right audience.
The open Internet is proving to be increasingly preferred by big brands as retail media mix the efficacy of the open internet continued to improve and scale.
<unk> a major European drugstore chain came to us when they wanted to drive first sales for their organic food brand. They knew that if consumers tried their product they're done.
95% chance of them, becoming repeat customers. The challenge was getting them to make that first purchase working with us they were able to deploy their first party data and then find where their target audience groups might be across the open internet.
With data driven precision they were able to determine that 99% of their AD spend was hitting their specific target audience.
And more major retail organizations continue to partner with us as the most effective way to enable advertisers to benefit from their data just last month in CCAR, one of the world's largest retail technology companies, representing more than 1400 retail labels announced that it will make its retail media data.
Available to advertisers on the trade desk.
At the same time, we continue to innovate in the retail space as a part of <unk>. We have launched the retail sales index, which allows advertisers to understand the performance of the retail campaigns across the open internet and radically simplifies the measurement and attribution process in a rapidly evolving market and we are just scratching the surface as one of the few IND.
Dependent players at scale in our industry. We are in the pole position to continue partnering with leading retailers standardize their data on our platform and drive value for our clients.
Let me conclude by making a few comments about the current environment and then connect the dots of innovation and our optimism for the future. We represent the vast majority of the AD age top 200 advertisers the largest advertisers in the world.
Starting in the second week of October we have seen some transitory cautiousness across some of those advertisers. These include for example industries that have been impacted by recent strikes such as the U S auto industry.
Through the first week of November we have seen spend stabilized and we are optimistic for the remainder of the year and for 2024, both CTV and retail media continued to drive our business and we continue to win share in terms of innovation I am so excited to showcase the strength of this company over the next few years as we've innovated.
And built more this year than in any year in our history, while at the same time, preserving and leaving room to expand our operating leverage the.
The many innovations I've discussed today are embedded in our newest version of the platform co Cai, we've been launching Coca innovations throughout the year, but many of the biggest innovations, including our new UX or in alphas or private beta is today and we will rollout to all of our customers in the first half of next year as we are.
Exit 2023, and look forward to 2024 I want to highlight several specific areas that make me extremely positive about our future prospects.
So let me sum up first agencies and brands are more deliberate with advertising budgets. They are shifting AD budgets to where they can be more flexible agile and data driven in everything they do especially in times of uncertainty and this is driving them to sign JV fees with us at a record pace.
Second is the innovation coming from Adi and the many many opportunities. We have ahead of us to find places to inject AI into what may be the most rich and under appreciated data asset on the Internet, which we have here at the trade desk.
Connected TV continues to be the fastest growing channel of our business and a key driver of overall omnichannel growth and it's not just here in the U S. CTV continues to grow rapidly both in EMEA and across the Asia. The industry is evolving fast as provider shipped inventory into Biddable marketplaces.
To maximize AD revenue and as advertisers look to bring more precision on addressable <unk> to their television campaigns.
Retail media has become one of the fastest growing areas of our business and we expect this to continue in 2020 for retail media is revolutionizing the way many advertisers in the CPG space think about measurement and attribution and our innovation is at the center of this.
With global expansion, we've made significant investments outside the U S over the last several years and our go to market strategy in CTV and in retail media.
We believe we are in a position to continue to accelerate our international growth in many of the markets we serve.
Six is the rapid adoption of <unk>, two and <unk> as the currency for relevant ads and personalized content that has been adopted by the infrastructure of the internet and nearly all of the biggest content companies in the world.
Seventh is the upcoming U S political elections since 2016, the trade desk has been a vinyl platform for leading political advertisers in 2024, we expect to gain more share in this segment and we believe that spend will increase as the year progresses and finally, we continue to be.
One of the few high growth technology companies that consistently generate strong adjusted EBITDA and free cash flow that has steadily increased over the years as a result, we've been able to invest in innovation and generate strong profitability.
Believe the trade desk has been successful because we have always focused on delivering premium value to advertisers and agencies everything we do including our latest Coca innovations are pointed at helping brands and advertisers get the maximum Bang for every advertising dollar.
I could not be more confident or excited about how we are positioned for 2024 and beyond.
Because of the many growth drivers that we've discussed today, we will continue to innovate to lead the market and I'm confident that the worlds, leading advertisers will continue to default to our platform as they seek to drive their own business growth via advertising.
And with that I'll hand, the call over to Laura who will give you more color on the quarter.
Thank you, Jeff and good afternoon.
As you've seen in our Q3 results, we have continued to execute extremely well.
During the quarter, we continued to grab share and outpace our peers we.
We delivered accelerating year over year revenue growth manage our expenses efficiently and delivered strong adjusted EBITDA and cash flow.
Our results are a reflection of the premium advertisers are placing on precision agility and transparency as they continue to shift away from linear media and walled gardens.
Revenue in Q3 was $493 million representing growth of 25% year over year, an acceleration from the prior quarter.
Excluding U S political elections spend which represented a low single digit percent of spend in Q3 2022, our revenue growth rate in Q3 of this year was about 27% on a year over year basis.
We continue to win spend as marketers increasingly focus their investments on platforms that deliver value, particularly in premium video like CTV.
This is a dynamic we've seen many times over the years when the macro environment presents challenges friendship to platforms and channels that offer flexibility and measurable results.
During the third quarter CTV, let our growth from a scaled channel perspective once again.
We saw strong momentum in retail media as we won incremental shopper marketing budgets and brought the retail sales index to market.
International spend growth accelerated off of strong Q2, with notably strong performance in CTV.
With the strong top line performance in Q3, we generated approximately $200 million and adjusted EBITDA or about 40% of revenue.
This led to free cash flow of $184 million in Q3, marking over $600 million of free cash flow on a trailing 12 month basis.
I'm proud of our ability to generate strong profitability, while continuing to invest in our business and that will help fund our future growth.
Because of our fortunate position within an incredibly large addressable market one of our greatest responsibilities is ensuring that we are growing sustainably, while also generating sufficient profitability and cash flow.
Our team has done a remarkable job achieving this as we balance short term opportunities with our long term financial vision.
From a scaled channel perspective, CTV by a wide margin led our growth again during the quarter.
In Q3 video, which includes CTV represent the 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.
Display continue to represent a low double digit percent share of our business and audio represented around 5%.
Geographically North America represents about 87% of our business in Q3 and international represented about 13%.
We are very pleased that international growth slightly outpace North America for the third quarter in a row.
CTV across EMEA and North Asia was very strong during the quarter growing over 100% year over year in each region.
In terms of the verticals that represent at least 1% of our spend we continue to see strong performance in food and drink travel in automotive.
Health and fitness and business were below the average.
Turning now to expenses.
Excluding stock based compensation operating expenses in Q3 were 316 million up 29% year over year.
During the third quarter, we continued to invest in our team our platform and our infrastructure to support sustained growth.
Income tax expense was $18 million for the third quarter, driven primarily by our pretax profitability and non deductible stock based compensation.
Adjusted net income was $167 million 33 per fully diluted share.
Net cash provided by operating activities was 192 million for Q3 and free cash flow was $184 million.
Dsos exiting the quarter were 91 days down about one day from a year ago D. P. O S for 75 days up about one day from a year ago.
In Q3 via our share repurchase program, we repurchased and retired $1 2 million shares for an aggregate repurchase amount of $90 million.
We exited the third quarter with a strong cash and liquidity position.
Cash cash equivalents and short term investments ended the quarter at $1 5 billion, we have no debt on the balance sheet.
Turning to our outlook for the fourth quarter.
We continue to see strong spend in our key areas, such as CTV and retail media.
That said, we have seen more macroeconomic uncertainty at the start of Q4.
We estimate Q4 revenue to be at least $580 million, which would represent growth of 18% on a year over year basis.
Excluding U S political elections spend which represented a mid single digit percent of spend in Q4 2022, our estimated revenue growth rate in Q4 of this year would be about 22% on a year over year basis.
We estimate adjusted EBITDA to be approximately $270 million in Q4.
In closing we are extremely pleased with our strong performance in the third quarter and we are cautiously optimistic for Q4.
We continued to demonstrate our ability to drive momentum across our company priorities to achieve profitable growth and drive significant share gains.
Regardless of what the macro brings we believe we've never been in better position than we are in today.
With large growth drivers, including the ongoing secular shift to CTV.
Upgrading measurement with retail data, our biggest product release ever week okay.
Growth in international markets and identity framework that has never been stronger the U S presidential election cycle amongst others, we remain optimistic for the remainder of Q4 and into 2024.
That concludes our prepared remarks, and with that operator, let's open up the call for questions.
Absolutely. 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.
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The first question comes from Sean Patel with Susquehanna. Please proceed Shang.
Okay.
Hey, guys.
That's on the on the strong <unk> across the board I think the big thing.
On everyone's mind right now is the <unk> outlook, which I think caught a lot of people by surprise, maybe we can start there Jeff I know you talked a little bit about this in your prepared remarks, but can you talk a little bit more about.
What youre seeing in <unk>.
And just what gives you confidence that it is all macro and not competitive or anything else. Thank you.
You bet and I'm really glad you're asking this question. So I have a lot to say on it so.
I appreciate the.
The kind words and the question so.
First just looking back we had a very strong Q3 growing 25% once again, beating the market.
And please don't forget and this is really important that we are coming off of a 30% plus growth year from last year, where many of our competitors were shrinking or barely growing.
This year and last year.
Here's where we are gaining market share at a higher rate than we have previously.
This year I think we signed more long term gbp's with major brand advertisers and agencies than ever before with bigger amount some longer time horizons than we've ever had before too.
So once again this year CTV and retail media had been leading the way and in general we have amazing momentum going into Q4. Another reminder, we represent the AD age top 200 advertisers and of course, the majority of the S&P 500, something that I pointed out many times before these are of course, the largest advertisers in the world.
And of course that means that we represented nearly every major.
Sector of the economy as well.
So that said starting about the second week of October we began to see some transitory cautiousness around certain advertisers. For example, we saw some reduction in brand spend in verticals, such as automotive and consumer electronics for instance, specifically around cell phones and media and entertainment.
Some of these industries have been recently impacted by strikes such as the U S auto industry.
So the first week of November we have seen has been stabilized and we're very confident that we will continue to outpace our industry and gain market share.
Excluding election spend in Q4 of 2022, we're guiding to about 22% year over year growth, which is significantly faster than the industry and illustrates the long term strength of our business model, especially when you consider those comps.
I'm very proud of our team and what they've done in the first three quarters and the market wins that they're putting on the board right now the team really is firing on all cylinders. Our company is extremely healthy with great operating leverage and a strong balance sheet all of those things are the strongest they've ever been.
Given our strength in the fastest growing channels with digital advertising growing long term relationships in the world's largest brands and agencies.
Technology innovations that we outlined in our prepared remarks, including Coca and the AI investments that we're making we are very confident that we will continue to outpace the industry and gain share.
Im very optimistic heading into 2024, thanks, Sean for the question.
Thanks, Jeff.
The next question comes from the Sealy Kara Sea off with Canon Global Research. Please proceed.
Good afternoon, obviously following up on the point of interest here I'm.
Jeff wanted to ask if you could talk in a little more detail about.
What you saw this quarter specifically the linearity that we've seen in the first five weeks, so far and probably.
Wanted to ask you about.
If you could provide more color on where you'll have some cautiousness on the part of advertisers so any.
Any additional color you can give us on what's going on this quarter would be appreciated. Thank you so much.
Okay. Laura I know you have some comments on this why don't you go first and then I'll go second call Ed absolutely. Thanks facility for the question.
So the way I view this as a coming off a strong Q3, we continued to see that strength going into the first week of Q4 30 in the second week is when we saw some advertisers become more cautious in their spend and.
And we saw this consciousness across a few verticals that Jeff mentioned, such as automotive consumer electronics, and Seth and media and entertainment.
And of course, some of the caution is transitory due to what we mentioned the strikes in auto and in media and entertainment.
We continue at the same time see strong spending our largest drivers such as CTV and retail media.
And through today, which is a week and change into November we've seen spend stabilized. So we're cautiously optimistic for the remainder of Q4.
Jeff is there anything you'd add to that yes.
First a couple of things to just keep in mind.
We have very strong and healthy growth every quarter for the last couple of years, we have significantly outpaced the industry and gained share during that same time some of our largest competitors are coming up low or negative growth from a year ago, where we're coming off of over 20% growth then in over 20% growth again.
Our unparalleled growth is because we've never been closer to many of the largest brands and agencies in the world that all use our platform.
We're striking more and more long term commitments and J b piece, and we're innovating to bring new value across all of their omnichannel advertising campaigns that includes in the biggest release that we've ever made in Cotai, which of course includes AI and performance enhancements that we've never seen before our business is largely based on the world's largest brands.
So if there is a little caution due to macro uncertainty facing everyone. We of course won't be immune from that in the short term, but we are convinced that the macro pressures today represent land grab opportunity is now that will show fruit or pay off over and over again in the years to come.
The fundamentals of our long term business are solid as they've ever been and we are poised to continue to outpace the industry and gained share in Q4, and we're really positioned well to go into 2024. Thanks.
Thanks for the question facility.
Thank you.
The next question comes from Justin Patterson with Keybanc Justin. Please proceed.
Great. Thank you and good afternoon, Jeff I, just wanted to build off of your last statement there.
The caution that youre seeing from advertisers right now what gives you that confidence heading into next year around growth and market share gains in the year ahead.
Quick follow up to that point of last year at the Analyst day, you were talking about just.
Investing to make sure youre not missing the CTV and retail media wave. So I know you don't guide to expenses or EBITDA for the year ahead, but could you give some commentary on just how youre thinking about the right level of investments in an environment like this one thank you.
You bet I'll take the first part of the question on Lora.
Thanks to the investment side of the question.
So let me let me just say a few words on 2024.
First obviously the macro environment plays a role in our business things like higher cost of capital and increased money supply have downstream effects on most businesses. Some of those effects are opportunities, which we're seeing mostly across our client base, but we're seeing some of those effects as pressures on their businesses.
But regardless of the macro environments effects on individual companies, we continue to see the tidal wave of opportunity over the next two years and I've never been more bullish and that is because of the just the slew of things in front of us that are what we see as some of the biggest opportunities we've ever seen and probably ever.
Well.
<unk> is moving to streaming more and more and Theyre also moving the biddable, both as a total and as a percentage at a faster rate than it ever has before content has more competition than ever and it needs and as a part of their strategy is more than it ever has as we mentioned in the prepared remarks.
Convinced that there are incremental subscribers and incremental revenue are largely going to come from ads.
Retail media something we didn't spend as much time as I would've liked in the in the prepared remarks is one of the fastest growing areas of our business and is providing advertisers with completely new ways of thinking about measurement and attribution. It closes the loop and helps them see the impact of their advertising in a way that has never been possible before.
But in addition, there are also finding customers.
That benefit both advertisers and retailers because they are selling more of their products in the retailers that they are partnering with to get the data.
In 2024, I also believe audio will follow suit theyre going to take out the CTV playbook and theyre going to see some of the benefits that I think are really important.
For that category to grow so I think there is.
Another secular tailwind available in 2024 decision.
Decision programmatic is poised to have its best year ever in 2024, and I believe this is partly due.
Due to the macro pressures.
We're investing heavily in our platform. So that we make the value is obvious and as powerful as possible I think the open internet will start to get the first dollar even more in 2024 than it has in the past and the places where we're injecting AI into the platform has seen amazing results. So far so of course I am.
We're optimistic about what that will relate to in 2024.
Especially because everything that we've done so far and AI has been small.
And yet also really impactful. So if we just continue down that track I think we're going to see some amazing fruit come from that.
Incidentally I'm here in Chicago today yesterday, I met with hundreds of our clients are.
Hundreds of traders hands on keyboard people today before that I've met with a group about the same size in New York.
We have never been more aligned with traders than we are today I think they're excited about the control and upgrades that cotai represents for them, which I believe they will all hit the ground running in Q1.
With those enhancements.
Put better Decisioning right next to data we put those two right next to each other in a much better and usable way than we ever had before we've made first party data activation better than it's ever been before and that's strategically more important at this moment than it's ever been.
The obvious benefits of USD two in <unk>.
Are becoming more and more apparent.
Everybody in the advertising community.
Traders know that their jobs are not going to be taken away by by AI, but instead, they they have to compete with each other so their job could be taken away from a trader who knows how to use AI really well until all of them are looking at ways to use the tools that are fueled by AI that were provided where AI is essentially doing one or two things that either.
Doing the math for them.
If you will of course with Berry.
Advanced learning models or in other cases, it's actually there are co pilot.
So, but we could not be more excited I'm more bullish on even things like <unk>.
In Europe, I think many markets outside the U S recovered more slowly post pandemic, but we're seeing advertisers now.
In the EU start to really lean into the innovations that we're bringing to the market in all dimensions such as.
<unk>.
In times of macro uncertainty or for verticals that are dealing with uncertainty we will gain share aggressively and were seeing exactly that in times of more stability, we accelerate our spend.
But I couldnt be more confident in that model and the growth potential that that means for both the near term and the long term.
Laura for the part on expenses.
Yeah, So I'm going to repeat something I've said before which is that we have a great luxury where high growth we're profitable we've got cash flow.
In 2023, we're growing well into the double digits above 20%.
So all of that allows us to stay the course to continue investing in areas, such as CTV AI or platform measurement.
Deliver that strong profitability and cash flow.
So as we start to think about 2024 for the trade desk third a few things I'd keep in mind.
We've been deliberate in our investments in hiring so we're gonna grow head count this year, but only at about 15% to 17%.
And importantly, we expect a similar trajectory next year, which should allow us to grow head count slower than revenue growth.
That leads to a very nice set up for 2024.
I'd also add that our investments include Coke high AI, the board market and we don't see any material increases as others have with investments in areas like that.
Also focusing heavily on productivity with our engineering teams our go to market team everyone at sales account management and trading.
And I'd close with I've been here about 10 years, now and I couldn't be more confident in our model our growth our ability to drive profitability and cash flow in both the near and long term. Thank you for the question.
Okay. The next question next question is from.
The next question comes from Sean <unk> with Evercore ISI. Please proceed.
Thanks, a lot for taking my questions I have two please the first is on retail media, Jeff when we think about the opportunity that trade desk hasn't retail media. If we think about call. It two to three years from today, what would you be satisfied with in terms of how big retail media revenue is as a percentage of overall business well it does.
20% plus how should we think about that and then second is on connected TV clearly a growth driver as well where do you think industry growth is expected for next year and more specifically for trade desk to grow faster than overall industry. How should we think about what is really driving.
That inflection of shifting inventory to variable market places.
Do we expect that next year is that the key driver that will allow you to gain share. Thank you.
You bet, so rather than giving specifics on growth rates that I expect two to three years from now we don't guide in that way I'll talk about the.
The macro vectors that are influencing that.
So.
What I'll be happy to see over the next two or three years is to see is first of all continue to grow in the way that we have with companies like Walmart and Albertsons and Walgreens and dollar General we've had just an amazing year and all of those partnerships and so many others I don't mean to leave off the dozens of others that have been.
Amazing partners to us this year.
Once again this is a case where economic pressures.
Have helped them to be bold and daring and do things that they haven't done before that have really paid off for them and us and our clients.
And I really love it when we see win win win situations like that all of those are benefiting all three groups the retailer the advertiser and the platform.
No.
I look forward in the next two to three years is to see that continue.
And to see the trends of retailers, saying I want to help.
Close the loop.
Want to use my data to help.
The biggest brands in the world sell products in my store I want to spend my flywheel faster and we want to see more and more retailers think about their business the way that Amazon thinks about their business, which is about spinning the flywheel and using data to make better decisions. If they simultaneously make that data available for measurement and attribution.
It will be better for everyone, including an arguably especially then so we want to see them do that over the next two to three years.
As it relates to CTV growth the macro trend that I just want to point out is that.
Of course.
There's been macro pressure put on the consumer at the same time, we've overwhelmed the consumer with choice in the CTV World. So if you think about you as a consumer how many more choices do you have especially in the U S. In streaming as compared to what you had five years ago Theyre just way more choices, it's hard to.
Track of which at the shows or even on.
There is just way more choices in terms of apps in outlets, even though theres been a little bit of a lull in the content production is the result of the strikes in terms of the apps themselves and the need.
For sort of the content machine to.
To continue to grow and grow subscribers, it's gone up for all of them, whether you're talking about smaller players like Paramount are the big guys like Disney who reported yesterday all of them in my view.
Need programmatic advertising to help them get the next stage of growth and that's largely because they can't just keep raising prices and consumers are saying I want to watch it but is there any other way than having a total bill for TV that is bigger than what I had back when I was paying for cable.
How can I get access to all the great content and not pay quite as much and what that has brought all of them to an AD funded options.
Companies like Disney and Netflix have proven this where their AD funded subscribers are worth in most cases about double to them. What those that are not receiving adds are worth to them.
The only way that that keeps up and they keep producing more revenue per user.
Is it the ads get more effective and more relevant.
Think it's super easy for them to just create lots more ads I think that'll be too disruptive I know theres a lot of fear of that at all the content companies.
They're way way out is to make <unk> go up.
The only way to do that.
As for them to make the ads more relevant that means they'll embrace <unk>. So.
That's already happened all of them have offered public support all of them are in the process of implementing but the faster they implement <unk> to the faster that will accelerate for them.
And as we see more authentication and more more options in terms of the way consumers can pay its either through sharing a little bit more of their time to see ads or paying a bit more money, we'll see more and more of them choose. The ads is this is as has historically always been the case.
And as a result that means better and bigger partnerships for us so.
So I really just think we have to continue to be a great partner to the content owners and keeps showing up the way that we have but otherwise those macro factors are the things that are really going to drive us.
I appreciate the question.
Thanks next.
The next question.
The next question comes from Jason <unk> from Oppenheimer. Jason. Please proceed.
Thanks, two questions one when Jeff that ties back to what you just talked about which is as linear shifts to CTV and two kind of upfront the programmatic solutions right. It results in less waste.
But presumably so some will you'll have higher C. P M right, but some of that spend will leave video can be allocated to some areas. Some of you participated in and like this quarter. Your your display accelerated I think a lot sequentially.
Others, you don't like search and social so just maybe talk about the broadly where you're helping you have the opportunity to help advertisers reallocate money other places where you do participate.
And then Laura just can you talk about the swing factors that kind of go to that comment or at least for.
For the guidance.
Are you assuming that trend.
Trends that are stabilized in November continue or does the guide kind of more assume an average rate of like what you've seen quarter to date. Thank you.
You bet I appreciate the question Jason of course, I'll take the first part and then Laura if you'll take the second part.
Youre right that is.
As money shifts from a linear traditional TV into CTV. It of course has an opportunity to be reallocated.
And.
When ever.
CMO or a media buyer has the option to reconsider of course, the first place where they're usually looking is to do something very similar and let's not forget that.
TV has always focused on being a top of the funnel activity, where you are creating awareness I would argue that's where the heavy lifting of advertising is done which is the process of winning hearts and minds Hearts and minds are not historically, one in 240 balloon black characters, there one with moving picture.
An audio and and emotion.
And that work continues to be done at the top of the funnel in CTV.
I would argue that the CTV right now is the most effective TV advertising the television has ever seen.
And arguably it's the most effective advertising at scale ever so.
I don't anticipate that most of those dollars are moving to <unk>.
Formats that are way different than way different location in the funnel like search or social those budgets are not going there. It does have as you pointed out it does have the opportunity to leave the video, but why would it when CTV is way more effective and I would argue that the effectiveness has gone up more than the cost and that as we see supply in.
Demand continue we might see more opportunities to find value as well as the target and then of course as UAV adoption continues to go up the efficacy will as well so even though I think we're doing the most effective advertising that we've ever done in TV I think theres still lots of room for exited extra.
<unk> grow in efficacy.
When you look at all of those sort of macro trends and facts.
I think it's inevitable that CTV gets the vast majority of that transitioning from linear and traditional traditional and even potentially additional spend so Laura youre a portion of the question, yes fantastic. So in talking about the guide what I would say is that we guide to what we see we always have.
I've been here that includes what's been observed quarter to date through the ninth of November. It also includes what our team and what our clients are indicating for the rest of the year and though I recognize that there is cautiousness immune environment. So all of that is taken into consideration.
So I'm optimistic for the remainder of Q4 and we believe in this environment, it's good to listen to our customers listen to our team and it's better to be cautious.
Thanks, Susan.
The next question comes from Youssef Squali with Truest. Please proceed.
Okay, great. Thank you very much just one question on CTV, Jeff can you, maybe expand a little bit more on your comments around the different ways of buying CTV programmatic versus insertion orders versus programmatic guarantees maybe where are we today in terms of percentage of CTV, that's bought programmatically and what is.
The biggest kind of hurdle to kind of get in it to become kind of the.
The standard.
You already have the way people interact with it thank you.
You bet.
So.
<unk>.
I'd say today and these are very.
<unk> broad buckets.
A reflection of our spend this is me given that commentary.
The macro space.
As the dollar moves over from traditional television.
And to CTV.
Mostly gone into three different buckets relatively evenly.
First is to work directly with the content owner.
And create essentially an insertion order again.
The second is to work with us through programmatic guaranteed.
And then the third is to work through Biddable fully decision.
Programmatic.
Those have roughly been equal youre seeing the first and second converge.
And then the third category is of course, the fastest growing so when I talk about the need for TV to embrace programmatic I'm really talking about the need for it to embrace fully decision programmatic, because thats where content owners get higher CPM, that's also where advertisers get the highest effects.
<unk> of this and that's the only place where they're willing to pay a premium.
The first and second have been increasingly converging over the last couple of years, while those were even a few years ago as more and more of their moving towards the second and third category with the final destination really being that third category. That's how we see all of CTV, moving because thats where efficacy.
And price and the healthiness of the ecosystem stabilizer.
That's helpful. Thanks, John.
Okay. The next question comes from Tim Nolan with Macquarie. Please proceed.
Hi, Great, Jeff I've got a CTV question as well. Please if I heard you right in your prepared remarks, you spoke about some.
Some open past efforts already taking shape in CTV opens.
<unk> you started about a year and a half ago, if I remember right on focused on journalistic publishers could you just elaborate on what you were doing with open path with direct relationships into CTV. Please.
You bet I appreciate the question.
Let me just remind everybody what open path is.
Uh huh.
Tim again really appreciate the question because I think this is something we haven't talked enough about.
And you are right open path celebrated.
Its first birthday at the beginning of this year.
And it's been.
The fastest growing.
Pass, if you will or or route supply chain.
Inventory on our platform.
And what it what it is is the ability for publishers, who want to do their own yield management to plug into us directly where historically they would use an SSP.
This time, they can plug into us directly part of the reason for that is because more and more companies are wanting to do their own yield management.
We initially really highlighted the need for journalists journalistic outlets.
To embrace this because.
Their need for authentication as well as CPM to go up was greater than any other part of the ecosystem. So it was really launched with journalism, because thats, where they needed to help the most.
Where it moves the needle perhaps the most is in connected TV and the reason why it moves the needle so much in connected TV.
Because the content ownership. Unlike on the browsing web where you have millions of websites you only have dozens of companies in the U S and as I've said before I believe television is perfectly fragmented for a business like ours.
But that makes it so that they're all big enough for them to have their own yield management functions. It makes it so that we can plug in directly with them and then make certain that the auction has a higher degree of integrity than if it were routed through Google or somewhere else for that matter.
So we've.
We've launched open path as a means of making certain that the pipes are clean.
And that has made certain connected TV has an ecosystem or a supply chain that is cleaner than others, which is really great for CTV and its future.
Thanks for the question.
Thanks, Tim.
The next question comes from Matt Swanson with RBC capital markets. Please proceed.
Yeah. Thank you so much for taking my question.
You've talked a few times on this call about taking market share and bad macros, and then being able to invest more aggressively in a positive.
We've obviously seen in the numbers that you've taken market share over the past couple of years can you just talk to us when that macro does slip hopefully sooner than later one how do you protect those market share gains and she was like what are those first steps. When you returned to investment whether it is to protect that market share or go after new markets as the macro.
Bruce.
You bet so.
<unk>.
Implicit in the question is that Hey, one.
Whereas the macro continues to improve when will you make additional investments we're investing as aggressively as we can right now so I know, we're we're sort of showing our operating leverage but that's not because we're saying, let's flex our operating leverage we're instead.
Trying to grow as aggressively as we can.
As Laura highlighted and the change in head count both this year and next year as it relates to our overall growth.
In part because we surged our hiring during the pandemic and over the last few years, so that we could capture opportunities like this one including that we're shipping the biggest release in the history of the company. This year. We started that in June we've been releasing throughout the year. So we'll continue to make.
Investments in that same way, but I believe those are the investments that are making it so that it's really hard for anybody to take that away from us we spend most of our time thinking about how we compete with the biggest technology companies in the world and the way that we compete is not to play the game the way they do.
Most of them have conflict of interest all over the place and most brands are terrified to hand over their data and honestly to hand over their future to those businesses. So they're dependent on growth to come from just handing over their budgets and hoping that they get good stuff.
Instead with us they have somebody who doesn't own any media.
That is a feature not a bug.
And that we help them objectively decide what media they should buy because we don't have a dog in that hunt and.
And by not having a conflict of interest we help them to buy objectively across the entire media landscape, especially the most perfectly fragmented portion of that which is in CTV.
The best way for Us to stay ahead, and I say this to our team all the time is to do the very same things that got US here, we align our interest with our clients, we maintain our objectivity and we innovate like Hell.
That's what we've been doing all this year, that's what we expect to continue to do that becomes even easier to do from a.
From an IR standpoint.
As times get better and better but.
But we've been doing it now we will keep doing it in the future. That's what got US here, that's what's going to get us to the to the future that we know we can we can obtain if we just keep executing.
The next question comes next.
The next question comes from Chris <unk> with UBS. Please proceed.
Great. Thanks for taking my question.
B one here for Laura just going back to the guide can you give us a sense for how fast or if we were growing in October.
Just kind of how we should be thinking about kind of what's implied potentially or an exit rate in December in that 18% growth where was October potentially kind of if it was growing at say, 10% in October and we're talking about a stabilization potentially around where the full year guide could we be exiting in kind of that low twenty's growth that we talked about.
Al.
Where the guide implies where you would be for the full quarter X X political.
Hey, Chris I appreciate the question.
Actually arent going to provide further guidance on exact year over year growth figures, both with and without election spending the base for October the first week of November or exiting the year.
But you know correctly that we did see.
That drop off in the second week of October and stabilization going into November so all of that is factored into that guidance.
Yeah.
Yeah.
Okay.
So any.
Any color was October actually growing.
That you can share.
Of course.
It was growing okay.
I'm smiling as I say that [laughter].
Alright, Thanks, Chris.
Next question.
The next question comes from Laura Martin with Needham Laura. Please proceed.
Hi, I'll just ask one on CTV.
When I talk to Disney and Paramount and Fox and they are always saying they have direct sales forces. They think they've got a higher price point selling content, which is not substitutable and there are definitely afraid of this third bucket that you talk about which is.
What do you think is the final destination, which is sustainable programmatic because they've seen what's happened in mobile and desktop it's sort of a race to the bottom because of unlimited supply.
Can you speak to the fact.
Why.
By the way Michael Barrett yesterday on their call said he completely disagrees with you, but it's all going to stay in those first two buckets. So can you explain why you think the final destination is all going to be available when.
That is not what I'm hearing from our premium content owners.
Yeah. So.
I suppose it depends on who you ask inside of those premium content owners, but.
Uh huh.
To me the math is fairly obvious and even conceptually.
It's fairly obvious and I know that.
Michael Barrett business.
Not really participate.
On the buy side Decisioning that is that third bucket. So it's natural for him to focus on the first two and talk about the things that that.
That are great about those two buckets, but if you step back.
The third bucket, which is full fully decision programmatic is the one where the advertiser gets to bring their own data to the equation. That's the one where they say these are the users that I walked it's the one where it realizes the potential of CTV advertising because the ads are relevant every single person.
<unk> here.
Hearing this.
Has seen TV ads that are not relevant to them.
And that's driven by a system that has historically always been focused on content.
I want to match this advertiser with this content.
Just a sort of spray and pray.
That isn't what will happen in the future that isn't what's happening in that third bucket today, which is that you can bring your own data and show ads that are highly relevant. So that you don't just use the show as a proxy for audience. The show was always used as a proxy for audience and sometimes it lines up.
Really nicely, which is.
Most people, who watch football are more likely to drink beer and so as a result, those two have been married really well and that's part of the reason.
Why.
SPN content at some of the most expensive.
But if you can take.
And I'd and make certain that the AD is relevant and customize that and make it. So that you are only showing ads to those that are relevant only then can you make it. So that this four minutes per 60 that are being used for ads, which is what a quarter of what happens in traditional television.
Only then can you make the Cpm's go up high enough to justify the additional cost.
So.
Long term, we're all heading to that last bucket, it's the only place where the math makes sense. It's the only place where you really get the benefits of digital and inside of all of those big content companies. There are groups of companies. There are groups of people that understand that that's where we're all heading even though not necessarily ever.
But it gets that the traditional models of selling are not the best ways to monitor monetize TV going forward.
Thanks, Laura operator, you can close out the call.
Thank you.
This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
Thank you.
Goodbye.