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After several big earnings beats, expectations were high going into The Trade Desk's (NASDAQ: TTD) third-quarter financial report. The company's bread and butter is programmatic advertising -- a process that automates the buying, placement, and optimization of available advertising. The Trade Desk has realized significant success bringing new technology to an age-old industry.
Despite reporting better-than-expected results and raising its guidance, The Trade Desk's stock fell as much as 14% in after-hours trading, recovering those losses in the days that followed and going on to jump more than 20% through the first trading day of December. Let's look at the company's results.
Image source: Getty Images.
It doesn't get much better than this...
Diluted earnings per share
Data source: The Trade Desk third-quarter 2018 press release. YOY = year-over-year.
The Trade Desk reported record revenue of $118.8 million, up 50% year over year, surpassing analysts' consensus estimates of $117.37 million and the company's forecast of $116 million. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $36.6 million increased 31% compared with the prior-year quarter and ahead of management's guidance of $33 million. This led to adjusted earnings per share of $0.65, up 86% year over year and far outpacing the $0.50 expected by analysts.
One thing helping the company put up these massive numbers is its resilient customer retention rate, which stayed above 95% for the 19th consecutive quarter.
Overall, expenses continued to outpace revenue growth, as The Trade Desk continues to invest in its future. Technology and development spending saw the highest growth among the company's costs, up 72% year over year, while sales and marketing and general and administrative grew 44% and 50%, respectively. A much lower provision for income taxes and other expenses allowed the company to drop more to the bottom line, significantly boosting its profitability.
Jeff Green, founder and CEO of The Trade Desk, said during the conference call with analysts:
As the worldwide programmatic advertising market grows, we continue to outpace that growth. The need for objective, data-driven media buying is increasing. A steady stream of new brands and agencies continues to join our platform. The market continues to validate our business model and we're seeing the measurable results.
The future's so bright...
One of the cornerstone's of The Trade Desk's potential is something management pointed out on the conference call. Green said global advertising revenue is expected to top $700 billion this year, with digital ads representing nearly half of that. Programmatic, the company's bread and butter, is the fastest growing segment of digital advertising, and Green said, "We think nearly all of advertising will eventually be digital and nearly all of that will be programmatic." This bodes well for the company's future.
What's behind this rosy outlook? The changing media landscape. Once upon a time, linear television, cable TV, and print media were responsible for the bulk of advertising. With the continued decline of cable. the migration of entertainment to online sources like streaming, and many print sources falling out of favor, The Trade Desk sits at the intersection of the future of advertising.
A number of key channels again accounted for a significant portion of the company's outsized growth, including connected TV, audio, mobile, and video. This omnichannel approach has been a key to The Trade Desk's success. Mobile (in-app, video, and web) ads grew 65% year over year, and increased to 46% of gross spending by advertisers for the quarter -- the highest percentage ever -- highlighting the growing importance of this channel.
Ad revenue from internet-connected TVs continued to skyrocket, growing 1,000% compared with the prior-year quarter, while the audio segment grew 192% year over year. Other notable areas included revenue from mobile video, which grew 98%, and mobile in-app, which increased 90%, both year over year.
These numbers illustrate just how big the market is for The Trade Desk, and how well the company is capitalizing on that opportunity.
A look ahead
In light of the company's continued strong performance, management raised its full-year outlook for the third time in as many quarters. The below chart illustrates just how far the company has come since it provided its initial guidance at the end of 2017.
Data source: The Trade Desk.
For the current quarter, The Trade Desk is forecasting revenue of $147 million and adjusted EBITDA of $53 million, which would represent year-over-year growth of 43% and 34%, respectively. For analysts' part, their consensus estimates were calling for revenue of $144.77 million and earnings per share of $0.75.
With a market cap of less than $6 billion, The Trade Desk stock will continue to be volatile. That said, the company sits at the cusp of a growing trend and investors should focus on the long-term runway, rather than short-term price movements.
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