Introduction
The Trade Desk reported its second-quarter 2024 earnings on Thursday, August 8th, delivering results that exceeded expectations and reinforced its position as the leading independent demand-side platform (DSP). However, the company also faces a rapidly changing landscape that could present significant challenges ahead.
Highlights from the Earnings Report
The Trade Desk posted impressive revenue of $585 million for Q2 2024, representing a 26% year-over-year increase. The company’s growth was mainly driven by strong performance in Connected TV (CTV), as well as its retail media product and identity solutions. CTV, in particular, saw accelerated growth in the first half of 2024 compared to the previous year.
The Trade Desk continues to capitalize on the CTV boom. In May, the company announced a partnership with Netflix, making it one of Netflix’s major sales channels. This deal significantly expands The Trade Desk’s CTV inventory, enhancing its attractiveness and boosting sales. According to The Trade Desk, they now offer the largest CTV inventory marketplace in the industry. For Netflix, The Trade Desk is a key partner in accelerating ad revenue growth following the termination of its disappointing exclusive sales relationship with Microsoft.
Revenue Numbers:
Rapid Growth On CTV Strength
The Trade Desk’s rapid revenue growth continues to tell a story of extraordinary success. The company benefited hugely from the Covid streaming video boom in 2021 and sustained faster-than-expected growth through 2022, avoiding the slowdown that many independent vendors experienced in 2023. Today, The Trade Desk continues to expand and gain market share, even as the overall digital ad industry remains lukewarm at best.
Compared to competitors, The Trade Desk’s revenue growth has outpaced much of the digital marketing sector, which has seen more modest gains or even stagnation in some areas. (See below chart.)
Operating Income Numbers:
Consistently Profitable
The Trade Desk reported an operating income of $95 million, with a profitability rate of approximately 16% of total revenue. The company has been consistently profitable on an annual basis for the past five years. Although there were a few quarters with losses and some fluctuations in profitability, the average profitability rate over the last five years has been 11%, when many AdTech vendors could barely show profitability, if at all. This is particularly notable given the significant investments in engineering, operations, and sales required to drive the CTV, retail media, and identity businesses.
Performance Vs. Company Guidance and Analyst Expectations
The Trade Desk’s performance exceeded both its own guidance and Wall Street’s expectations. The company’s Q2 revenue of $585 million surpassed the forecast of $575 million, and its adjusted EBITDA of $242 million was well above the anticipated $223 million.
Profitability also exceeded expectations, with the company delivering a non-GAAP net income of $197 million, translating to $0.39 per diluted share, compared to the $0.36 per share expected by financial analysts.
Stock Price Impact
Given these sunny numbers in an otherwise gloomy ad business, it was no surprise that The Trade Desk’s stock price rose by nearly 13% in trading the day after the earnings announcement. In the days following, it extended that gain to nearly 16% versus the pre-earnings close.
Revenue by Product Segment:
CTV All The Way
While The Trade Desk does not disclose a precise revenue breakdown by product, CFO Laura Schenkein noted that the company’s revenue is primarily driven by its video segment (including CTV), which accounted for a high-40% share of total revenue in Q2 2024. Mobile advertising contributed a mid-30% share, display a low double-digit share, and audio about 5% of the business.
Over the past few years, CTV has grown significantly as a percentage of the company’s revenue mix, from 38% in early 2021 to 48% now, reflecting the broader shift towards streaming services and away from traditional linear TV. This trend is expected to continue, with $56 billion still sitting in traditional TV advertising in the U.S. alone, nearly all of which is expected to go digital over the next twenty years. The Trade Desk is well-positioned to benefit from this shift.
Revenue by Geography: First Cover The Homebase, Then Go International?
If there is a downside to The Trade Desk’s performance, it is the slow pace of its international expansion. North America remains The Trade Desk’s largest market, contributing approximately 87% of total revenue in Q2 2024. While revenue in international markets has grown steadily, its share of total revenue has remained flat at around 13% over the last five years. This suggests that executives may be deliberately focusing on the United States.
This strategy could be driven by the belief that it is essential to secure a strong position in the rapidly consolidating and dynamically changing U.S. market before expanding internationally. Additionally, overbearing privacy regulations in Europe and the lower level of programmatic maturity in Asian markets may also play a role.
Be this as it may, in the long run, faster international expansion will be crucial for the company’s sustained growth, particularly as it faces saturation in more mature markets like North America.
Stock Price Review: To Infinity And Beyond
The extraordinary nature of The Trade Desk’s success is evident in the trajectory of its stock price. Since the company went public, its stock price growth has outperformed not only Criteo, but also Alphabet (Google) and the NASDAQ index. (See chart below.)
For instance, if you had invested $1,000 in each of these companies at the time of The Trade Desk’s IPO, you would now have $28,440 for The Trade Desk, $4,330 for Alphabet, $3,310 for a NASDAQ index fund, and $1,330 for Criteo.
Looking Ahead
The Trade Desk made several key announcements during this earnings call that highlight its future direction. The company recently rolled out its new, innovative Kokai user interface. Designed to simplify UI and ad operations, Kokai also leverages AI and data surfacing to improve campaign performance. Early results indicate that Kokai significantly improved reach, cost efficiency, and performance metrics, according to the company. I expect Kokai will help The Trade Desk attract and retain more clients.
The Trade Desk also announced additional partners who will adopt its OpenPath product, which was launched in early 2022. Fox and E.W. Scripps will join existing partners like Reuters, The Washington Post, Gannett, and Condé Nast. OpenPath connects publishers directly with the DSP, cutting out supply-side platforms (SSPs) and making ad campaigns simpler, faster, and cheaper.
Additionally, these new partners will implement The Trade Desk’s Unified ID 2.0 (UID2), a single sign-on network solution. UID2 aims to be a general-purpose, privacy-conscious login system that allows smaller publishers to authenticate their users for better ad targeting after third-party cookies are phased out.
However, while the adoption of UID 2.0 is progressing, it has yet to reach critical mass. This led the company to introduce the Sellers and Publishers 500+ list (S&P 500+), a curated list of the top 500 premium publishers. The S&P 500+ list reflects a concession that ad effectiveness on the open Internet will not be as strong post-cookies, and it marks a curious return to a more traditional method of using premium inventory for targeting.
Furthermore, The Trade Desk has made headlines by deciding to ignore price floors set by publishers and SSPs for their ad inventory. Founder and CEO Jeff Green has consistently maintained that the market should set prices and create efficiencies—not single players. This approach, while aligned with The Trade Desk’s principles, has strained relationships with SSPs and some publishers, potentially complicating future partnerships.
There are other challenges, such as increasing regulatory scrutiny, changing consumer privacy expectations, and competition from walled gardens like Google and Facebook, and especially Amazon. The company’s reliance on CTV also presents risks, particularly if the growth in streaming services slows or if competition intensifies.
Cash Reserve and Strategic Flexibility
As of Q2 2024, The Trade Desk maintains a strong cash position, with over $1.5 billion in cash, cash equivalents, and short-term investments. This financial cushion provides the company with ample flexibility to invest in growth initiatives, pursue strategic acquisitions, and continue developing cutting-edge technologies.
Conclusion
In conclusion, The Trade Desk’s Q2 2024 performance underscores its position as a formidable force in the digital advertising industry. With a strong foothold in the rapidly growing Connected TV sector and strategic innovations like Kokai and OpenPath, the company is well-positioned to continue its growth trajectory. However, as it navigates the challenges of increased competition, regulatory scrutiny, and the ever-evolving digital landscape, The Trade Desk’s ability to adapt and innovate will be crucial to maintaining its leadership position. With a robust financial foundation and a clear vision for the future, The Trade Desk appears ready to meet these challenges head-on, continuing to deliver value for its clients and shareholders alike. As the digital advertising ecosystem evolves, The Trade Desk’s strategic choices in the coming quarters will be pivotal in determining its long-term success.
About The Trade Desk
The Trade Desk is a global technology company that provides a self-service platform for advertisers and ad agencies to programmatically find and purchase digital ad inventory. Founded in 2009, The Trade Desk specializes in real-time programmatic marketing automation technologies. The company’s platform, Kokai, enables advertisers to manage digital advertising campaigns across various channels, including display, video, audio, and social media. The Trade Desk is the largest independent demand-side platform (DSP) in the world, known for its omni-channel approach to programmatic marketing automation and strong data analytics capabilities. To learn more, visit The Trade Desk.
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