Q2 2019 Earnings Call
Greetings and welcome to the trade does.
Second quarter 2019 earnings conference call.
At this time all participants are in listen only mode. A question and answer session will follow the formal presentation.
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I would I like to turn the conference over to your host.
Mr., Chris told thank you Mr. <unk> you may begin.
Thank you operator, Hello, and welcome to the trade that second quarter 2019 earnings Conference call.
Our call today is taking place from our Ventura headquarters on the line at our founder and CEO , Jeff Green and Chief Financial Officer, Paul Ryan.
A copy of our earnings press release can be found on our website at the trade that dot com in the Investor Relations section.
Before we begin I would like to remind you that except for historical information the matters that will be describing will be forward looking statements, which are dependent upon certain risks and uncertainties.
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 the 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 companys operational performance.
I will now turn the call over to the founder and CEO , Jeff Grant job.
Thanks, Chris and thank you all for joining us I'm excited to announce that our revenue growth accelerated to 42% in Q2, compared with 41% last quarter.
Our accelerating growth is a testament to the increasing trust that major global advertisers are placing enough that they shipped more of their advertising dollars to programmatic.
To understand the significance of our growth we need to provide context for what is happening to advertising from a macro perspective.
In 2019, according to IVC global advertising spend will be about $725 billion up over 4% from 2018.
Hi, part growth rates global advertising will be a trillion dollar industry and about seven years.
One of the only a handful of industries with the Tam over that Mark.
Programmatic is still a relatively small part of total global advertising.
It is estimated at around $34 billion in 2019.
But it is growing five times faster than total advertising at around 20% year over year. According to Magna global.
We maintain our prediction that before long most advertising will be digital and nearly all of it well be transacted programmatically. This puts us in the fastest growing segment of an expanding industry, where we expect to continue to aggressively take share.
We saw this in our results last year, we are continuing to outperform the industry again this year, which is reflected in our biggest Q2 to date.
But more significant than comparing our company's performance now to our performance in the past.
Our growth rate is 10 times the pace of overall advertising growth.
And in fact, our growth at nearly four times the growth rate of digital.
There are many reasons for our industry, leading growth rate some of our growth is coming because we're executing well in capturing opportunities, but other growth drivers are secular.
The digitization of advertising, particularly TV has massive the shift to data driven decision versus guessing or intuition is game changing.
These changes in the landscape significantly benefit us.
We have created our strategy, our technology and our business model to take advantage of these shifts.
As a result more advertisers are standardizing on our platform.
Every brand in every agency knows that they need to be engaged in programmatic advertising, which is another way of saying that every brand has come to understand that advertising using data driven decisions is much more powerful and effective than simply following intuition alone.
Our results are proof that this is occurring.
For example in the second quarter, we signed 55, new analyst days, representing some of the largest brands on the planet.
This is the highest number of new Msps, we have signed in one quarter since the end of 2016.
Through the first half of the year, 60% of the Fortune 500 companies are now growing advertising for the trading desk.
More brands nearly 50000 of them, mostly through their agencies are moving more of their AD budgets into data driven advertising.
These numbers are very telling because once advertisers embrace this model they start to shift more of their budget into it.
Once one person on an agency account or brand starts to realize the value of data driven precision.
Net other start to adopt it across more channels, we see evidence of this everywhere.
For example in Q2 EMEA had continued solid growth and share gains our offices in both Madrid, and Paris achieved record spend in Q2.
We added more major advertisers and more accounts grew their spend with us during the quarter. We added a large regional hotel chain and the smart home energy company to name a few.
We are seeing similar trends and APAC, where our offices in Hong Kong Jakarta, and Sydney All achieved record spend we are also seeing exciting growth in many of Asia's fastest growing emerging markets.
The market, our defined southeast Asia, Singapore, Indonesia, Thailand, and Malaysia, Vietnam, and the Philippines, They predict digital mobile growth there to be about 35% in 2019.
In several countries, we are growing exponentially faster than that for example in Vietnam, We grew 125% year over year.
And these smaller but fast growing market data driven advertising at the perfect fit the cost of sales and distribution is way lower end market moving shifts require adoption from fewer people I continue to predict that these emerging markets will be nearly 100% data driven for the U.S.
To continue demand in these emerging markets you have to grow supply.
That's why I'm excited about the premium inventory partnerships, we have developed in Asia.
For example in Thailand.
We also have the country's top TV digital platforms channel seven Gen three.
We also accessed through I'd TV, the second largest broadcaster in Tyler.
In Vietnam, we partner with the largest free TV station VTB.
Globally, our commitment to invest and innovate in the channels that matter most to advertisers is a major driver of growth for the trade desk.
In Q2, 47% of spend on our platform was in mobile Thats a new record.
Mobile video spend growth was about 50% mobile in AD spend growth was about 63%.
Data its Ben again was up 80% and cross device spend was up over 250% for the third quarter in a row.
Audio, which I believe is the best value and programmatic today grew almost three acts in Q2 for the second quarter in a row.
Connected TV spend growth was also amazing growing nearly three acts from a year ago.
I said before we will likely never see a channel larger and more full of opportunity than we have right now in CTV.
Much of what we've done over the last decade has simply been addressed rehearsal for the digital shift happening in TV right now.
This is important because as we drive towards a trillion dollar total advertising market by 2027.
About half of that market will be in some form of video and most of that will be in premium TV.
We are at the very beginning of the Digitization of TV advertising more and more consumers watch TV content through connected devices and as they do that advertisers are getting a much better understanding of who is watching their ads and how they are responding.
This enables advertisers to apply real data to their largest TV AD campaigns for the first time, making those campaigns more precise and more effective.
This kind of targeting that simply not possible with linear TV.
This is especially important for major consumer brands, who are among the most aggressive and embracing data driven advertising.
For them brand differentiation is critical they are facing unprecedented margin pressures in their core business.
Getting smarter more precise and more scientific about how they invest their AD dollars is a very effective way of maintaining and enhancing brand value.
And nowhere is this more apparent that MTV.
Nearly every discussion I've had over the last few months with advertisers or content providers starts with the potential of connected TV.
There was a number one point of discussion during the recent upfront season and that the recent Cannes Lions Conference.
Every top advertiser wants to know how they can best access CTV inventory at scale and how they can apply programmatic to it.
On the publisher side all of the major premium TV content providers in the world wants to know how they can make more of their premium content available for programmatic demand.
This is driving our premium inventory supply growth that we see every quarter.
In Q2, Rctv inventory growth was up over three acts from a year ago, but our momentum doesn't stop there.
We recently announced that Amazon publish our services as working with the trade desk. This is a breakthrough deal in connected TV for several reasons.
As always lets start big picture and then zoom in on what this means directly for our business and our advertisers.
This announcement as a victory for the open Internet. So many decisions by Big Tech players have created walls around their content and reduced transparency for advertisers and this deal Amazon has taken a different path.
By making this announcement they are staking four plants one.
They are joining the open internet.
Two aside from advertising.
Amazon Dot com they are center in their efforts on the sell side.
Three they are going to reduce the cost of sell side seems significantly while being completely transparent and for their partnering with the demand side instead of to go it alone strategy, that's a walled garden often deploy.
Let me tell you why I believe these points are significant.
Advertisers on our platform now have access to 100% of Amazons third party content providers. Thank discovery NBC SDN apps on your Amazon fire sick. This is quality inventory on premium content with.
We have a joint focus on improving the consumer experience by doing better with AD frequency.
Amazon It is providing an anonymized I'd be very similar to the Anonymized I'd Apple shares and its mobile ecosystem.
And we can use this to measure reach and frequency across the entire internet. It also allows brands to unlock the power of their own data and insights their most valuable data to drive AD relevance across the TV ecosystem.
And so doing Amazon publishing services is supporting the open Internet in contrast to big Tech walled gardens.
It's a strategic move which I believe will put significant pressure on other CTV aggregators and finally, Amazon has been transparent about their fee structure and exactly how much the published several receive something thats very important to us and something ill come back to shortly.
We are equally excited to be working with other major TV content providers for some of them. It's the realization that more than half of their viewership is now coming from connected devices for others. It's the realization that live TV events, such as sports and political debates are driving massive new viewership on connected devices. They need to overhaul their models to allow for AD price optimization during unpredictable spikes in demand.
This requires a new business model and these providers are coming to us to partner on that strategy work.
We are driving similar relationship internationally in Europe . For example, we're working directly with many of the largest media companies such as RTL group, Prosieben Mediaset and others.
Across Asia, we have access to many of the top Otcs video streaming services, such as TVB Iflix view inline TV just to name a few.
Across all of these relationships our focus is on monetizing premium AD funded content.
This contrasts with walled garden platforms, which prioritize user generated content.
Premium content is more valuable to advertisers because its much higher quality, it's inherently more brand safe viewers cannot skip through these ads typically and there are better content to add ratios.
The shift toward premium content will also force big walled garden platforms to reevaluate their take rates and margins.
All in their operating at something like 50% today.
Emerging platforms, including Amazon and others, who are just starting to make their content available are operating at a fraction of that and often with significantly more premium content.
And this environment more advertisers such as the Hershey company are shifting more of their campaigns to the trade desk. In fact, Hershey has consolidated much of its programmatic advertising on our platform.
They've gone from several VSP down to just one which gives gives them simpler line of sight into the effectiveness of their programmatic campaigns.
They share our view that data analytics transparency and user experience are critical to driving greater effectiveness.
As I emphasized TV across all their campaigns. They saw in the trade desk, a partner, who can help them drive greater relevance and success and built a small internal team at Hershey that manages their agencies and their relationship with us that team focuses on areas such as audience targeting social media marketing and data science.
They are building in house programmatic capability, because like an increasing number of major advertisers they want to.
Get a much better handle on supply of transparency.
Which brings me to one other point that I want to thanks.
Since our last report we are starting to see a lot more regulatory focus on big Tech and much of it has to do with how they manage their AD platforms and the consumer data that they manage through.
Many of you have asked what this means for our industry and for our company.
To answer that I want to take a step back and try to give you some context as to why we do what we do.
Because I don't think we've talked enough about this or taken enough credit for the pressure, we're putting on the advertising ecosystem to be more transparent about data pricing and value.
As I mentioned before the total addressable market for advertising.
It's not a growth March towards one trillion dollars driven by growing demand from advertisers to apply data to their AD campaigns and drive greater precision and relevance. This growing AD market is also driving the internet as we know it today.
This includes not only content delivered over computers and phones.
It's also internet fuel TV that is right now the most exciting growth area within advertising.
But to sustain that great content advertising much keep up and keep innovating.
In the near term CTV advertising grows rapidly that means fewer ads with greater relevancy.
But the data that will fuel more relevant advertising walls come from TV viewing data alone.
It will come from where you click on your many devices what other content you interact with.
And an understanding of what else youre interested in.
So let me give you a sense of how we approach data and how we put it to work and a couple of initiatives that we have pioneered in our industry to improve transparency confidence and the power of data analytics.
We have a very consumer friendly position on data.
We do not transact indirectly identifiable data.
We don't want the data that comes from owning the search engine and we don't want a personal information and social graph that comes from operating the social network, we don't need it.
And this is a huge distinction for us when compared to the walled gardens core under huge scrutiny on this issue.
We don't know your name your address or the details of your help.
We know about the products you're interested in and the content you tend to like.
We can put that data to work to help our advertisers building an understanding of the kind of advertising that should be relevant to you.
All of this data is an optimized our acquisition of AD brain has been hugely important and our ability to advance this kind of work.
Add brands AI helps us integrate inside across environments in a way that protects consumer data by using only anonymized information.
This is a differentiator for advertisers who are hyper focused on protecting the integrity of their consumer relationships, which sometimes go back decades.
Well lets look a little closer.
Because of our leadership position on the demand side of advertising advertisers also expect us to leverage that position to apply pressure to the supply side of AD Tech.
Over the last two or three years, we have done exactly that often behind the scenes and in doing so we have used our strong position as the leader in the open internet to make the internet better.
As we do this our focus is on improving the AD ecosystem for all players so that everyone benefits. We firmly believe that the more transparent that ecosystem is the more confidence advertiser will have in it and the more demand they will drop.
That's why we developed and then gave away our unified I'd solution.
As the largest independent demand side platform, we have a massive cookie footprint leveraging the scale through unified I'd radically improves match rates across the ecosystem.
This is true even when the transactions are on our platform.
Both demand and supply side companies can use the unified I'd.
To drive a more much more transparent view of users across the ecosystem.
This is all done anonymously with no directly identifiable information.
We have seen match rates go from what was considered decent by industry standards around 50% to 60%.
To close to 100% for those who use a unified I'd.
On the supply side, we have seen cpms more than double in some cases.
Every day more and more companies are deploying it.
Thats, great for advertisers, who have a much cleaner view of their market, it's great for publishers.
Who can drive greater value.
And it's great for other Dsps as it takes one of their major challenges on radically simplify that and of course, it's great for us while it may seem counterintuitive to create this technology and then give it away. We believe that it helps create a growing competitive market and we believe we will take an outsize share of that market.
Another major initiative on the supply side has been our partnership with white ops to scrub all AD inventory for fraud.
Three years ago. If you were at any digital advertising industry conference or event. The number one issue with sprott advertisers were very that they would inadvertently by fraudulent ad spots.
The problem at that time was that those companies who claimed to help advertisers managed fraud, we're really just taxing it.
Their vested interests was not in preventing fraud itself, but tax in living in a fee for layering their technology on to every impression.
Working with White ops, we pump ended that model.
We want to describe all inventory before it ever came to the buy side they reduce their rates and we significantly increased our volume by insisting on all of our suppliers work with them and doing this we put pressure on the entire ecosystem big and small described for fraud. Our leverage was such that we can take this position make it affordable and make a pervasive and today. This is not a major issue in our industry anymore.
These are a couple of the examples of how we are working to improve the digital AD ecosystem for all parties there are many others.
As I mentioned before I don't think Weve taken enough credit for the work we've done but I think in the context of all the scrutiny of our industry right now it's important to understand how the industry is changing.
What's driving that and how the trade desk is creating value.
There are times when some supply side players get uncomfortable with these efforts to improve transparency and efficiency. That's because many of them are trying to protect their business models to drive high margins, while providing comparatively little value.
But this is a natural cycle of a maturing industry transparency will force price and value discovery.
And every market participant will ultimately have to account for the value they provide and the prices they charge and this climate I don't think it's coincidental that our business continues to thrive and more advertisers standardize on our platform.
They want to align themselves with a partner who insurers they can ask the transparency objectivity and integrity.
Finally, as I've stated many times before we believe our business model is exceptional we have the luxury to not have to choose between growth and profitability. We are doing both and we're pretty much done so since the beginning in Q2, our financial performance and particularly our 58 million of adjusted EBITDA was significantly better than we had estimated.
So I want to give a little context.
We've increased our operating spend by more than $41 million year over year in Q2.
This means our investment was up 50% over the previous year.
Even at that rate, we couldn't invest fast enough.
Of course part of that is our investment discipline, we invest quickly but carefully.
Always focus on the needs of our customers worldwide.
We're also careful to ensure that we maintain our culture, which we believe is key to our success in Q2 some of the hiring and investments we did not complete are already happening in Q3.
As a result, we expect adjusted EBITDA to be $45 million in Q3.
If we expect additional investments will lead to an outsized return we will invest as fast as we can that's how we operate.
We consider this a great position of strength.
We can produce EBITDA margin that meet or beat most other SaaS companies, including those much bigger than us.
So hopefully you found this context useful as you think about the nature of the markets that we operate in and why we believe we will continue to grow share in the fastest growing part of it data driven advertising our focus is on advertisers and agencies our commitment to the open internet and everything that means in terms of transparency.
Our pragmatic approach to rapidly investing our profits in future innovation means that we will accelerate our leadership in this market with the biggest shift in media and advertising we've seen in a generation now underway. We are in great position to grow share moving forward.
Now I'm going to turn the time over to Paul to discuss our financials.
Thanks, Jeff and good afternoon, everyone.
As you've seen in our press release Q2 was another outstanding quarter.
Revenue increased 42% year over year and accelerated versus our Q1 growth of 41%.
Adjusted EBITDA increased to $58 million and GAAP net income increased 45% to 28 million.
We achieved this while we continue to invest aggressively in areas critical to our future growth.
Such as on our platform and adding engineering and sales talent.
Revenue for the second quarter was 160 million, which was above our prior expectations and reflected increased spend by our existing customers plus the addition of new customers and advertisers.
For the quarter, approximately 89% of our second quarter gross spend came from existing customers, who have been on our platform for over a year.
Q2 marks the 22nd quarter in a row, where customer retention was over 95%.
With the growth of our business, our operating expenses grew to 128 million.
This increase year over year was due to sale.
Severe.
Income tax was a 5.6 million expense.
Mainly due to the tax benefits associated with employee stock based awards, the timing of which can be variable.
GAAP net income was $27.8 million for Q2 or 58 cents per fully diluted share.
Our adjusted net income was $45.6 million or 95 cents per fully diluted share.
Compared with adjusted net income of $27.2 million or 60 cents per share in the comparable period.
Adjusted EBITDA was $58 million with a corresponding margin of 36.2% of revenue during Q2.
The increase in adjusted EBITDA dollars reflects the strong growth of our topline offset by our increasing investments in product people global expansion and corporate expenses.
Net cash provided by operating activities was $11 million in Q2, and our trailing 12 months of operating cash flow and free cash flow were $95 million and $60 million respectively.
We continue to have zero debt on our balance sheet and our total cash cash equivalents and short term investments exited in the quarter was $231 million.
Our dsos at the end of Q2 were 102 days, an increase of one day from the same period a year ago.
Depots for Q2 were 81 days a decrease of one day from the same period a year ago.
For Q3 of 20 910, we are expecting revenue of $163 million and adjusted EBITDA of $45 million.
For the full year 2019, we now expect revenue to be at least $653 million revised upward from $645 million last quarter.
Adjusted EBITDA is now expected to be $201 million also revised upward from last quarter or about 31% of revenue.
I will now turn the call back over to Jeff for final comments and of course, Q and Jeff.
Thanks, Paul Q2 was another very encouraging quarter for the trade desk as we continue to see our strategy and execution payoff as more advertisers commit their budgets to us we exceeded our expectations for the quarter and are raising them for the year.
The fundamentals of our business are solid and we continue to scale, our business across markets and channels as the worldwide advertising market moves towards a trillion dollars in a few years, we are well positioned to win a large share of the programmatic portion of that market.
The fastest growing segment.
We invested early in key markets and channels and while we are pleased with our initial gains we see far more upside yet to come.
That concludes our prepared remarks, operator, let's open it up for questions.
At this time, we will be conducting the 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 would like to remove your question from the Q4 participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys, one moment, please while we pull for questions.
Our first question comes from the line of Shyam Patel.
Susquehanna International Group. Please proceed with your question.
Hey, guys congrats on a great quarter.
Jeff I wanted to ask about the Amazon partnership.
Hey, you mentioned in your prepared remarks, it seems like it's a big step for the industry.
Can you just talk a little bit more about what you think it means for the industry and I know its super early but how do you think about the opportunity for the trade desk. Thank you.
Awesome. Thanks, Sean.
So first let me talk about Amazon just generally before I talk about the deal.
So.
In talking about Amazon and what what what they're up to.
A lot of people have asked me what is what are they doing and what this third party.
Perhaps mean and what is.
Amazon publishing services.
So my understanding of Amazon publishing services is that the primary thing that they're monetizing as Amazon fire, which is the sticks and the hockey pucks.
And inside of that of course, you have Amazon.
Amazons own operating watch Amazon Prime video and then you have Netflix and you'll have you too.
Then you have a lot of third party apps, where there's adds.
And there are going to those third party apps, whether that Sony crackle, or Cvs or anybody else and saying we can help you monetize that.
And.
They're doing it in a very different way, which is why I'm. So excited about the deal and let me talk about what this means for us. So let me let me just summarize the deal.
So so first.
Amazon is joining the open internet in the sense that they're using their I'd to make it possible for us to measure what's happening in that ecosystem that I, just described as well as well as on the rest of the Internet.
So that makes us a measurement is meaningfully better than what we would get inside of any walled garden.
Secondly.
They are being more aggressive in economics from what I can tell them then what.
Anybody else has been on the sell side for connected TV.
And what this does for content owners is if if.
If you rewind two years and you're looking at this through the lens of a content owner, who is 90% of their revenue come through linear television and.
The money that you have to.
To divide with somebody like Q2 versus the money you have to divide within MPPD partner.
Is roughly the same.
Then you are in no rush to move to digital in fact digital just represents risk for you.
But if you make targeting better because of the use of that I'd and so you get the efficiencies that digital can provide.
And then you also.
Get the chance to keep more of adult you get a greater percentage of the deal it becomes economically irrational to not raise towards digital.
So what I think is especially significant about this deal is that it just became more incentivizing for content owners to move into digital and it also gives us a little bit of insight as to what Amazon might be thinking in terms of their overall strategy, which is to be way more focused on the sell side when it comes to everything thats not on Amazon Dot com.
So I think it's a game changer for TV I think it's a one of if not the most significant deal that we've done in television to date. We hope is the first of many both with them and with others.
And really excited about the opportunity, but it represents.
Thanks, John next question Tim.
Our next question comes from the line of uses some quality of Suntrust Robinson Humphrey. Please proceed with your question.
Hi, This is sagar on for Youssef, one to ask a couple of more questions about the Amazon partnership first question is do you have access to Amazon's first party shopping data for targeting and second is how do you compete with Amazon to own DSP.
Great. So so first one's easy no.
Amazon would never want to do that because of the risk that that would represent.
In terms of.
Data security, so Dell they'll continue I suspect to do that on their own so.
So answer your first question is no we don't.
Secondly in terms of how we compete with Amazon's a DSP.
I'd like to take a step back and just talk strategically for a second.
If you look at this through the lens of some of the biggest advertisers in the world that are that are cpgs CPG companies.
Amazon as a distributor has more power to them can be a little bit more scary than any distributor that they've ever had so few for instance, compare them to Wal Mart.
A decade or two ago.
While Walmart may have been the most powerful distributors. They had then.
Amazon has more power than than they did today.
And that's for a number of reasons.
In part because Amazon has become just such an amazing retail engine. That's done lots of consolidating made it possible for other merchants to come onto their platform.
But also because Amazon has gotten into so many other businesses, including selling CPG products themselves. So the conflict that they have with dealt with those companies can can.
Create some pause.
And then when you add the fact that a double you asked often stores the data for all of these companies.
I think it's a really hard pitch for Amazon to go to a CPG company or or really.
Most of the biggest advertisers in the world and say, we know you give us a lot of money and you Trust US a lot to do all the distribution on our side.
But we would also like to ask you to give us all of your marketing budget to do all of this spend off of Amazon Dot com.
Because they have in that sense.
Bigger objectivity problem than any company in the world.
Where in effect Theyre, saying Trust me with your money Trust me with your data and Trust me with your entire marketing spend.
I think it.
What we what I anticipate.
Is that.
The core of Amazon's Buyside efforts will be to monetize Amazon Dot com.
While they do have a DSP to helping.
Do some other things today I don't expect that to be the core of what Theyre doing and this does shed more light on the significance of the sell side approach. They are taking and Amazon publishing services, where I anticipate that we'll be partners with them for a very long time.
And so when you look at sort of the strategic hand that Amazon is Dell I think it makes it a ton of sense that while we do compete with Amazon DSP the much more significant.
Headline is that we are partnering with with Amazon publisher services and really excited about what that means for the future.
Thanks Auger next question Tim.
Our next question comes from the line of Michael Levine of pivotal research. Please proceed with your question.
Hi, Congrats again on the quarter, Jeff terrific acceleration.
Wonderful to hear the detail about Amazon, but one of the other things that was interesting to see come out. This week was about the partnership with Disney and you know also in the context of there you're basically bundling Disney plus European plus in Hulu AD supported it probably a much lower price point than I think a lot of investors have had expected. So love to hear your thoughts about that and how impactful you think it could be to the business.
Fantastic. So so as you know.
Disney has been so aggressive in the last 18 months and it is actually so exciting to watch.
A few years ago I was really touting the forward thinking of ATM T. and I feel.
Just so excited by what Disney is doing as a partner and as a consumer as well I think the new bundle they have coming out with Disney plus and the FPN claussen, who plus per ads.
It is really great I think.
Going to be successful.
And about that same time about 18 months ago, They approached us and we just started working together, we learn something in those discussions which is that.
More than 50% of the views that they are getting on their content is coming from connected devices.
And they wanted to figure out.
A better way to monetize that.
As somebody who's watched them up for a long time as a as an investor.
In their business I've watched them.
Try to figure out what happens with what do you do with the Ftn in a world where cord cutting is happening and especially with just the business model that they have for SDN say, a decade ago compared with today.
It's actually why I am so excited about this partnership.
Because.
Oh one.
We anticipate getting access.
To a significant amount of inventory as they become more digital.
But also I think programmatic is better suited for live events than any other way of monetizing if you think about it.
When a when a game goes into extra innings.
It's not really conducive to planning Montana in advance as to how many ads you're going to see and most advertisers are going to spend a bunch of time.
Thinking about well what if it goes into 13 any.
Instead.
You make your plan and then often what what.
Those companies have had to do in the past.
His giveaway those ads during the extra innings for free.
And so instead, what they can do it in real time check what demand is out there and also make certain that that those ads are relevant and not overly repetitive like they often are in those situations. So you make more money make a better user experience it.
It's really critical when more and more of the views.
Our coming online.
And the only way to support that content with the optimal user experience of today is to welcome programmatic demand. So that you get higher cpms on each of those.
AD views.
And it's the reason why I think.
Allison Disney are are strategically.
Sort of.
Stuck with each other.
I mean, we have a fantastic partnership it's not it's not because.
We don't love working with each other we absolutely love working with them, but it is strategically obvious that programmatic live content and the amazing offering that they have is going to continue to grow together and our great partnership with who I think is just indicative of what's to come so.
Yes, a lot of bullishness on our partnership with Disney.
Great.
Thanks, So much Michael Hi, Tim next question.
Our next question comes from the line of Brian Schwartz with Oppenheimer. Please proceed with your question.
Thank you Jeff Congratulations to it's just great to see the company executing so well here I was hoping maybe we could switch subjects over to what's happening at Google can you. Please provide an update on any impact or opportunities you're seeing you're expecting to see from the crown Chrome browser changes and then separately you know you've talked a lot about the Amazon transparency initiative.
Can you also provide an update on the transparency initiatives that you have been working on with Google for some time. Thanks.
You bet, thanks for the compliments, Brian and.
Yeah happy to give comments on chrome. So just a reminder, that chrome has roughly 60% of the browsing market.
And.
I talked I think it was last quarter or the quarter before.
At length about their initiatives, including same site.
I'm I'm.
I must say.
I am one that wants to really seeing the praises of Google I know sometimes.
Well, because we compete with some divisions of Google because they are so big a lot of people.
Our quick to pick on them.
At the time the at least the parts that we compete with we've we've talked about but.
What they are doing in chrome I think is exactly what the industry needs and I think they should be praised for what they're doing they're making the internet bit better and they're making privacy better.
I think it's a positive change for us and it's good for the industry.
And I think the fact that it is positive for us and good for the industry is indicative of how we've aligned well with just if you do the right thing then you are going to be set up well for the long term.
And it's really great to see.
Google under the pressure that they are.
Sort of reaching the same conclusion.
So I'm really optimistic about it they havent been specific about when they'll roll it out I think they just want to make sure that they dot every iron Cross every T, which is exactly what I would do if I were them too.
So I think.
I I suspect, we'll be well into 2020 before we see the actual changes implemented.
But.
There has been little more discussion.
Then then just sort of coming soon to a theater near you. So.
Excite about that can you remind me Brian on the second part of your question. Yeah. I was just on the transparency initiatives I think you've been working on for some time here with Google I know you talked a lot about where Amazon tightening on on transparency I'm. Just wondering if you can provide an update on what you're doing with Google on the transparency initiatives. Thanks.
You bet so.
So I'm.
Hi, there I know there's been a lot of our trade publications talking about just our desire to put a lot of pressure on on the sell side to just be more transparent.
And essentially the way that I look at this is.
Most advertisers when it comes to digital have two options two types of options. One is walled gardens, which are very good at making it easy to spend your money.
The other is the open Internet, where you have more data more transparency and more optionality.
More power, but it's more complicated.
And and.
Sometimes what has happened to the open internet is because of that complexity. Some players of use that as an opportunity to hide to high margin.
To charge.
More than they had in value.
And I actually think that has been the theme that has held back the open internet, while the walled gardens have grown so aggressively and so impressively.
And so.
I view, our role as leading the open internet.
And what that means is that we have to go to all of our suppliers and say, we expect you to add more value than you extract.
And and as we get bigger we are going to demand that we have more transparency on what we buy.
And we are in this really strong position that because there is so much media out there and because were the the the world of media and the Internet is producing so much content so fast.
We are in the power position if you will in that we are able to be picky.
We get to choose what we're going to what we're going to buy and what we are not.
And so we've just demand a lot of our suppliers and those that are that are transparent and open and honest and give us a fair environment to participate.
We spend way more with them and we're growing very aggressively.
And those that are we don't grow as aggressively.
And so I think.
That approach is putting pressure on a number of players on the sell side and that is a great thing for our industry. It is great for the Internet, it's great for consumers because that will make a better internet.
And we're on a mission to do it.
And and we'll keep doing that.
It's something that we spend a lot of time talking about with Google overall, Google is interested in the exact same thing.
So.
It's.
It is good for our industry to continue to to work for a better Internet and I'm really proud of all the efforts that we've done today on that front.
Thank you Mike.
Next question Tim.
Our next question comes from the line of every Jones of Citi. Please proceed with your question.
Hi, Thanks for taking my question My first one too.
Isn't that unified I'd, how would you try to benchmark adoption of this and what kind of push back are you getting from.
Players, who don't want to adopt the idea.
Yeah. So.
I don't know that we've been public yet about just the adoption numbers, but just I'll tell you just.
In terms of commentary.
The number of.
Companies that have adopted it is overwhelming and I would say that it's very difficult to be.
A top 10 supplier for us in any channel.
If you're not adopting that in some way if you're not supporting it in some way.
So I do.
I I do think it's been massively successful I think at this stage, it's nearing inevitability in terms of its its you bet ubiquity.
We've seen adoption all over the world. So it's not isolated to North America, it's happening all over the world.
And it is a better way to operate the internet. It is it is better for users and one thing that I don't think I've said enough is that.
We basically have used the standard with unified I'd that operates in mobile with idea Fay.
So this means that our privacy standard or the the way that we're creating this I'd and and the degree of privacy that this provides to consumers is just like ebay.
Which is of course, what apple users to operate its ecosystem and what the entire mobile community uses.
So.
This this idea.
Well the way to sort of go to market or get its adoption has been unique.
In effect, especially to the consumer it looks just like the idea of Fad.
Which is part of the reason why we're so proud of what we have been able to accomplish and getting adoption to unified I'd.
So I expect it to be one of the few standards for.
For ideas and therefore targeting on the Internet as we March towards the future.
And I'm sure at some point, we'll give updates in terms of where adoptions happen, but it's happened on the buy side on the sell side on the data side all over the Internet all over the world.
Thanks, so much Nick.
Our next question Tim.
Our next question comes from the line of Mark Zhou goods of Rosenblatt. Please proceed with your question.
Thank you Jeff.
Thanks for all the detail on the Amazon partnership Thats helpful.
I just wonder if you could separate the Anonymized I'd, what you're getting from Amazon from.
The shopper data, which you're obviously not just trying to understand how the.
The average times are sort of closes the loop.
If you will.
With attribution, so you know without having to shopper data do they go back to.
Sort of Amazon to close that loop and sort of how do you close the entire attribution loop within your platform.
Yeah. So so.
This is actually something that I think is important to understand about walled gardens.
Is that when you operate a walled garden you can't really provide attribution for the rest of the Internet you simply say this is how many people I touched in my walled garden and and this is how many conversions came.
From those people that we touched.
Whether you can't really make many arguments about causation or correlation because you're just measuring it in isolation.
That is sort of what you sign up for when you create a walled garden.
And and the reason you have to create a walled garden is so that you can use powerful data that isn't owned by the advertiser. So in order to use the data that another company.
Like an Amazon or like a Google or like a Facebook have it.
You have to operate a walled garden to make certain that that that data never leaves that garden.
Otherwise you run the risk of sharing that that includes.
A closing the loop on attribution.
So we're not able to say how did that that shopper out on Amazon.
Actually convert when they went and bought on the rest of the Internet. We can weigh in on the effect. They had on the open internet nor can we weigh in on the open Internet. The fact on sort of bringing them into the walled garden and participating in.
Sort of.
The supply chain once you get on to Amazon, because Amazon is not going to provide that outside of.
Of of their own shopper experience in order to utilize that data.
So walled gardens by their very nature make attribution hard for everybody else and that is why it is so important.
For more and more advertisers to be spending on the open internet and it is why as connected TV continues to grow and it will be extremely fragmented because TV has always been extremely fragmented.
That's a bias will be to the open internet so as an advertiser. So if they want to spend in connected TV. The first place to start is on the open Internet and then Youll give the leftovers.
Two.
Walled gardens.
Because one that's where all the premium content is two I expect that's where all the volume will be too.
Of users because we'll spend more time, there then they will on user generated content.
Even though that's also a huge pool.
But it just by their very nature, you're not able to connect the dots between walled gardens, because that is what makes them Walt.
Thanks, So much Mark Tim next question.
Our next question comes from the line of Mark Mahaney of RBC capital markets. Please proceed with your question.
Hi, Thank you for taking my question. This is Ben on for Mark two if I could just firstly on China, if we could talk about that and I understand that it's not going to be material for a while but you are partnered with three of the largest meet Chinese media companies I'm. Just wondering about the short term limits to growth does that have more to do with one a lack of demand from the global advertising partners you have to these media partners limiting your access to their inventory or three you kind of sells capping the spend that you're bringing on to them in order to maintain positive relations with these partners and just secondly, if we go back to Amazon TV.
Is there is there any way you could kind of quantify in relative terms, just the incremental amount CTV inventory that this.
At this Amazon TV deal brings to you like relative to the CTP inventory you had prior.
Understanding that you do have access to 100% of those impressions. Thank you.
Sure so.
So as it relates to China. So it as you point out it is very early stage for us.
I wouldn't characterize anything that we've experienced a today as.
Limiting or or anything like that we we started a partnership with Baidu Alibaba and Tencent.
We are growing that we are seeing.
Growth every single month, and we're going slow and being very deliberate.
We of course are going to continue to roll out in a bigger and bigger way and there's.
There's more to come before the end of the year on just some of our plans there but.
Things in China are going well and we're playing the long game so.
There.
There's nothing that's happened in China that I view as a setback at US just staying the course and making certain that we tap into the to the media market. That's about half the size of the United States, but growing at double the pace and as the second largest media market in the world.
And I.
Perhaps the biggest opportunity geographically.
That will ever see again.
So huge huge opportunity for us that we want to make certain that we don't mess up.
By being hasty or by burning bridges, and I'm really excited about what we've done so far.
Second.
To your question about incremental inventory I can't I can't comment on how much it will add to our total inventory, but I can reiterate that we will see 100% of every impression on Amazon.
We will also compete with all other demand.
And that includes anything that the Amazon sales team.
Team sales cells sorry.
Sometimes up let me say that again.
We will.
We will compete with all of their demand and that includes.
Competing with anything else that the Amazon sales team sells.
So that means they havent carved out the 20 or 30% of inventory that they then sort of given a carriage deal.
That is that a separate and then make a much higher margin on that than they would on the rest they are putting it all together and thats all competing so we're just as eligible to win any impression as anybody else's, including Amazon So given that that represents a 100%.
Every impression on those third party apps that is without a doubt significant.
Well, Thanks, Ben Kim next question.
Our next question comes from the line of Robert Culebra.
Of Wells Fargo. Please proceed with your question.
Oh, great. Thanks for taking my questions. Just wanted to go back to your comments earlier about the programmatic so far as a dress rehearsal for CTV and where you're going.
Programmatic was initially a sort of a non premium opportunity, which ended up or in some cases impacting.
Premium pricing integrity.
Given that just wondering if you could talk a little bit about the PMP model and some of the premium publishers and networks you partnering with now are getting comfortable that we won't have sort of a repeat of that history.
With the creation of sales channel conflict or impacting pricing integrity and then just one quick one Amazon just wondering is that a deal could potentially extend too.
Their AD supported I MDB TV product. Thanks.
You bet, let me answer the last one first so so it doesnt today.
I see no reason why it couldn't in the future, but there is no.
Plans for that.
We do.
Uh Huh I've talked about today.
On the pricing.
I Love. This question first of all so you're absolutely right that that programmatic was born out of sort of a bottoms up.
Growth or evolution in the sense that when we first started monetizing display.
10 to 15 years ago.
We were taking the remnant the leftovers and running an auction for it.
And.
That was really scary for companies like MSN and Yahoo, because they were saying Oh.
I make 90% of my revenue on 10% of the impressions and I don't want necessarily everybody to know that I have for supply, but I do demand.
So so programmatic shined, a light of transparency on things and it did make prices go down temporarily.
But what's happened over the last.
A few years is that.
That's helps create better.
Or fewer ads per page, it's helped make the internet overall, better just economics getting more effective.
But especially what's happened in connected TV has been exactly the opposite which is exactly what you want to do so so programmatic.
In a way should have never started with display because when you have more supply than you do demand an option is not the best way to monetize that.
But when you have more demand than you have supply, which is exactly what's happening in connected TV, because we're taking a number of ads in a commercial break and reducing them.
And because cord cutting is accelerated adoption and we're getting record demand for connected TV.
That's made it possible when you joined that with the increased efficacy that comes from being data driven instead of just sort of the spray and pray model that most linear is.
The most cpms have gone up pretty meaningfully so it's not uncommon to see a $10 CPM in in linear TV and see the same content monetize at a 30 40 or $50 CPM and digital so programmatic is exactly what that needs and I don't think that that's going to create any pricing erosion and what that has done as well as created is a desire for both the buy side and the sell side to get together and create a sort of a faster distribution channel. How can we reduce the number of hops the number of taxes that happen in the middle by creating private marketplaces or PMD piece or private deals so that.
You can reduce the tax that the people in the middle take.
And that is something that we're working really hard on with suppliers, we want to make certain that as much money as possible.
It is capped by the ends if you will advertisers and publishers. So that they continue to do really well and we think thats one of the things that we are extremely good at.
Which is adding more value than we extract in the middle and and making certain that everybody along the way is earning their key so the evolution. You're describing is is it's a really important moment for those macroeconomic forces to be changing media, because what audio and connected TV have is a secular tailwind that display and native never had.
Thanks, a lot Rob Tim we have time for one more question. Please.
Our final question comes from the line of Vasily Karasyov of Cannonball Research. Please proceed with your question.
Thank you good afternoon, Jeff wanted to ask you about a about a topic that we don't talk about much on this calls on that I would do.
Spend and I think in your prepared remarks, you said you think it's the best value in advertising right now and looking at the growth rates, it's growing as fast.
A little faster than connected TV, but I believe thats from a high of from Uh Huh bigger base. So my question to can you talk a little bit more about that why do you still think the connected TV as a bigger opportunity for you here, maybe talk a little boring about how I would do is growing how the adoption by advertisers is going how far do you think there's growth will extend and anything that you think is worth sharing with us would be interesting because it is growing fast and we don't talk about it as much.
I am so that you have asked this question and I.
And in part because we get to rectify exactly what you point out which is that we have not given audio and not include Spotify or Pandora the.
The the word count that they deserve.
So we did mention in our prepared remarks that.
Audio grew by three X for the third quarter in a row, which given how long we've been in audio is is unbelievable I am blown away by that number.
And I'm looking at the trajectory so so.
I'm I'm, just so excited by what's happening.
Part of the reason why I call it such a great value as when you compare it to some of the other forms of Oh advertising, including other forms of programmatic.
I don't think that there is a form of advertising that captures your attention much better than than audio.
You know you think about the way most of us consumed Spotify for instances.
Your your in your car or you're exercising your walking around your way less likely to skip an app.
Then if you're watching Youtube or or.
Something where you're sitting in front of a computer.
And you are also more likely to get more of your attention in some cases and then when you look at the fact that the rates of those audio ads are exponentially or a fraction of the price of.
More.
Premium television content.
I think it represents a big opportunity.
When you look at what's happening in podcasting and some of the other ways that those companies are starting to monetize it's no wonder that were growing at the pace that we are and I think it continues to represent a huge opportunity.
One thing that I also think it's just worth pointing out because I think we can learn from that as we look at other markets and that includes other geographical markets because some of the markets were just about to go into.
Our smaller markets than where weve entered before they're not top 10 media markets.
But that that they have something in common with audio which is that.
Audio is operating on such type margins. So they can't really afford to do what radio used to which is pound the pavement looking for dollars and selling to SMB.
You have to sell in a more automated way and you have to reduce your cost of sales in order to be competitive.
So as spot of Phi and Pandora are are competing around the world to get as much listening time as possible.
They have to operate really efficient engines and there's nothing that helps the distribution of assets.
Helps the efficiency of the distribution of ads more than programmatic advertising. So it's another one of those places where we're sort of destined to work together and I'm. Just so excited by what we are doing together.
Thank you facility.
There are no further questions over the audio portion of the conference. This does conclude today's conference. Thank you for your participation. You may disconnect. Your lines at this time have a wonderful rest of your day.
Thank you.
Okay.