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The Trade Desk (NASDAQ:TTD)
Q3 2020 Earnings Call
Nov 05, 2020, 5:00 p.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Good day, everyone, and welcome to today's The Trade Desk third-quarter 2020 earnings conference call. [Operator instructions] It is now my pleasure to turn the conference over to vice president of investor relations, Chris Toth. Please go ahead.

Chris Toth -- Vice President of Investor Relations

Thank you, operator. Hello and good afternoon to everyone. Welcome to The Trade Desk third-quarter 2020 earnings conference call. On the call today are our founder and CEO, Jeff Green; and chief financial officer, Blake Grayson.

A copy of our earnings press release can be found on our website at thetradedesk.com in the Investor Relations section. Before we begin, I would like to remind you that except for historical information, some of the discussion and our responses in Q&A may contain forward-looking statements, which are dependent upon certain risks and uncertainties. In particular, our expectations around the impact of the COVID-19 pandemic on our business, the Q4 holiday season, and results of operations are subject to change. Should any of these risks materialize or should our assumptions prove be incorrect, actual financial results could differ materially from our projections or those implied by these forward-looking statements.

I encourage you to refer to the risk factors referenced in our press release and included in our most recent SEC filings. In addition to reporting our GAAP financial results, we present supplemental non-GAAP financial data. A reconciliation of the GAAP to non-GAAP measures can be found in our earnings press release. We believe that providing non-GAAP measures combined with our GAAP results provides a more meaningful representation of the company's operational performance.

I will now turn the call over to Founder and CEO Jeff Green. Jeff?

Jeff Green -- Founder and Chief Executive Officer

Hello, everyone, and thank you for joining us. We are excited to announce the results of our third quarter. Despite the headwinds of a global pandemic, we had healthy growth in the third quarter, up 32% year over year, far surpassing our own expectations. As we discussed, 2020 is a year where agility matters more than ever.

In this environment, marketers have come to more fully appreciate the power of data-driven advertising. And as that happens, we are becoming indispensable. We developed closer relationships with the biggest brands and the agencies in the world, and we are winning more business with both new and existing customers. In addition, we continue to see rapid growth in key channels, such as Connected TV, which grew more than 100% year over year.

This was a very encouraging quarter, not only in terms of our revenue and market share growth, but also what it signals about our growth opportunity moving forward. While our growth is very encouraging, we are still operating at a time of great uncertainty for many industries. But even in the midst of that uncertainty, we are clear that our role is to help our customers drive economic recovery. Advertising is an engine of economic growth and our customers know that their campaigns can fuel growth and drive market share gains for their brands.

And because of that, during times of uncertainty, they become much more deliberate. That's not to say this is a straight-line recovery for our customers. It's not. Often, our customers are still being hurt by the global pandemic and the economic consequences of most people staying home.

But while we are a long way from being completely out of the woods, I do believe that in 2020, so far, we have gained more market share or said another way, grabbed more land than at any point in our company's history. We've accomplished this because advertisers have become more deliberate, and we are a part of the solution that helps them manage uncertainty and chart a path to growth. Our rate of grabbing land in Q3 might be the biggest bullish indicator we produced as a publicly traded company. Market share gains in 2020 is a testament to the strength of our value proposition and our customer relationships.

That's what makes me more proud of our performance in the third quarter than any other quarter in The Trade Desk's history. Our team navigated uncertainty and helped the most sophisticated advertisers fuel their recovery with new approaches to channels such as CTV. I'll come back to CTV in a few minutes. Before I do that, I want to give color about the third quarter because I think it will give insight as to why I'm so bullish on our future.

Since April, we have been focused on understanding where we are on the economic recovery curve. Some industries, such as CPG, pharma and healthcare, were on the leading edge of that curve as we would expect. In fact, some companies in those industries never fully shut down their digital advertising campaigns. Others are a little farther back.

Restaurants and retailers, for example. They needed to advertise that they were open and message what their new normal looked like in terms of pickup and delivery services. However, their businesses have not yet completely returned to normal. And then further down the curve, of course, you have other industries like auto and airlines and hospitality that remain in various early stages of recovery.

My bullishness isn't because I think the macro environment is back to normal. We all know that's not true. Our positivity about our future is driven by the share gains that are happening during this time of uncertainty, and the numbers show it. We've spoken in the past about a 95%-plus retention rate, and we're seeing no deviation from that.

In fact, I would assert that customers are relying on us more and more. I see that not only in our growth numbers and the trends underneath those numbers but also in the conversations that I'm having with advertisers every day. So today, I'd like to break this discussion down in three ways: first, how we have seen advertisers become more deliberate in 2020 and what that's meant for us; second, how the tipping point in TV has proven a major factor to our growth in 2020; and three, how all of this adds up to a few things that I'm most excited about for our future, especially starting in 2021. Let's start with the first item: advertisers have become more deliberate.

Brands and agencies that advertise more effectively, who leverage data to be more nimble and agile are gaining share, period. In 2020, almost every marketer and every large brand is being asked to do more with less. Every advertising dollar has to be accounted for. CFOs are more involved in marketing and advertising decisions than they've been in years.

They become a lot more focused on what business value is created by advertising. And that means that advertisers have to focus on ad opportunities that are measurable and comparable, where the business ROI can be understood and proven. As companies reactivated their ad campaigns, they had an opportunity to let the world know that they are still there and open for business and in what capacity. But because the world changed so fast in March and April, advertisers quickly realized that effective advertising requires new levels of agility.

Now, national brand campaigns had to be complemented by highly local campaigns, specific to the circumstances in a particular region or state. But there was a much greater focus on reaching specific audiences with specific messages. The need for agility impacted more than campaign planning and management teams. Creative teams had to suddenly develop content in days versus month to take account for the constantly changing environment.

Combine those two factors, the need for new kinds of agility and the need to prove ROI, and you can recognize how marketers today need to not only be much more deliberate, but also much more data driven. To some extent, this is history repeating itself. There are parallels to the 2008 and 2009 recession when programmatic advertising first came on the radar for most marketers. Back then, display and mobile advertising were the big winners.

They won despite being weaker at winning hearts and minds than video, TV or audio. They won share because they were measurable and comparable, and marketers could proof effectiveness with credibility. Fast forward 12 years to the present, and digital is leading the recovery instead of just supplementing it. While marketers were incented to dip their toes in the waters of data and data-driven advertising 12 years ago.

Today, they are all-in across all advertising channels. And for the first time, advertisers are aggressively committing to the open Internet because of the scale and results of Connected TV and premium video. I maintain my prediction that eventually all premium video will eventually make up about half of the global advertising pie. Now that advertisers can apply data to their premium video campaigns where hearts and minds are truly won, the long-term opportunity for The Trade Desk could not be more promising.

Let me put some additional data behind these assertions. We recently surveyed more than 200 top advertisers. Around 85% of them said they are under new pressure from CFOs to justify marketing spend and to measure against business goals. 50% are now having their typical measurement techniques question.

As a result, almost all of them intend to adopt data-driven measurement strategies. This shift to being more deliberate has been a major driver of our growth this year, but we also see it play out in terms of business performance for those companies that prioritize data-driven advertising. And we see that industry by industry. In consumer packaged goods, for example, those companies that maintain spend on our platform through the uncertainty, performed better from a revenue growth perspective than those that slowed or suspended spending.

Over the past three months, one CPG company lifted their same-store sales for one of their brands by over 40% utilizing the combination of CTV, mobile and PC advertising. We have seen similar pattern show up across industries, whether it's pharma or fast food or retail or technology. So those companies that are advertising effectively are gaining share. And as I said, if you want one particularly potent microcosm of this in our industry, you have only to look at what's happening within TV, which brings me to my second point, how 2020 will go down in media history as a tipping point in TV.

Our CTV spend grew more than 100% year over year in the third quarter as advertisers follow consumers to streaming platforms. That consumer shift has created a tipping point. The number of U.S. households with traditional cable TV subscriptions is dropping to below 80 million this year.

According to eMarketer, 77.6 million U.S. households will have cable TV packages this year, down about 7.5% year over year. That is a rapid acceleration from the 3% decline that they had been predicting at the beginning of the year. In addition, CNBC recently reported that at least three large U.S.

media companies expect the number of U.S. households that subscribe to linear TV bundles will fall to about 50 million in the next five years. That is about a 40% drop from here. At the same time, advertisers will be able to reach more than 80 million U.S.

households via CTV on our platform this year. The crossover of household reach on our platform versus linear TV bundles is only going to widen. And that's because on-demand streaming content is more convenient to viewers and because many U.S. households remain under considerable economic pressure and are abandoning their expensive cable TV packages.

That live sports remain in the state of flux only adds to the acceleration in cord cutting. All of this, of course, has massive implications for broadcasters and advertisers. Marc Pritchard, chief brand officer at P&G, the world's largest advertiser, dropped a bombshell at the ANA conference a few weeks ago. He said that P&G would be moving away from the upfront model of TV ad buying.

With TV advertising going digital, it makes no sense to make massive, uninformed bets just because that's the way it's been done for decades. Now, they can apply data to those decisions and be more deliberate. Relatedly, also said that programmatic is their fastest-growing advertising channel, which speaks to how P&G and other advertisers want to apply data and optimize campaigns across all channels. P&G is not alone, of course.

Advertisers such as Unilever and Mastercard are calling for similar rethinks of archaic TV advertising processes. We are also seeing other brands move away from the upfronts and look for more agile data-driven options. That's why we're working with our customers to create digital alternatives to processes such as the upfronts, which can provide them with a more efficient, data-driven, and transparent forward market for TV inventory. While these shifts in the TV landscape may have taken a few years, in a normal business climate, 2020 accelerated this disruption and innovation into a few months.

This transformation of TV isn't the only reason I'm so confident about our growth opportunities in 2021 and beyond, which brings us to the third main topic I want to cover today, why I am so bullish about our future. It is impossible to talk about the future of The Trade Desk or the future of the open Internet without talking about Connected TV. That's because the shift to CTV is helping reinforce advertiser conviction that there is a compelling alternative to walled garden. Like last quarter, I have spent a disproportionate amount of my time over the past few months meeting with agencies and brands.

The first question invariably concerns helping them shift from user-generated content to premium TV content. That's because they are increasingly weary of the divisive nature of UGC, as we discussed in our last quarter's update. In fact, in that same survey of 200 advertisers, which I referenced earlier, 90% said they plan to shift ad dollars away from user-generated content. Indeed, we have won tens of millions of dollars of spend from UGC platforms in the last quarter alone, and we expect these trends to continue.

We are also winning business from linear TV and expect to continue to grab share from that $250 billion worldwide TV market. In the third quarter, one e-commerce giant saw an 11-times return on ad spend for CTV on our platform. As a result of that performance, they shifted 10% of their linear budget to CTV. We're seeing similar shifts across our customer base.

But the other side of the CTV coin is the massive surge on the supply side. Broadcasters are all pivoting to CTV. If you listen to Linda Yaccarino, chairman of advertising and partnerships at NBCUniversal at our recent Groundswell Festival, you would've heard her talking about how the TV model has changed permanently. She is working with advertisers in new ways to bridge the world of linear to the incremental reach of CTV, recognizing that they are no longer thinking about advertising in terms of particular content, but in terms of reaching a particular audience.

By the way, we've heard the same refrain from all broadcasters, whether it's Disney or Hulu or Channel 4 in the U.K. or ProSieben in Germany and so on. As you know, over the last few years, we have invested heavily to be ready for this opportunity. Indeed, you've heard me say before that the last 10 years has been a dress rehearsal for this moment.

Through our comprehensive CTV partnerships, we have access to pretty much all CTV inventory. And increasingly, these are partnerships that offer direct access to that inventory. This includes both broadcasters themselves or partners such as Magnite or FreeWheel. Our customers are prioritizing these partnerships because they maximize yield management and provide transparent access to a wide range of broadcaster inventory.

By contrast, broadcast TV is a ticking time bomb where the economics are unsustainable. The ad-to-content ratio creates a terrible viewer experience. The cost of cable for the consumer is high. So not surprisingly, the move to CTV is accelerating on the supplier side, as well as on the consumer side.

Another reason I'm so bullish for our future is product. In 2021, we will launch one of the biggest upgrades to our system in company history. The release is called Solomar. As some of you saw in 2018, we delivered a massive upgrade to our platform, which accelerated our market share gains.

That one was called Next Wave. We are still relentlessly committed to innovating and staying on the leading edge of our industry. We never take leadership for granted, and we are always looking to improve our platform and deepen our relationships with our customers. Solomar will include a better user interface, one that brings all of our customers buying and planning tools together for greater ease of use.

We're also making it easier than ever to onboard and deploy their first-party data. We're improving data management. We'll continue to expand our identity products around the world. We'll make planning on our platform even better, with a focus on ingesting and achieving customer-specific goals and we'll release a meaningful integrated upgrade to Koa, the machine learning and AI engine that is always powering campaigns even if users are away from their keyboards.

Finally, this launch will include a new measurement marketplace that provides advertisers with more transparent reporting. This represents an even more compelling measurement alternative to the walled gardens who continue to grade their own homework. Everything about this release points to the primacy of first-party data and the ability to unlock the value of that data in an ad campaign, especially in Connected TV. The third reason I'm so optimistic about our future is that we have deepened our relationships with brands.

This is in addition to our core agency relationships. Brands understand they need to maximize the value of their first-party data and scale its deployment across their marketing function. And increasingly, brands understand the power of data-driven advertising to drive growth. Programmatic is no longer simply a line item on the media plan.

It's a central part of the planning process. In most cases, brands will continue to work hand-in-hand with their agencies, but the amount of brand resources applied to this is growing every quarter. Fourth, I'm very confident about our international growth. Early on in the pandemic, many of our international market slowed down first.

But since started seeing the green shoots of recovery, many of them have returned to very healthy year-on-year growth, including Tokyo and Paris, which have grown spend over 100% year over year. The same dynamics that are happening here in the U.S. are happening around the world. Innovation and disruption have been accelerated.

And in many cases, with their advertising ecosystems much more concentrated than in the United States, these markets have the opportunity to leap ahead quickly in areas such as CTV. Lastly, I'm extremely confident in TTD's future because of the industrywide movement that is galvanizing around the open Internet. Even that phrase, the open Internet was something that only a few of us were using with any confidence a few years ago, but it's now a movement that has gained considerable momentum. The most important manifestation of this is the collaboration that is now happening outside of the walled gardens, the likes of which we have never seen before.

Brands are looking for alternatives to walled gardens, and alternatives to user-generated content and alternatives to broadcast TV and alternatives that are all data-driven. And of course, alternative can be measured objectively, all of which point to the value of the open Internet. And all of which also mean that once again, the secular tailwinds are getting stronger for The Trade Desk. So let me try to wrap this up by discussing some of the pressing items facing The Trade Desk and the open Internet right now.

I want to touch on the recent antitrust actions against Google. As many of you have asked about this, particularly in terms of what it might mean for us and the future of cookies. It is very difficult to predict what ultimately will transpire or what remedies might be, if any. All we do know is that it will likely take years and that it will almost certainly create some level of distraction and change for Google.

Ultimately, it doesn't change anything about our strategy. We are focused on offering a compelling alternative to walled gardens. One that enables a free and better open Internet for all participants. For advertisers, data providers, content providers and consumers.

We're trying to power among the competitive media market, not control the market. And as we have seen this year, there is growing demand for such an alternative to walled gardens that can execute at scale across every channel worldwide. The market will not allow Google to be the only company to offer effective ad targeting. There is too much collaboration and understanding of what's at stake for that to happen.

As a key element in creating that compelling alternative, we have architected a new identity framework for the entire open Internet called Unified ID 2.0. It raises all boats. Simply put, it creates a better and open competitive Internet, one that also improves privacy controls for consumers. We've done this with the help and collaboration of players across the open Internet, including governing and regulating bodies such as the IAB.

Large publishers are implementing this solution now. Some of the biggest names on the Internet are asking to be involved. The leaders of ad tech companies are working together to make this a success. This is much bigger than The Trade Desk.

This is an industrywide collaboration on a level that we have never seen before in our industry. Because of that, regardless of what Google ends up doing with cookies, we believe that the industry will have a better upgraded alternative for identity that more effectively explains the value exchange of the Internet and provides users with greater control and privacy. I firmly believe that Unified ID 2.0 will reach critical mass and adoption next year. And in doing so, as an industry, we will have created a viable scale alternative to third-party cookies, one that is also browser and device agnostic.

It's an upgrade across the board. The footprint of IDs that we're already working with is massive. In the last few days, you've heard that LiveRamp and Criteo will make their identity solutions interoperable with this. You've heard that Nielsen will be working with us to deploy Unified ID 2.0 for cross-channel measurement, and in the coming weeks, you'll start to hear from more advertisers and more publishers who are now part of this industry collaboration.

If I could have fictionalized how this would go and the response from the market, I couldn't have written a more compelling story than what's actually happening. On a related note, I know some of you will have questions about Apple's recent moves regarding IDFA. We anticipate most users will ultimately opt in to IDFA in order to continue to enjoy personalization of apps across their devices. That includes things like Spotify, Dropbox, LinkedIn, Netflix, Facebook or thousands of other apps.

The last topic I would like to touch on is our most recent proxy filing. Our board has proposed several amendments, which, if approved, would ultimately mean that our dual-class stock structure will sunset or terminate in five years. I don't want to go over the proposal specifically here today, there will be time to do that in another forum. But I would like to provide a little context as to why the board has made this recommendation.

Many of you have been with us for our entire four years as a public company. And in that time, we've significantly increased our market valuation by thousands of percentage points. In light of that growth, sometimes it's hard to remember. But if you cast your mind back four years, you'll recall that there was a lot of skepticism around our industry and around our prospects.

Ad tech as an industry was loathe on Wall Street. Over the last four years, we've delivered significant shareholder returns. But we've brought a new level of appreciation and respect for our industry and our role in pioneering the future of media as well. It didn't happen overnight.

We climbed out of that ad tech penalty box by making promises and setting expectations and then meeting them consistently quarter after quarter because we knew we needed to build your trust. And that trust helped us provide you with a consistent view of our long-term strategy. The trust between The Trade Desk and its shareholders is extremely important. Because when you think about areas such as Connected TV, identity, upgrading our platform, international growth, these are not short-term or ad hoc decisions.

These are decisions born of a long-term strategic plan. The next five years will be critical in our history as advertisers increasingly consider the value of the open Internet and embrace an alternative to the walled gardens, the next five years will go a long way in determining the winners and losers. Our board has determined that these changes will enable the company to continue to have that long-term strategic focus. Maintaining that focus maximizes our chances of continuing to deliver exceptional shareholder value.

I just wanted to provide that brief context as I know that many of you would appreciate that perspective, having been with us for the long haul. Now, let me wrap up by coming back to where I started. We are highly encouraged by our strong performance in the third quarter. I have never been more proud of our team's performance than in this quarter.

The team has done so much to set up our future and the future of the open Internet. Because of that performance year to date, we're even more bullish about our ability to gain market share moving forward. Advertisers are becoming more deliberate with every ad dollar they spend and shifts in key channels such as TV are only accelerating that trend. This makes our platform indispensable for our customers and partners.

As Linda Yaccarino said at our recent Groundswell Festival when asked about why she spend so much time with The Trade Desk, she said, "It's because they are leading me to the future." With that, let me hand it over to Blake to cover the financials.

Blake Grayson -- Chief Financial Officer

Thank you, and good afternoon, everyone. We continue to operate in an uncertain and challenging environment. However, as Jeff mentioned, we are seeing advertisers accelerate their shift to data-driven advertising in 2020. I'm really encouraged not only by this shift but also by our company's execution during this period of uncertainty by working closely with our customers and our results demonstrate our solid operational performance.

For Q3, revenue was $216 million, representing an increase of 32% year over year. This represented a 45-percentage-point acceleration from Q2. We benefited from several trends that helped us significantly exceed our expectations. One, existing advertisers shifted more spend to our platform during the quarter.

This included CTV, which offers the ability for advertisers to apply data to their TV ad campaigns in ways that are simply not possible with linear. Two, we won a significant amount of new business from our competition, enabling us to gain share; and three, political spend steadily ramped up throughout the quarter and was particularly strong in the month of September. With the strong top-line performance in Q3, we generated $77 million in adjusted EBITDA or about 36% of revenue. As you have seen historically, when we outperform on the top line, we often see that outperformance drop down to EBITDA, which it did in Q3.

EBITDA also benefited from temporarily lower-than-expected operating expense growth. From the channel perspective, in Q3, we continue to see improvements across all of our channels. For the quarter, spend in our mobile video, which includes Connected TV, display, and audio channels all grew on a year-over-year basis. Connected TV spend was the strongest, growing over 100% in Q3 on a year-over-year basis.

Geographically in Q3, similar to last quarter, North America represented 88% of spend and international represented 12% of spend. All of our major regions, North America, APAC, and Europe grew spend well into the double digits year over year in Q3. In terms of our verticals that represent at least 1% of our spend, nearly every category improved during the quarter, with many exhibiting strong resilience in the face of the economic uncertainty that Jeff discussed. In particular, health and fitness, our largest vertical in 2019, as well as technology and computing, food and drink, and home and garden all performed well.

Automotive showed consistent improvement as well during the quarter, ending with double-digit growth in Q3. Travel still remained negative on a year-over-year basis, but even that category showed relative improvement during the quarter and has improved on a year-over-year basis versus Q2 performance. Shopping also showed a noticeable turnaround in Q3, ending with growth well into the double digits. And finally, as you can imagine, we have seen strong political spend in the month of September and also into October.

However, it is fair to assume that we will still end 2020 as we had previously indicated, with political spend representing a mid-single-digit share as a percent of our spend. Operating expenses were $173 million in Q3, up 22% year over year. Although faster than we invested in Q2, our operating expense growth was a bit lower than expected due to a number of factors. First, our employee support costs, including travel and corporate events, ran lower and are down materially from the prior year due to the virtual environment.

Second, our bad debt expense for the quarter was lower than we had originally assumed partially due to strong receivables health. The aging of our receivables actually improved slightly year over year despite the volatile economic environment, which we're obviously pleased with. Third, while we continue to produce positive net hiring every month and grew headcount in double digits year over year in Q3, we did not ramp our hiring as quickly as we had hoped, also partially due to the virtual environment. Income tax expense was $1.3 million in the quarter, mainly due to the increase in profitability in the quarter, which was partially offset by employee stock-based awards, the timing of which can be variable.

Adjusted net income for the quarter was $62.7 million or $1.27 per fully diluted share. Net cash provided by operating activities was $88.5 million for Q3 and free cash flow was $66.5 million. The primary driver was the increase in net income and the change in working capital that can vary from quarter to quarter depending on the timing of payments and receivables. DSOs exiting the quarter were 101 days, up five days from a year ago.

DPOs were 82 days, also up five days from a year ago. We exited Q3 with a strong cash and liquidity position. Our balance sheet had $557 million in cash, cash equivalents, and short-term investments at the end of the quarter. In Q3, we paid down $70 million in debt or about half of our revolving line of credit that we drew down against in the very early days of COVID-19 out of an abundance of caution.

Since the end of Q3, we have paid down the remaining $72 million of our outstanding line. And as of today, we have no revolver debt on the balance sheet. I'm going to use the remainder of the time today to discuss Q4. Please be aware, our business continues to be impacted by the COVID-19 pandemic that has significantly impacted advertiser demand.

Q4 has historically been our strongest quarter, driven by holiday ad spend. However, we continue to face a period of higher uncertainty in our business outlook. Assuming that the economy continues to improve, and we do not have any major COVID-related setbacks that impact historically strong holiday ad spend. We estimate Q4 revenue to be between $287 million and $291 million, which would represent growth of between 33% to 35% on a year-over-year basis, a modest acceleration from our Q3 results.

Under this assumption, we estimate adjusted EBITDA to be at least $115 million in Q4. I would remind you that the relative strength in our EBITDA forecast is in part due to the virtual environment our teams are working in. While there is continued uncertainty about the economic environment, we are pleased with our momentum, and we remain highly optimistic about the long-term growth prospects for our business. We believe we have the structure in place to accelerate growth and scale our business efficiently as economic conditions improve and are cautiously optimistic about continued measured improvement through Q4 and into 2021.

That concludes our prepared remarks. Operator, let's open it up for questions.

Questions & Answers:


Thank you. [Operator instructions] And we will take our first question from Michael Levine with Pivotal Trade Group. Please go ahead.

Michael Levine -- Pivotal Trade Group -- Analyst

Thanks for the question guys, and terrific results. So just a little bit deeper, Jeff, on your comments around CTV, which were super helpful. Sort of two parts, I mean, one, I'm curious is the weakness in linear sports TV rating actually led to some acceleration. And I guess just secondarily, as you are thinking about '21, anything you guys could basically do to frame how investors should basically think about CTV growth?

Jeff Green -- Founder and Chief Executive Officer

Yeah. Great. First of all, thanks for the question. Of course, there's no place in our business that we're more excited about than in CTV.

And I think it's difficult to argue that we didn't benefit from the struggle that live sports has had in 2020. In 2019, we just had this amazing the sort of arm-and-arm tour with ESPN and just talking about the benefits of live sports. But while the time -- consumption has gone up across the board on connected TV, consumption on both linear, as well as live sports has gone down dramatically, live sports suffering the most. When we asked in a survey, what was the No.

1 reason that people hung on to cable? 60% of consumers said the reason for hanging on to it was live sports. And we think that that's the reason why when we ask them about cord-cutting, that they're doing now at between 2.5 and 4 times the rate that they've been doing that in the past. And that's in part because of just live sports being less compelling when there's not a crowd, and it's not the same in this environment. So we've definitely benefited from that.

Will you remind me the second part of your question?

Michael Levine -- Pivotal Trade Group -- Analyst

Just some initial thoughts, just how investors could think about the opportunity for CTV in 2021.

Jeff Green -- Founder and Chief Executive Officer

Yeah. Absolutely. So the first is just to touch on a little bit, the upfront. So this year, the upfronts, which is a way that a lot of advertising spend in TV gets allocated, was especially weak because just a lot of the decisions and meeting take place in last week in March and first week in April, that was the moment that perhaps was the most amount of uncertainty in the global economy and certainly in the media landscape.

I think most people -- part of the reason why I quoted Marc Pritchard on that really bold statement that he made, that they plan to skip out on upfronts going forward, is in part because of the amount of uncertainty that the media landscape faces continuing going into 2021. What I think all of that means is the way to make television work and scale is going to be to move more to connected TV. I think it means that there's going to be more sold in what is effectively a spot market instead of on upfronts and all of that bodes well for us. That said, I think it's also important to note that we're investing in product to help digital participate in a new version of a forward market and we're working with multiple players in the premium content space to define that.

So incredibly optimistic about our prospects in 2021 because of the secular tailwinds we have in TV for a variety of reasons, including the macro environment.

Michael Levine -- Pivotal Trade Group -- Analyst

Terrific. Thanks again, Jeff.

Jeff Green -- Founder and Chief Executive Officer

Thank you.


We'll take our next question from Shyam Patil from Susquehanna. Please go ahead.

Shyam Patil -- Susquehanna International Group -- Analyst

Hey, guys. Congrats on the impressive results. I have a couple of questions. First one, Jeff, can you talk a little bit more about how you're thinking about Apple's upcoming IDFA change and how you guys plan to manage that change? And then, Blake, I know you're not providing a 2020-'21 outlook yet.

But are you able to talk a little bit about how you're thinking about areas of investments, as well as how margins could trend next year? Thank you.

Jeff Green -- Founder and Chief Executive Officer

Awesome. I'll take the first one, and then, Blake, if you want to take the lead on the second one, that would be great. So first, I'd like to answer the Apple IDFA question in two ways. So first, let me just talk about from our company perspective, and then I just want to talk about it on behalf of the open Internet and bigger perspective.

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.

But one thing I just think has not been talked about enough is that when you limit the ability to use IDFA by all apps, not just for advertising, but for personalization like in Netflix or Dropbox or so many others. What that is going to lead to is a massively deprecated consumer experience, where consumers are then going to be asked the question, if you would like to upgrade your experience, you have to go to settings and change the following. I believe that that is inevitable. But because there's so much advantage to that personalization, and there's so many companies that are committed to doing that in a fair, equitable, responsible way, including us.

I believe we've already been through this with location on Apple and it ended up giving consent in the places that mattered so that they could have a better experience. I think long term, we end up with people opting into IDFA and this not being a big setback for the industry of personalization. I don't expect that to happen. But I'll just go back to -- as it relates to us, it's a small portion of our business given our focus on Connected TV and being a gateway to all channels, not just one.


Blake Grayson -- Chief Financial Officer

Sure. Thanks, Jeff. And I'll try to address this, Shyam. And then, Jeff, if you want to add anything, feel free at the end.

With respect to the second question on thoughts around investment and margins. Maybe some context that I can provide that may help. Just in general, we're very excited about the investment opportunities we have in front of us, whether that's in Connected TV, international identity solutions, or product development such as Solomar that Jeff referenced, our focus is to drive investment in areas that drive platform spend growth. As we move into 2021, there's still lots of uncertainty around COVID and the macroeconomy.

You saw it a bit in Q3, areas like support costs, travel, events, and hiring, they're generally below pre-Covid levels. We're confident that when we do return to normal and whenever that is, sometime in 2021, late 2021, 2022, your guess is as good as mine on that. Our margin structure should be as good as it was pre-COVID and over the long run, as we continue to add scale, potentially slightly better. But where I'd end that statement with is that please remember that we do not manage to an EBITDA target.

We have areas that we are really excited about investing in and driving growth, and we're always looking for those opportunities. So if we can invest more that will drive future growth with the right long-term ROIs, I will really advocate for it. And so we always have to have that balanced perspective.

Jeff Green -- Founder and Chief Executive Officer

I'll just add for 30 seconds. I was on the phone with some of our team in China this morning just talking about how they are leading the world in global growth for us, they're back to the offices and sort of business as usual and having a phenomenal year for us. I definitely want to make investments there. We want to make investments in the forward market and CTV that we talked about.

We've talked about the momentum behind Unified ID, is definitely a place that we can do more. We're planning the biggest release in our company's history next year in Solomar. There's just a lot of places for us to continue to grow and we're still just in the very early innings of what is shaping out to be a huge game. So just really excited at looking for places to make more investments.

Chris Toth -- Vice President of Investor Relations

Next question, Chloe.


Our next question from Vasily Karasyov from Cannonball. Please go ahead.

Vasily Karasyov -- Cannonball Research -- Analyst

Thank you. Good afternoon. Jeff, I wanted to ask you all about decision to deemphasize Amazon Publisher Services in favor of working directly with the apps. I think you announced that several weeks ago, what was the rationale to do this a little over a year after the PMP was set up? And does that change your approach to other streaming platforms such as Roku? So I would appreciate your thoughts on this.

Jeff Green -- Founder and Chief Executive Officer

You bet. So first, 2020 is the year where media does three years of worth of change in one year. So while I had initially thought that this would last longer. I was extremely confident in it being important to our success in the short and medium term but had less certainty about the long-term because of that, the partnership was an amazing success.

We proved monetization on Amazon. We continue to monetize on Amazon. It's just not through Amazon Publishing Services, which it's my read that that's not the highest priority inside of Amazon. But instead, getting access to the content that runs over Fire and Roku and every other device by creating closer relationships directly with the content owners.

There is the saying in TV that content is king and we continue to get closer to that content where they're more and more committed to doing yield management, either through a very close partner like a FreeWheel or a Magnite or doing it in some cases on their own. And we're OK, no matter what, we're sort of agnostic to how they want to yield management as long as we plug-in with them. But APS itself was less than 1.5% of all CTV ad impressions, so meaning not necessarily Amazon but those that came through Amazon Publishing Services. And so getting it more directly is actually better for us, better for our advertisers, and deepens the relationship with the content owners.

So by that measure, this was a smashing success.

Chris Toth -- Vice President of Investor Relations

Next question, Chloe.


We'll take our next question from Justin Patterson with KeyBanc. Please go ahead.

Justin Patterson -- KeyBanc Capital Markets -- Analyst

Great. Thank you. Hi, Jeff and Blake. Hope you're well.

Congratulations on all the progress with the Unified ID 2.0 in getting close to critical mass. My question is this, even with that degree of adoption, there are some checks out there suggesting it's still going to be a lag time before ROI matches what previously existed under the third-party cookie. I'd love to hear your thoughts on whether an air pocket might exist. And how long you think it could take for us to start seeing the benefits of Unified ID play out, both for your business and the open Internet?

Jeff Green -- Founder and Chief Executive Officer

You bet. So, first of all, thanks for the question. It's a somewhat complicated question. In large part, because third-party cookies still exist, right? And they will for the next 18 months or so, so everything that we do in the time between now and the time when they go away inside of chrome.

The Unified ID 2.0 is a supplement to the rest of it. Now, that said, I believe we'll replace it before they go away. So I believe that it will be the primary way that people are targeting on the open Internet before third-party cookies go away. But as people are thinking about, what's the adoption look like? Just think about the fact that that LiveRamp and Criteo and Nielsen have a pretty amazing footprint.

And when they talk about interoperability and adoption, it's effectively pooling the footprint that we have of LiveRamp, Criteo, Nielsen, and The Trade Desk to start. That's just the start. If I were to give you the list of all the people in media that are engaged with us and with all of us that are working on it or all the people on the supply side that are working on this. It's actually overwhelming to just keep up with the amount of success.

I have never seen anything like this in the history of the Internet in terms of adoption. And I think it's just because we got the product right as an industry where we said, OK, we want to upgrade cookies where it's encrypted. It has a terms of service so that it actually operates better. We get rid of the cookie mapping issues.

It's a simple framework for publishers so they can better explain the quid pro quo of the Internet. We're giving consumers better controls. There's this SSO that comes with it so that people can consent one-time per app and website, validate their email address one-time and then have effectively a pass to go all over the internet with open pass. So I highlight those four components to this to just say it's an upgrade across the board on all of those things.

And especially when you take the momentum that's already there, there's not a good reason for any company not to sign up that benefits from this common currency, which is every advertiser, every publisher, even the consumer benefits from this. So I think we figured out the way to make it a win-win across the board, and that's why the momentum is overwhelming.

Justin Patterson -- KeyBanc Capital Markets -- Analyst

Thank you.


And we'll take our next question from Tim Nollen with Macquarie. Please go ahead.

Tim Nollen -- Macquarie -- Analyst

Great. Thanks very much. Jeff, I have a question also about Unified ID. I hope it's a simple one.

Could you help us understand a bit more what your partners are doing in this effort? You've mentioned now, and we've seen the releases in the last couple of weeks with LiveRamp and Criteo and Nielsen. Maybe is it about them helping create and build the ID itself, or is it them agreeing to make their systems work with it? Just to understand a bit more what they are actually doing with you on that? And relatedly, I think especially when it comes to Nielsen, you're talking about measurement a bit more, I think, on this call than you have in previous calls. What role does Unified ID 2.0 play in actually measuring media, especially CTV? Thanks.

Jeff Green -- Founder and Chief Executive Officer

Yeah. So this is a complicated question. So in the third-party cookie universe, there is all this thinking that has to happen. So if one company, let's just say, Google has a cookie that says -- and they identify a user as user ABC.

And then Facebook has a cookie, and they identify that user as 123. In order for them to have a common understanding of the user, they have to ping each other. And so what you see on the bottom of your browser, all the pixels loading constantly. It's all these companies syncing with each other so that they have a common understanding of the user and create a currency around the Internet.

What Unified ID 2.0 does is it replaces that where there's constantly pings happening and syncing so that there's a common understanding of the user and replaces it with a standard that we all have. And this effectively creates a currency for the Internet. It doesn't mean that we aggregate all the data. In fact, it's deliberately designed to avoid that.

There is this ID where there's no data per se attach to it. And then the individual companies themselves that have in proper ways gained insight or data then can use that in their own four walls without having to send the data to all different places. Because everybody has an interest in creating this understanding, so we can stop syncing and have a better system, we basically took a recipe from the IAB, where the IAB had said, this is what the best solution should look like. And we just went one click down on fleshing that out.

And then we sent it out to partners like Criteo and like, which incidentally is a competitor in a lot of levels. But we felt like it was very important to start there so that we were signifying to the industry that this was a collaboration, even though we compete. Then we did the exact same thing with LiveRamp to just make certain that it was interoperable. So you asked whether it was about interoperability or about collaboration.

It is about both. But we took something to them that was mostly baked and said, what do we need to modify to get you to adopt it and make it interoperable with your solutions? And that's where we are with all of them. You mentioned measurement, you're absolutely right that one of the things that, I think, Facebook and Google have done really well in becoming as big as they are in advertising, is that they have done a good job of taking credit for what happens in all of advertising because they touch so many conversions when they sell something, they are effectively providing analytics to say, yes, we touched it. You sold that product because of us.

The open Internet needs to do a better job of showing the role that it plays, especially given that I believe most hearts and minds are one in things like CTV and audio. So we need to integrate with the best measurement solutions in the world. You're going to hear a lot more from us about measurement over the next year and about partnerships that we're initiating to make that better. But there's no place better to start than with Nielsen, who's effectively been the gold standard of TV measurement for decades.

Chris Toth -- Vice President of Investor Relations

Next question, Chloe.


Next question from Youssef Squali from Truist Securities. Please go ahead.

Youssef Squali -- Truist Securities -- Analyst

Great. Thank you very much and congrats on the really impressive quarter. Jeff, I was just wondering, so two questions for you. One, how are the potential changes in the political environment could impact? How are they potentially impacting your ecosystem, especially around what's happening with the walled gardens? Would the change in the guards have materially impact one way or another? And then on a topic that you mentioned briefly earlier, which is China.

This was a topic that you used to talk a lot more about. It seems like China is now on the other side of this COVID. They've opened up, their growth has been very, very impressive. How are you looking at that business from a contribution standpoint? I think 2021 was going to be a year where China was starting to basically move the needle -- I'm sorry, 2020 was a year where China was going to start moving the needle for you.

Will 2021 now be that year? Thank you.

Jeff Green -- Founder and Chief Executive Officer

Great. So first, as it relates to the political environment, and correct me if I'm wrong, but I assume you just mean the amount of scrutiny that, as they call it, big tech is on right now as that continues.

Youssef Squali -- Truist Securities -- Analyst

Right, right. And it potentially worsens. How does that play in your favor potentially or not?

Jeff Green -- Founder and Chief Executive Officer

So I don't think that it will affect us all of that much, but whatever effect it has is likely to be positive. And as I mentioned in the prepared remarks, I think adding pressure to Google and especially lived through sort of the other side of antitrust when I was at Microsoft more than 10 years ago. The level of scrutiny that I think big tech is under is likely to make the Googles of the world slow down, be a little more careful. Dot Is and cross Ts to make certain that they're not violating antitrust.

It could likely mean that they make changes to pricing tactics. And it could mean that they are less aggressive in going after targeting, even if it is in the name of privacy so that only they would be the ones to target on the other side of that if the collective open Internet didn't work together. So because of that pressure, I anticipate that we'll see some small benefit. But here's, I think, the most important thing that I can say it on this topic.

We were fine with the landscape the way it was. We built a business from the very beginning that was built on objectivity, and we wanted to focus on the demand side so that people knew what we were. And we were, to some extent, 10 years ago, a rebuttal to Google's business model to be involved in every part of the ad tech stack. And instead, we just said we were going to focus on the buy side because with that came a level of transparency and objectivity that we knew someone in Google's position could never provide.

So if they have to slow down, great. If they don't, that's fine. We're going to keep talking about the exact same principles that got us here, and we believe we're more likely to win now than we were 11 years ago and happy to keep going.

Chris Toth -- Vice President of Investor Relations

Thank you, Jeff. Next question, Chloe.


We'll take our next question from Mark with Rosenblatt Securities. Please go ahead.

Mark Zgutowicz -- Rosenblatt Securities -- Analyst

Thank you. Hi, Jeff. I appreciate all the color on your ID. A lot of excitement and anxiousness, I would say, in the industry, as we talked to lots of companies involved.

I'm just curious, if we think about perhaps milestones over the next 12 months that will indicate that we are trending in the right direction here to fully replace the scale that chrome cookies offers, can you maybe talk about a few milestones that we should look for? And then what do you anticipate to be the primary asks of all the parties that are involved here and whether or not the bigger asks will come from the bigger publishers if I'm thinking about that correctly? Thanks.

Jeff Green -- Founder and Chief Executive Officer

Yeah. So the milestones are mostly measured in interoperability. So as a publisher or an advertiser says, we want to leverage this to create interoperability between our ID and somebody else's ID. And there are lots of ID initiatives out there.

Nearly every agency has one that they're pursuing. Many of them have been pursuing them for multiple years. Those are all different. Most of those are similar to LiveRamp, where they're about data onboarding and making it possible for people to use the data that otherwise has not been, that's different than creating a currency which is all about interoperability.

So every time you see a press release or you see somebody publicly saying we are making our ID interoperable, you're just sort of joining the circles of what otherwise would have been a Venn diagram in the cookie world to just make a bigger circle. And so the theme to be looking for is interoperability. And did I answer the second part of his question?

Chris Toth -- Vice President of Investor Relations

Yeah. Did we catch that, Mark? OK. We will answer -- Youssef had a second part of his question regarding China, and so Jeff will take that question right now.

Jeff Green -- Founder and Chief Executive Officer

Great. So you're absolutely right that we've had high hopes in China for a very long time. We've also been making investments for a few years now. Rather than just quantify when it's going to move the needle, especially as that becomes a bigger target as we continue to grow our business around the world.

I'll just reiterate. China is leading the world right now for us in terms of growth rate. The green shoots are really remarkable in 2020. I don't know that I would have pointed to the green shoots in years before this year, but they're really remarkable.

We continue to just build out the team and build out the products that we need. Our vision is to do for the Chinese speaking world, what we've done for the English-speaking world. If you look at like the places where we've had the most amount of growth, the countries that we've talked most about in Connected TV it's been in the English-speaking world, whether that's in Australia or in London or in, of course, the United States. It doesn't mean that we haven't had great success in places like Germany and other places as well, that has been predominantly English.

We think there's something very similar to be done in the Chinese speaking world, which goes beyond just Greater China. And we're seeing those green shoots in 2020. So it's one of the places that I'm interested in making investments in and spending more time and really eager for the world to get back to some sort of normal. So I can go back and spend more time in a place I fell in love with in 2018.

Chris Toth -- Vice President of Investor Relations

And, Chloe, we have time for one more question, and then we'll close it out.


We'll take our next question from John Egbert with Stifel. Please go ahead.

John Egbert -- Stifel Financial Corp. -- Analyst

Great. Thanks for taking my question. Jeff, it seems like, in addition to being a far more efficient channel for large brands than linear TV advertising, CTV seems really tailor-made for premium video ads from SMBs and mid-market retailers that never really bought TV ads on a national level due to factors like budget limitations or narrower geographic focus. And these companies are arguably among the largest drivers of digital ad demand today and driving most of the growth for the walled gardens right now.

So I guess two questions. First, are you working with many companies in these categories through agency relationships today? And I guess looking maybe a few years out as your penetration within large advertiser and agency budgets continues to grow. Would you consider developing products that better cater to the segment? And I guess if so, what are some of the challenges to consider there?

Jeff Green -- Founder and Chief Executive Officer

Yeah. So I could not agree more with the premise of the question, which is that SMBs and mid-market advertisers have been driver of digital, especially for companies like Google and Facebook. We, of course, have done much better among the premium brands. And deliberately started there, and that continues to be the core of the market that we service.

But we fully acknowledge, when we talk about $1 trillion TAM, and we talk about being focused on the demand side so that we can appeal to everybody, that objectivity and that TAM has to include advertisers of smaller sizes. The way that we service those today is largely through agencies and other tech providers that are very focused on servicing those advertisers today. There might be a time down the road that we do some of that ourselves without trying to disintermediate any of them, would be the hope. But there's a lot to consider there.

You asked what are the considerations. You have to have a relationship that is almost like a B2C relationship in order to service those, which I think is just really important for us to think about as we continue to expand. So those things are not lost on us. We're spending a lot of time trying to learn more about that market, but we continue to be focused on that $1 trillion TAM, and no, we can't ignore it.

Chris Toth -- Vice President of Investor Relations

All right. Last question, Chloe.


We'll take our next question from Brian Schwartz with Oppenheimer. Please go ahead.

Brian Schwartz -- Oppenheimer and Company -- Analyst

Yeah. Thanks for taking my question this afternoon. I've got a question for Blake on the EBITDA margin trajectory. If I look at the second half of this year, you're going to put up about 400 bps of improvement year over year, and that probably is somewhat unsustainable.

I wanted to ask you whether your comments about the lower opex growth that you expected in the current quarter and the uptick in investments was intended to perhaps suggest some restraint when we're thinking about that EBITDA margin trajectory. Again, I'm not asking for firm margin guidance for next year. I know that will probably come later. But just directionally, how has the experience with COVID and the cost structure, how has that changed, if at all, your view of the EBITDA's margin trajectory coming out of the pandemic? Thanks.

Blake Grayson -- Chief Financial Officer

Sure. Thanks. And I'll try to provide a little bit more perspective. I think obviously, in Q3, we've seen the impact, what I refer to as the virtual environment, lower support costs and travel, corporate events, and things like that.

I mean, it's not just lower than quarter over quarter, but it's down significant. And then you can obviously look at our EBITDA guidance for the fourth quarter and infer in there some sense of continuation of that in those numbers themselves. I think the thing, as far as like thinking out it into the future goes, one of the reasons why we're able to run with a lower cost base today is that we're in this virtual environment, our customers are in this virtual environment along with us. We are here to serve our customers and meet with them and help them in any way we can.

And so if and when behavior changes on a macro basis, we'll adapt accordingly. But I don't expect that personally. Now, the question is the timing of when is everybody's got their own guess, and none of us are going to be right about that, the timing of it. But I think it's one of those things.

I think where we begin to see benefits on margins -- and I thought this a little bit earlier in my answer, I think before, it's just with scale. As we just get larger and larger and we can gain scale, we should be able to gain efficiencies. But as far as like near-term components, that's about the way that I'm thinking. So I hope that helps.


And it does appear we have no further questions at this time. I would now like to turn it back to Chris Toth for any closing remarks.

Chris Toth -- Vice President of Investor Relations

Thank you, Chloe. Thank you, everyone, for joining. I know we ran a few minutes over the top of the hour, but really good questions. And thanks, everyone, for joining.

We look forward to speaking to you over the remainder of the quarter. Good night, everyone.


[Operator signoff]

Duration: 72 minutes

Call participants:

Chris Toth -- Vice President of Investor Relations

Jeff Green -- Founder and Chief Executive Officer

Blake Grayson -- Chief Financial Officer

Michael Levine -- Pivotal Trade Group -- Analyst

Shyam Patil -- Susquehanna International Group -- Analyst

Vasily Karasyov -- Cannonball Research -- Analyst

Justin Patterson -- KeyBanc Capital Markets -- Analyst

Tim Nollen -- Macquarie -- Analyst

Youssef Squali -- Truist Securities -- Analyst

Mark Zgutowicz -- Rosenblatt Securities -- Analyst

John Egbert -- Stifel Financial Corp. -- Analyst

Brian Schwartz -- Oppenheimer and Company -- Analyst

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