The Trade Desk Q4 2021 Earnings Review
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The Trade Desk Q4 2021 Earnings Review
Digging into this disruptor's results.
“Solimar and progress within areas such as Connected TV (CTV), identity and retail data all enabled us to gain more share of the data-driven advertising market. Major advertisers around the world are embracing our open internet vision as the market races to a $1 trillion TAM. I am convinced that we will continue to outperform as more of these advertisers are gravitating to our platform.” — Co-Founder/CEO Jeff Green
1. Demand
The Trade Desk guided to “at least” $388 million in quarterly revenue and analysts were looking for $389.7 million. It posted $395.6 million, beating its expectations by 2.0% and analyst estimates by 1.5%.
Note that Q4 2020 benefitted from political ad spend not enjoyed during this period. Without this year over year (YoY) comparison headwind, growth would have been roughly 36% YoY — marking an acceleration over the company’s 2019, pre-pandemic Q4.
2. Profitability
The Trade Desk guided to “at least” $175 million in adjusted EBITDA for an implied margin of 45.1%. Analysts were looking for $178.3 million in adjusted EBITDA for an implied margin of 45.7%. The company posted $191.5 million in adjusted EBITDA beating its expectations by 9.4% (or 330bps) and analyst estimates by 7.4% (or 270bps).
*GAAP Operating Margin was hit by stock based compensation incurred during the period. This equated to $158 million and was paid out to CEO Jeff Green in connection with performance benchmarks being met. Without this charge, GAAP operating margin would have been 33.6%. There is another $616 million left in this package that will vest over the next 4 years. This will hit GAAP margins when the lumpy charges are incurred. Adjusted margins account for this.*
Q4 2020 margins greatly benefitted from political ad spend. When the company enjoys revenue outperformance (like it did in Q4 2020) it strongly flows down the income statement as we’re seeing here.
3. Guidance
Q1 2022:
Analysts were looking for $287.6 million in Q1 2022 sales. The Trade Desk guided to at least $303 million, beating expectations by at least 5.3%. This would represent 38% YoY growth.
Analysts were looking for $81.7 million in EBITDA. The Trade Desk guided to approximately $91 million, beating expectations by 11.4%.
4. OpenPath & Google
This week, The Trade Desk announced new tools for publishers to help erode their extreme reliance on Google. This launch marks another step from the company towards the supply side part of the industry as it will allow publishers to field offers from advertisers without any intermediaries like Google. While this will tighten the firm’s relationships with publishers — it is not entering the supply side of programmatic advertising. It will continue to be singularly focused on serving the demand side (advertisers) but does see ways to uplift publishers and to create more value for all parties. That’s the goal of this product.
To prove its lack of desire to compete with the supply side, OpenPath will not provide any core supply-side platform (SSP) tools like yield management. Instead, what this new product does is functionally deepens the integration capabilities to connect advertisers and publishers in a more intimate and valuable manner. Interestingly, the company will look to sell this offering at cost (breakeven profits) to juice inventory and appeal for the demand-side advertisers it represents. This is another clear sign that it does not want to compete with SSPs.
The Trade Desk will also now stop purchasing impressions for its client’s through Google’s Open Bidding program. It will continue offering Google’s slots to advertisers elsewhere.
“There’s substantial appetite to go away from Google.” — Co-Founder/CEO Jeff Green
The first partners for the product are Reuters, The Washington Post, USA Today and many more. In total, OpenPath already represents 70% of the journalism industry.
“This is the biggest direct step we’ve made to improve the supply chain of our clients. This is a product enabling content owners to plug into The Trade Desk directly. It will be especially helpful due to us providing bids to larger publishers wanting to do their own yield management. We won’t be getting into yield management or other tools that talented supply side providers offer. This is about more direct access to inventory and will be positive for SSPs like Magnite, PubMatic and more who have invested in value creation and customer relationships. We will only represent advertisers in the auction.” — Co-Founder/CEO Jeff Green
Today — conveniently as The Trade Desk’s earnings report was coming out — Google announced limitations to cross-app tracking through Android. These moves can be seen as somewhat comparable to Apple’s recent tracking changes which had no material impact on The Trade Desk’s business.
“I’m encouraged by the way this Google announcement is rolling out. This will have no negative impact on our business and could have a positive impact on us.” — Co-Founder/CEO Jeff Green
The company’s massive partner ecosystem equips it with enough lucrative first party data to circumvent reliance on these walled gardens. This company’s success is in its own hands — not Google’s and not Apples.
5. Notes from Co-Founder/CEO Jeff Green
On success:
Green told us that long term client commitment growth continues to accelerate into 2022.
The top 25 advertisers on the company’s platform boasted a net revenue retention rate of 150% throughout 2021.
On Solimar:
“Solimar has been an upgrade to every part of our business. I’m pleased to report the majority of ad impressions on our platform are now bought through Solimar. We will retire the old platform by the end of the year.” (just 18 months after Solimar’s launch)
Co-adoption of Solimar is now already 50% higher than it was with the company’s previous platform. Average channel usage for Solimar vs. the previous version is also up 50%. Finally, advertisers upgrading to Solimar are enjoying 2X the data elements being infused into every impression pricing decision.
“Until now, the data marketplace had been anemic. With Solimar, we shifted away from fixed pricing to cost per impression which is only possible thanks to the hundreds of partners deciding to participate. In the first half of the year, we will address the disincentive to extensively layer data thanks to this new variable pricing model. This will enable charging fractional pricing to provide more value. In doing so, we are creating the most robust data marketplace the open internet has ever seen. This tool has already led to significant win rate and ROI increases for our advertisers, motivating more spend.
On shopper/Retail marketing:
The newest retail partner announced this week is Walgreens. Green has told us in the past that The Trade Desk expects to continue signing large retailers at a brisk pace.
On the previously published BIC case study measuring how well its campaign did through the Walmart platform that The Trade Desk built, Green added more insight on the success. According to him, Return on ad Spend (ROAS) nearly doubled Nielsen’s industry average.
On CTV:
The number of customers spending over $1 million on CTV through The Trade Desk nearly doubled in 2020. It has 15,000 CTV advertisers in total.
The company ran a Renault CTV campaign in Spain which focused on a new car model launch. With The Trade Desk, it enjoyed double digit incremental reach over linear.
On UID2 — a CoCo Village Case Study:
“CoCo Village needed an easy way to leverage its first party data. Working with UID2, they modeled new customer groups to enjoy 1000% ROAS and incremental reach of 40%.”
“If I was Google I would want UID2 to succeed. I’m just under too much scrutiny to support it. They can’t carry the ball, but they can block. This [cross-app tracking] announcement today is them blocking for us.” — Co-Founder/CEO Jeff Green
6. Notes from CFO Blake Grayson
General Notes:
The Trade Desk continues to feel NO MATERIAL IMPACT from iOS platform changes and supply chain disruptions.
Grayson expects some cost structure reductions from the pandemic era to be permanent which places a higher long term ceiling on margins.
The company has nearly $1 billion in cash and equivalents with no debt. The balance sheet is as good as it gets.
On revenue channel breakdown:
Video (including CTV) = 40% of sales
Mobile = 40% of sales
Display = 15% of sales
Audio = 5% of sales
These are all stable sequentially.
7. My Take
The Trade Desk has established a compelling track record of outperformance and success — this report was no different. UID2, Solimar and retail partnerships are all rapidly gaining momentum. Growth is accelerating, its competitive moat is being fortified and the opportunity is only growing further. Great quarter; great company.