The Trade Desk Q2 2024 Earnings Analysis

Dive into $TTD Trade Desk’s Q2 2024 earnings with review of financial performance, key metrics, operating expenses, dilution, customer growth, future outlook

Financial Results:

↗️$585M rev (+26.1% YoY, 28.2% LQ) beat est by 1.2%

↗️Adj EBITDA Margin (41.4%, +2.6 PPs YoY)

↗️Net Margin* (33.7%, +3.7 PPs YoY)

↘️FCF Margin (9.7%, -15.8 PPs YoY)🟡

↗️EPS* $0.39 beat est by 11.4%

*non-GAAP

➡️Customer Retention 95% (95% LQ)

Operating expenses

↗️Platform operations*/Revenue 17.6% (+0.0 PPs YoY)

↘️S&M*/Revenue 18.6% (-1.4 PPs YoY)

↘️R&D*/Revenue 13.3% (-2.2 PPs YoY)

↘️G&A*/Revenue 12.6% (-0.2 PPs YoY)

Dilution

↘️SBC/rev 22%, -0.9 PPs QoQ

↗️Basic shares up 0.2% YoY, +0.4 PPs QoQ🟢

↗️Diluted shares up 0.1% YoY, +0.5 PPs QoQ🟢

Guidance

↗️Q3'24 $618.0M guide (+25.4% YoY) beat est by 2.3%

Key points from The Trade Desk’s Second Quarter 2024 Earnings Call:

Strong Financial Performance:

TTD reported a revenue increase of 26% year-over-year, reaching $585 million. This growth is significant compared to the digital marketing industry, emphasizing TTD's consistent market share gain.

Launch of Kokai Platform:

Kokai is TTD's most ambitious platform launched to date, designed to leverage AI to optimize ad targeting and campaign management. It allows clients to use data about their most loyal customers as a seed to find and cultivate new, similar audiences across the internet. Kokai has shown significant early success, with metrics indicating a 70% increase in incremental reach, a 27% improvement in cost per acquisition, and a 25% enhancement in overall performance metrics compared to the previous platform, Solimar.

UID2 for Enhanced Identity Management:

UID2 (Unified ID 2.0) continues to be a key innovation focus for TTD. This identity solution aims to provide a more robust framework than traditional cookies, improving privacy controls and advertising relevance. It's particularly gaining traction in CTV and digital audio platforms, enhancing TTD's capability to offer targeted advertising solutions across these rapidly growing sectors.

OpenPath and EUID Adoption:

TTD's innovations also include OpenPath and European UID (EUID), which are being adopted by major content providers such as FOX and leading European publishers. These tools aim to facilitate a more open, transparent, and efficient advertising ecosystem, contrasting with the walled garden approaches of other major tech companies.

Customer success stories:

HP:

HP tested the efficacy of Connected TV (CTV) advertising using UID2 on Disney+ and Hulu through The Trade Desk’s platform. They achieved a 23% reduction in cost per unique household reach with improved precision and frequency management. According to HP’s North America Head of Programmatic, Caitlin Nardi, using The Trade Desk's UID2 solution with their first-party data helped increase unique audience reach, improve cost efficiency, and better measure conversions and sales.

Rossmann (a major retailer in Germany):

Rossmann used CTV to drive demand for one of its diaper ranges, achieving a 170% incremental reach improvement. Additionally, they were able to measure that every 1,000 impressions served resulted in 20 actual sales. They also found that by using their own first-party data as a targeting seed, each dollar was three to four times more likely to drive a sale.

Market Positioning:

TTD continues to outperform its peers within the digital advertising industry. The company attributes its success to its consistent innovation and superior value proposition, which are believed to be key factors in its continued market share gain, especially in areas like Connected TV (CTV).

Global Expansion:

TTD reported that international growth outpaced North American growth for the sixth consecutive quarter. The company sees significant opportunities in expanding its presence in international markets, particularly through CTV, which continues to drive growth in both EMEA and Asia Pacific regions. The global expansion strategy focuses on leveraging local market dynamics and expanding the reach of programmatic advertising solutions internationally.

Partnerships:

TTD has strengthened its partnerships with major CTV platforms and content providers such as Netflix, Roku, and FOX. These partnerships are critical in expanding TTD’s inventory and enhancing its programmatic advertising capabilities. Additionally, partnerships with global brands and advertising agencies are emphasized as becoming stronger, driven by the market's increasing recognition of the efficacy and strategic value of TTD's offerings.

Challenges:

The company acknowledges facing a macroeconomic environment filled with uncertainties, such as inflation and unpredictable consumer demand. These factors create a challenging backdrop for marketing and advertising strategies. However, TTD views these challenges as opportunities to demonstrate the robustness and effectiveness of programmatic advertising, helping CMOs to deliver verifiable ROI amid fiscal pressures. The company plans to leverage these dynamics to gain further market share and enhance profitability.

Management comments on the earnings call.

Product Innovations

Jeff Green on Kokai: "After years of development, we launched our most ambitious platform to date, Kokai. Kokai allows our clients to deploy data about their most loyal customers and then use that data as a seed to grow and harvest the next generation of loyal customers."

Market Positioning

Jeff Green: "Our growth rate significantly outpaced the rest of the digital marketing industry, just as it has every quarter for the last few years. I'm convinced that our success has been forged on the back of consistent, strong 20% plus revenue growth year-after-year for the past several years."

Global Expansion

Laura Schenkein: "Geographically, North America represented about 88% of our business in Q2 and international represented about 12%. We're pleased that international growth outpaced North America for the sixth quarter in a row."

Challenges

Jeff Green: "These leaders are dealing with a lot of uncertainty. They are looking for answers and they are looking for partners who can help them. The pandemic has been followed by several years of economic uncertainty, whether it's inflation or dramatic changes in fiscal and monetary policies around the world or supply shortages or unpredictable consumer demand."

Future Outlook

Jeff Green: "We are just getting started in terms of how data-driven precision will help advertisers optimize every dollar of their ad spend. At end state, all of the rapidly approaching $1 trillion advertising TAM will be digital or at least transacted digitally and the vast bulk of it will be transacted programmatically."

Thoughts on Trade Desk ER $TTD :

🟢 Pros:

+ Customer retention remains above 95% for 9 consecutive years.

+ Revenue growth rate accelerating to 26.1% YoY. If the company beats its forecast by 1.7% similar to this quarter, next quarter's growth will be 27.5%.

+ The company is increasing margins and profitability.

+ Beat Q2 revenue guidance by 1.7%.

+ Diluted shares down 0.1% YoY.

+ The company is actively pursuing global expansion, with international growth outpacing North American growth for the sixth consecutive quarter.

+ This political season is expected to generate substantial advertising revenue.

+ The Trade Desk has strengthened its partnerships with major CTV platforms and content providers: Netflix, Roku, and FOX.

+ AI-driven platform, Kokai, has received significant enhancements.

🟡 Neutral:

+- SBC/rev is 22%.

+- FCF margin declined to 9.7% but remains healthy.