Q3 2024 Earnings Summary
- The Trade Desk captures just over 1% of the $1 trillion advertising ecosystem, indicating significant room for growth within a vast addressable market.
- Connected TV (CTV) is both the largest and fastest-growing channel for The Trade Desk, and partnerships with major players like Netflix, Disney, Roku, Fox, and Spotify are in early stages, presenting substantial future growth opportunities.
- Unified ID 2.0 (UID2) has become the primary currency of identity in the open Internet, especially in CTV, enhancing The Trade Desk's competitive advantage in targeting and measurement.
- The Trade Desk's rapid market share gains could reach a tipping point where further growth becomes limited due to market saturation and a lack of sufficient trading partners on the open Internet. As they continue to outpace competitors, "there isn't an open Internet for you to compete with or trade with and therefore, your growth gets limited by the fact that you must have trading partners on the other side."
- Uncertain macroeconomic conditions, including CMOs facing increased scrutiny and pressure, could negatively impact advertising spend. The Trade Desk acknowledged that "CMOs are dealing with a lot of uncertainty and a lot of scrutiny... some brands are in a phenomenal position and some are in a more difficult position" due to factors like inflation and consumer weakness, which may affect their performance in the near term.
- Dependence on political advertising spend, which is expected to be a low to mid-single-digit percentage of revenue, may not be sustainable beyond the current cycle. Additionally, some advertisers may step out of the market or reduce spend due to higher pricing in ad markets crowded by political advertising, potentially impacting revenue in 2025.
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Macroeconomic Outlook
Q: What are you seeing in near-term macro and next year?
A: We're firing on all cylinders. CTV is both our largest channel and fastest growing. CMOs face uncertainty and scrutiny, but that's good for us as brands turn to us for help. Some brands are affected by inflation and consumer weakness, needing more agility and efficiency. Political advertising is strong as expected. Our significant partnerships are in the "crawl phase," with the best yet to come. -
Google DOJ Impact
Q: How does Google's regulatory pressure affect you?
A: Regardless of the DOJ trial outcome, we believe we'll win. Google is deprioritizing their network business, focusing on search, cloud, and AI. Even if they don't, they'll have to play more fair. We've managed to win in an unfair market and will continue to do well. -
CTV Growth Drivers
Q: Key drivers for sustaining CTV growth near-term?
A: Major players realize auctioning premium content maximizes value. Amazon operates at a disadvantage in CTV due to conflict of interest. Our partnerships are significant drivers for future growth. We've expanded leadership from the U.S. and Australia to the U.K., Germany, and more. UID2 is the currency of connected TV. Premium content with identity will perform better. -
Supply Chain Initiatives
Q: How does OpenPath enhance your value over years?
A: OpenPath lets us share exactly what we're willing to pay per impression, empowering publishers. Some wrongly think we're cutting out SSPs; we're ensuring they earn their keep. It's a race between walled gardens and the open Internet for efficient supply chains. OpenPath is critical for our present and future. -
Political Ad Spend Impact
Q: Quantify political spend impact for 2024 revenues?
A: Political spend will be in the low single digits percent of overall spend in 2024. In political years, it's critical to exclude that contribution when modeling. CapEx is expected to be around 5% of revenue in 2024 and 2025. Advertisers who spent less due to political ads in Q4 2024 will return in 2025. -
Market Saturation Concerns
Q: Is there a tipping point in market share growth?
A: We're just over 1% of the $1 trillion global ad market. We have 99% of the pie left, so there's ample opportunity ahead. We're focused on adding more value than we extract. We need to ensure the supply chain is efficient. We don't worry about cannibalizing the market. -
Audio Opportunity
Q: What needs to change for audio to grow?
A: Audio's distribution is shifting from local to global. Time spent on audio is significant. If companies like Spotify execute well, there's tremendous upside. Ads are only 10-13% of their revenue, but most users are asking for ads. It's a multiyear process, but audio can become a bigger part of the overall pie. -
Roku Integration
Q: How does Roku integration fit into CTV strategy?
A: We're proud of our work with Roku this year. They've adopted UID2 and open Internet principles. The Roku Channel has grown tremendously. We're excited about their adoption of UID2 and expect our partnership to continue growing. -
Building Trust in Metrics
Q: How do you help CMOs trust Kokai's metrics?
A: Walled gardens have graded their own homework. We've provided extensive data and options, sometimes overwhelming clients. We're committed to integrity and objectivity, collaborating with clients on how they want to measure success. As CMOs and CFOs align more closely, we tailor our metrics to meet their needs. We're optimistic because objectivity matters more over time.
Research analysts covering Trade Desk.