The Trade Desk reported Q4 2022 earnings today, revealing year-over-year revenue growth of 24% for the quarter (to $491MM) and 32% for the full year (to $1.6BN). Notably, The Trade Desk’s year-over-year growth rate in Q4 2022 matched that of Q4 2021, while net income grew by nearly 8x from $8MM to $71MM and EPS grew from $0.02 to $0.14.
This performance stands in stark contrast with that of the major social media advertising platforms: Meta saw revenue decline by 4%; Snap saw revenue increase by just 0.15%; and YouTube saw revenue decline by 8% in the same period. In The App Tracking Transparency Recession, attribute the divergence in commercial realities between The Trade Desk and the largest social media platforms to the effects of Apple’s App Tracking Transparency (ATT) privacy policy, which was introduced in April 2021 but did not reach a majority of iOS devices until June 2021. Until Q4 2022 results were released — which happened a few weeks after the ATT Recession piece was published — the social media platforms were primarily blaming economic headwinds for their advertising revenue misfortunes. My argument with the ATT Recession is that juxtaposing the revenue outcomes of social media platforms, which were the primary casualties of ATT, with those of advertising platforms that were wholly or in the majority not impacted by ATT reveals two things:
- The notion of a broad-based, macroeconomic-driven advertising recession cannot be substantiated by data;
- To the extent that an advertising recession exists, it is almost entirely confined to the social media category.
Taken together, these observations point to ATT as the culprit for lackluster revenue growth for social media advertising machinery. I also make the case in the ATT Recession piece that macroeconomic conditions were a curious explanation to use in rationalizing weak advertising demand at that time because unemployment sat at secular lows, inflation was easing, and consumer debt delinquencies were low. All of those things are even more true today than when I wrote the piece in early January. “Macroeconomic factors” were a bogeyman that, thankfully, the social media platforms have retired as an explanation for advertising revenue weakness.
Why is The Trade Desk mostly immune from the restrictions of ATT? As I explain in the ATT Recession, it is primarily a result of The Trade Desk operating a DSP that has very little exposure to mobile device advertising identifiers. As Jeff Green, The Trade Desk’s CEO, stated in the company’s Q3 2021 earnings call (emphasis mine):
So about 10% of our spend uses IDFA. And because we’ve had limited targeting on that 10% for quite a long time, continuing to limit it or limited in a new way, doesn’t have a material impact to our business. Because we’re looking at roughly 12 million ads every single second, when you take 1 million-ish of those and say, we’re going to allow less data to be used on those. We just look more carefully for gems in the other 11 million. So I don’t expect it to have a material impact on our business the way that it will others. So when you hear Facebook, talk about having a big impact, just remember, they’re 70-ish percent mobile, not 10% IDFA. So very different impact to us. That said, I do believe this is Apple trying to mess with Facebook’s business and Google’s business, they’re much more committed, I think, to payments than they are to the advertising ecosystem.
A few other factors contribute to this immunity, too:
- The Trade Desk primarily supports brand advertising spend relocated from linear television advertising budgets (especially to CTV) and not direct response advertising spend;
- The Trade Desk’s advertiser base skews towards large enterprises and agencies and not SMBs;
- The Trade Desk’s web inventory continues to benefit from the existence of cookies for targeting, with the deprecation of cookies in Chrome having been delayed until 2024;
- The Trade Desk has built its own identity system, UID2, the adoption of which grew from 15% “of the third-party data ecosystem” in Q4 2021 to an expected 75% in 2023.
All of these characteristics and initiatives distinguish The Trade Desk from the large social media platforms, but especially Meta, the majority of the revenue of which, by my estimation, is comprised of direct response spend from SMBs.
A few excerpts from the earnings call that I found particularly insightful are found below (all emphasis mine).
In response to a question about macroeconomic health, Jeff Green said:
From a macro standpoint, in early January, we saw a little bit of a late start due to the calendar year. We also saw the way that both brands and agencies were planning was a little bit delayed. But then we’ve seen things start to unlock, and we saw, instead of there being delays — or instead of there being canceled, there was just delays. And then, those have become unpaused and unlocked since then…As a result, we’ve seen more JBPs [edit: Joint Business Plans], and we’ve seen a lot more activity so far in 2023 than we’ve seen at any time to this point in any year previously. So, overall, we’re very encouraged by the trend in 2023 so far and extremely optimistic, especially that we continue to grab land relative to all of our competitors.
When asked about the Department of Justice’s lawsuit against Google, Jeff Green responded:
We have been winning in an unfair market. So, of course, if the market becomes more fair, which we think it will as a result of this, like I said, one way or another, then, of course, that signifies significantly better environment for us to perform it. The Department of Justice has clearly done their homework on this, which I am extremely encouraged by. I know there is some at Google who tried to suggest that we have been through this three or four times before…I do want to acknowledge that as there is some pressure to just break up assets, I don’t believe that, that alone is enough. And that if that’s all this done, I think technology could be replaced. And some of the same practices that got us here could happen again. So, to me, the most important thing that happens here is that any settlement or any conclusion to the case ends with more fairness and restrictions to make certain that the market stays fair, especially when leveraging assets that are extremely nearing monopoly, if you will.
On the pressure for Walled Gardens to become more open / interoperable:
So, whether we are talking about CTV, whether we are talking about retail, whether we are talking about the economic environment and pressure that puts on walled gardens to want to welcome incremental demand, all of that points toward an ecosystem, where more and more of them are considering bringing down the walls, even the largest of them, so that they can welcome incremental demand. And certainly, an environment like this is where you are most likely to see some of those changes. So, there is lots of activity considering that sort of stuff.
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