I will include more detailed coverage of the strong Robinhood quarter in tomorrow’s article. That article will also include Datadog and Airbnb reviews, as well as part 1 of my DraftKings review (their earnings call is on Friday). I’ll publish the rest of the DraftKings coverage and a Palo Alto earnings review on Saturday. For now, the Robinhood snapshot and my review of The Trade Desk’s quarter are below.

The Trade Desk is the leading buy-side player in open internet advertising. The firm’s two most compelling revenue segments are streaming, where it has relationships with most major players, and retail media, where it works with countless Fortune 500 vendors.

Its platform allows advertisers to bid on & purchase unique impressions with surgical precision, scale and open reporting. Purchases are essentially made on an impression-by-impression basis to uplift targeting efficacy and to double ad return metrics. Needed data is infused into every purchasing decision to ensure ads provide optimal value. No longer do advertisers need to commit millions at annual upfront events to reach audiences; they can commit to smaller purchases in real-time and with fantastic accuracy. No more guessing. They know where their most valuable consumers are; they know how to reach them and only them.

Kokai is the name of its data-driven, AI-powered advertising platform. It combines TTD’s leading open internet scale with its vast roster of 3rd parties to inject more data and signal into each decision and campaign. It tells advertisers who they should be targeting. Kokai does so through TTD’s decade of experience that allows it to essentially find groups of high-intent “copy-cat customers” with similar interests. Advertisers onboard their first party data (what TTD calls “concentrated data seeds”) and The Trade Desk does the rest. Kokai allows buyers to focus on whichever variable, key performance indicator or campaign objective they’d like to. It allows all of this to be done in a self-serve fashion or in a fully managed environment. Up to them. Finally, Kokai emulates the ease of data onboarding that has made Alphabet and Meta so popular.

Unified ID 2.0 (UID2) is its open internet, omni-channel identifier. It uses hashed emails to responsibly ensure consumer and brand comfort. It knows exactly who is accessing what site or app. Kokai tells you who to target, while UID2 tells you where they are. 

Other products include:

OpenPath and UID2 are meant to support the sell-side rather than supplant it. TTD does not want to build a sell-side platform. It wants to exclusively represent the buy-side to eliminate conflict of interest. Helping sell-siders with identity and supply chain is meant to help its buyers enjoy more success.

The Trade Desk missed revenue estimates by 2.4%. It missed its “at least” revenue guidance by 2%. This is its first miss in over 8 years. Its 22.9% 2-year revenue compounded annual growth rate compares to 26.1% last quarter and 24.5% two quarters ago.

For 2025, it expects accelerating OpEx growth largely from infrastructure and talent investments. Again, that will lead to modest 2025 margin contraction. The harshest the margin headwind from these investments will be felt during the first quarter. It expects CapEx to be 5% of revenue in 2025 and for FCF generation to be “strong again.”

What Went Wrong This Quarter & Fixes — Kokai Delay:

Per the team, the underwhelming results were not a matter of a souring opportunity or intensifying competition in the least. Instead, they were related to a series of “execution missteps and tradeoffs,” as well as a series of changes in response.

The first issue was a delay to the Kokai platform launch in Q4. This slowed TTD’s go-to-market and forced them to run two parallel systems for longer than desired. There were some issues with Kokai that required addressing to ensure the rollout went perfectly. It had to optimize some pieces of the user interface and perfect AI-powered forecasting and performance models. Green alluded to personal mistakes that some employees made that he didn’t want to explicitly call out. It sounds like those were related to the Kokai postponement.

TTD decided to make needed changes and leave some revenue on the table, rather than rushing the release out to clients and stamping its name on a product not ready for primetime. Green briefly spoke on the conflicts of being a public company and knowing that investors reward positive financial surprise. At the same time, he refuses to chase a quarterly revenue number if it means sacrificing TTD’s pristine product reputation or future. This decision will be punished by a shallow, beat-and-raise-obsessed street, but should pay dividends over time. 

“In Q4, there were a series of decisions we could have made to enhance the short term performance of the company and neglect the long term. We consistently choose to focus on the long term opportunity and maximize our market share over the long term as I believe this is in the best interest of all of our stakeholders.”

Co-Founder/CEO Jeff Green

To make sure this delay doesn’t turn into an operational pattern, TTD is tweaking its product development processes and cadence. It split engineering teams into smaller groups (with easy means to collaborate) to focus on constant updates and improvements to Kokai and its other products. They’ll focus less on massive, “waterfall” upgrades vs. frequent iterating. Considering how quickly our world moves today, this is needed and it is happening.

What Went Wrong This Quarter & Fixes — Leadership Bottleneck:

The company also thinks it is reaching somewhat of a talent bottleneck specifically at the senior level. It expects to greatly expand the size of its leadership team in the coming quarters to set the table for its next leg of scaling and growth. While TTD has operated extremely well without even a COO for several years, it’s now getting to a point of company scale, maturity and sector influence where it needs to perfect internal processes if it wants to compound for another 20+ years. It wants to perfect internal processes to enable more efficient work and, in turn, faster growth.

“We want to scale The Trade Desk significantly in the years ahead and that means ensuring we have the right kind of leadership rigor across the company while preserving the best elements of what we've done so well so far.”

Co-Founder/CEO Jeff Green

What Went Wrong This Quarter & Fixes — Brand Focus & Restructuring:

Next, Jeff Green thinks The Trade Desk needs to do more to nurture its direct brand partnerships; he wants to reshape focus and teams specifically around building those relationships. While external selling teams used to overlap in terms of marketing agency and brand activity, they’ll now be more separate. This is a response to continued rapid shifts in the ad space; brands want to control more of the campaign design and process amid the biddable programmatic demand boom. Brand reliance on agencies will not disappear and TTD will continue to work closely with those entities. But? The work needed from those agencies may evolve and even shrink a tad with the incremental layers of TTD-powered automation.

In the long haul, that should mean more budget unlocked for the campaigns TTD runs. For this quarter, this overhaul caused go-to-market disruption and some volatility in results. The sign of this shift working will be continued strength in Joint Business Plan (JBP) growth. These are long-term strategic partnerships that entail large budgets and stated campaign goals. Brands work hand-in-hand with The Trade Desk to craft their go-to-market design. JBPs still involve agencies, but agency roles are smaller compared to the brand and TTD under this structure.

Along similar reshuffling lines, and more generally speaking, TTD completed the “largest reorganization in company history in December.” It tweaked roles and reporting structures across several teams in addition to the ones already mentioned. More temporary disruption to day-to-day operations leading to financial weakness.

“I want to get bigger and I don't want to slow down. But to do that requires us to change.”

Co-Founder/CEO Jeff Green

All of these changes are expected to expeditiously improve financial results throughout 2025 as they translate into smoother operations and we distance ourselves from the sizable disruption to day-to-day work.

Perfect the Supply Chain – OpenPath and Sincera:

The Trade Desk continues to drive for a more efficient and fair supply chain. While that doesn’t directly benefit its business, more transparency and fewer value-draining middlemen will mean more successful campaigns. OpenPath will remain the centerpiece of this initiative, as leadership sees it entering the “steep acceleration phase of its S-curve growth in 2025.” This confidence is based on “the number of deals recently signed,” not hope.

Green told us that “many of the major streamers around the world are aggressively implementing OpenPath now.” Disney led the charge and is now working to 75% of its ad sales being fully automated by 2027, with most being biddable. That growth will directly benefit TTD’s financial results thanks to the tight partnership. Vizio also implemented OpenPath for its 300 streaming channels to enjoy a 39% lift in revenue and a 8x improvement in ad fill rate. Simply put, OpenPath gives publishers a much better sense of demand, pricing and exactly what key performance indicators ad buyers care about. In turn, that makes these publishers a much more informed and better partner to plug demand directly into impressions.

Goodway Group (large independent ad agency) used OpenPath and Kokai to build a “blue list.” This functions as a “custom market" they can curate using TTD tools on Kokai.” In turn, this helps them uncover the highest return impressions with far fewer supply chain intermediaries to cloud reporting and take another piece of the pie.

As OpenPath proliferates, TTD sees the supply chain getting better and better. To ensure this product’s positive contribution is as large as possible, TTD bought Sincera. As Green puts it, there is no other company he has come across that is more determined to clean up the programmatic advertising supply chain. They “shine a light on where advertising value is, where that value is being obscured and what signals advertisers value the most.” Sincera gives an overarching view of the supply chain to uncover which pieces of it are truly needed, and which are waste. Sincera’s platform will be extended to the connected TV (CTV; streaming) and audio channels this year. It is expected to be accretive to TTD results this year as well.

“Sincera will create better price discovery, better supply chain standards and will make it so that we are only buying inventory from those who describe it accurately.”

Co-Founder/CEO Jeff Green

Thoughts on AI from Green:

TTD continues to “look at the technology stack and ask where we can inject AI to enhance product and outcomes.” It has a lot of ideas to help keep it the “most advanced and data-driven decision-making platform in the industry.” And again, this work will entail consistent, frequent product releases rather than overarching launches. Hundreds of releases from 2024 were enabled by AI, and that will merely grow next year.

Interestingly, it also plans to use AI to “change the way the industry manages deals:”

“We will change the way the industry manages deals. We'll help advertisers and agencies avoid bad deals, which generally consider too few ad impressions and force advertisers to buy impressions that they wouldn't otherwise want. And we can avoid these bad deals by using AI powered forecasting.”

Co-Founder/CEO Jeff Green

Mega-Cap Competition:

Green continues to see Alphabet deprioritize its network business and its open internet advertising presence. Alphabet explicitly said this was the case on its last call, as its search-based advertising is higher margin and more of a priority at this point. Green sees Google eventually exiting that business, as it would resolve the vast majority of the regulatory scrutiny the business is currently under. Green’s opinion is regardless of how current judicial trials unfold. The Trade Desk preparing for a world in which Google and DV360 continue to be smaller and less focused competitors. It wants to make absolutely certain it’s poised to capture the business void that could leave behind. That void could come suddenly or gradually… but he is confident that it will come.

Green was also asked about Amazon’s demand-side platform and the focus that mega-cap is currently giving that business. Green reminded us that sponsored listings make up the largest part of AMZN’s thriving ad business with Prime Video the second biggest piece. The programmatic DSP piece of it is very small compared to the other competitors TTD sees in the market. But what if it becomes much larger? Would this threaten TTD’s business? No. Green reminded us that objectivity and lacking conflict of interest matter dearly when signing massive, multi-year JBPs with advertising companies. 

Alphabet cannot match this objectivity, which is why TTD has steadily compounded for years and years despite fewer resources and incessant noise stemming from that competitive risk. Amazon will face the exact same issue for this smaller piece of its advertising business. The retail and cloud giant actually competes with far more of these large brands on the consumer product side of things; it also has the exact same channel ownership conflict of interest that got Alphabet in trouble with routing too much of its network inventory to YouTube. On the Prime Video side of things, he remains confident that the two companies will partner here in some capacity at some point in the future. The market is too fragmented and content costs are too large to effectively build a successful business without optimizing ad pricing and demand. Enter TTD. That’s why Disney partnered… It’s why Paramount, Fox and Warner Bros partnered…. It's why Netflix partnered.

“When you go through a recalibration and you're in a moment like we are (referencing the results misses), I think it calls for reflection and retrospection. I've spent a lot of time thinking about what we are sure of, what bets to double down on. As I've been saying for fifteen years, at end state… I would say there’s likely going to be one independent and objective DSP. And that should get the lion's share [of the market]. As it relates to Amazon's DSP, objectivity matters more than it ever has. Amazon's objectivity problem is way worse than Google. Amazon competes with nearly every company.”

Co-Founder/CEO Jeff Green

Retail Media:

To build on the great progress from 2024, TTD wants to make its retail media business simpler to use. It’s collaborating closely with partners and knows exactly what needs to be improved.

Kokai Case Studies:

Surprisingly bad quarter from one of the highest-quality names in advertising and enterprise software overall. This firm earns its premium multiple partially by beating and raising every single quarter. It did not do that today. So where do we go from here? Is The Trade Desk structurally in trouble?

No, I don’t think so. I think this is the quarter that tests conviction and patience for the long-term investor. The Trade Desk has executed flawlessly for 8 years, with consistently rising margins and market share, as well as rock-solid revenue growth and a stable take rate across cycles. So… should we throw in the towel and give up on this company because of one quarterly hiccup? Should we turn sour on the investment because they intentionally delayed a product launch to ensure it was perfect rather than chasing a revenue number? No. At the end of the day, all special companies stub their toes at some point. Every single one of them. This was TTD finally stubbing its toe.

They have earned my patience and my forgiveness for messing up in a single quarter. And this forgiveness is easy to offer considering I expect its tough decisions this quarter to mean more steady compounding as far as the eye can see. This is the king of open internet advertising with a generational founder/CEO and a world-class product suite. I will not be fazed by temporary operational disruption they’re accepting to set the stage for future success. I understand why public markets are punishing them tonight, and I also think that will turn out to be a mistake over the coming years.

I plan to boost my TTD stake tomorrow morning by 33%. At the risk of sounding insensitive, the valuation here has forced me to make this a consistently smaller position over the last couple years. I was able to add once during the August 5th Japan carry trade drama, but the vast majority of my transactions here since the start of 2023 have been sales. I’m potentially finally getting my chance to lean back in. I will pay 45x forward earnings for this elite business all day long. I will continue to accumulate shares of this name into more material multiple contraction if that comes.

Bad quarter. World-class company.