The Trade Desk Q2 2022 Earnings Review.
Exploring the Results of this Advertising Augmenter.
“We delivered an outstanding performance while significantly outpacing programmatic advertising. More leading brands are signing major new or expanded agreements with us. This speaks to the value of our platform vs. the limitations of Walled Gardens.”
1. The Trade Desk Demand
The Trade Desk guided to “at least” $364 million in revenue for the quarter while analysts were expecting $365.2 million. It posted $377.0 million in sales, beating analyst estimates by 3.2%.
More context on demand:
- This quarter represents The Trade Desk’s toughest pandemic-related YoY comp as it grew sales by over 100% in Q2 2021. Regardless, it grew revenue well above its long term ~25%-30% average.
- The Trade Desk has sported a gross retention rate over 95% for the last 8 years.
The Trade Desk guided to $121 million in adjusted EBITDA for the quarter while analysts were looking for $123.3 million. It earned $138.9 million, beating its guide by 14.8% and analyst estimates by 12.7%.
The Trade Desk also earned $0.20 per share -- in line with analyst expectations.
More context on margins:
- 2022 GAAP operating margins continue to be impacted by about $80 million in incremental YoY stock based compensation for Q2 and $90 million in Q1. Without this hit, GAAP operating margin would have been 21.7% for Q2 2022.
- The Trade Desk guided to leaning back into growth spend staring this quarter. This move is expected to lead to some margin compression this year.
- Cash flows are seasonally lumpy for The Trade Desk.
- Its tax bill grew 53% YoY which weighed slightly on NIM.
The balance sheet is beautiful. It has $1.21 billion in cash, equivalents and short term investments with no debt.
- Analysts were looking for $382.3 million in sales. The Trade Desk guided to "at least" $385 million. The company always beats its "at least" revenue guides.
- Analysts were also looking for $134.7 million in adjusted EBITDA. The Trade Desk guided to "approximately" $140.0 million, beating expectations by 3.9%.
The company does not guide to annual results.
4. Notes from Co-Founder/CEO/Superstar Jeff Green
The call was essentially a victory lap from management... and a fun one at that.
On Macro Durability and wins
“This quarter gives us confidence that we will continue to gain market share in any environment. We continue to invest to drive future growth in key areas. In each of these areas, we signed major new partnerships."
The Trade Desk reiterated a years-old stat that it cuts booking costs in half for advertisers using its platform. This is why it shines when advertising budgets tighten: These advertisers focus more on Return on Ad Spend (ROAS) where The Trade Desk provides a tangible edge. Just like amid the last economic downturn, it is outperforming the rest of its competition by a wide margin. Other factors like its bread and butter Connected TV (CTV) category remaining supply constrained greatly helps to shield the impacts from any demand disruption that may come. But this demand disruption has not yet happened for The Trade Desk. Great news.
"We're optimistic in our ability to outpace the market moving forward. Of course, we get that many customers are dealing with uncertainty. Even so, we remain focused and confident. We launched The Trade Desk in the heart of uncertainty in 2009. While we aren't immune, we gain share amid times of uncertainty and volatility."
On Unified ID 2.0 (UID2) wins from the quarter re-visited:
- Vox Media
Retail Media Partnership Wins from the quarter re-visited:
- Kroger & Meijer
The retail media space is already large at $35 billion in total 2021 spend and is growing at a clip above 20% YoY.
On How The Trade Desk is Outperforming the Field:
- Marketing is shifting to open internet, data driven targeting more rapidly than The Trade Desk has ever see.
- Secular tailwinds inherent in its model are greatly outpacing macro headwinds.
Per Green, The Trade Desk is adding bellwether advertising clients and new marketshare at the fastest pace in its history. That continued into August. It signed some of the world's largest firms in auto manufacturing, CPG and technology.
Jeff thankfully misspoke and accidentally told us how well the current quarter was going in the Q&A. The strong guide indicates that as well, but it was still nice to hear.
"While we can't control macro, the pace of new agreements indicates we are becoming indispensable. We will grab land regardless of macro."
Green attributed this outperformance to the following tailwinds:
- The continued acceleration of a shift to CTV. It expects to keep benefitting from this shift more than the field due to its superior ROAS.
- Walled Gardens are being "downgraded in priority." Dollars that used to flock to Google first are now shifting to CTV due to the enhanced openness of reporting and results. Advertisers are growing tired of Google using its own archaic measurement processes with a "take my word for it" approach. Unlike in search where Google dominates, Green spoke on no CTV players garnering the kind of market power to become a new Walled Garden. CTV is ripe for open internet advertising and the market continues to be booming.
- Enhanced regulatory scrutiny from The UK Competition and Markets Authority (CMA) slowly forcing Google to behave more fairly. The Trade Desk doesn't rely on regulatory wins and will continue to gain share regardless, but it always helps.
"We have a great relationship with Netflix and Microsoft and continue to have constructive conversations. The Netflix partnership with Microsoft is positive news for the open internet. The fact that it didn't choose Google is very telling of their recognition of the open internet opportunity. This is a supply side partnership and Xandr (Microsoft's ad platform) is a strong sell side partner of ours. Almost 12 years ago, I even initiated the partnership between Microsoft and Xandr."
On UID2 and Solimar (its new ad-platform) progress:
- Green continues to expect all customers to be transacting through UID2 by 2023.
- 100% of customers are now using Solimar with continued utilization growth from virtually all advertisers.
Final Notes from Green:
- The Walmart ad platform that The Trade Desk built is showing strong signs of success for advertisers. Sequential growth here was healthy.
- Green reiterated that an eventual elimination of 3rd party Cookies by Google is largely irrelevant for the company. Most of the channels it places ads through don't even use 3rd party cookies.
- The U.S. Election cycle is going to be a low single digit % of The Trade Desk's sales in Q3.
5. Notes from CFO Blake Grayson
On Revenue by channel:
- Video moved up from 40% of sales to a "low 40% range share" of the business QoQ.
- Mobile moved down from 40% of sales to a "high 30% range share" of the business QoQ.
- Display is steady QoQ at 15% of sales.
- Audio is steady QoQ at 5% of sales.
On Operating Expense Growth:
The 45% rise in operating expenses was via a planned ramping of investments in talent, product and growth. It also is due to the company hosting its first live events in 2 years.
My favorite quote of the call:
"Many deeper pocketed peers are pausing hiring because they got too aggressive over the last 2 years. We didn't get ahead of ourselves like many others did. That has given us the ability to stay the course on hiring."
6. My Take
This was a flawless quarter amid some industry-related challenges that the company gracefully overcame. I've said it time and time again: The Trade Desk outperforms as economic pressures mount due to those pressures forcing companies to juice ROAS. They turn to The Trade Desk to do so. This quarter was merely another data point confirming that to be the case. Great job, again.
The company also published a lengthy investor presentation in conjunction with the press release. There wasn't much in there to share, but if you'd like to read it, click here.
Click here for my TTD Deep Dive.
Have a wonderful evening!