The Trade Desk (TTD 3.35%) just posted yet another expectation-beating quarter, growing revenue 56% year over year -- an acceleration from 50% revenue growth in Q3. The quarter benefited from further sharp growth in customers' spending on its platform for mobile, connected TV, and audio ads. In addition, strong growth internationally helped the programmatic ad platform's growth.
With both revenue and profits coming in significantly ahead of analyst estimates, the stock jumped on the news, soaring more than 30% by the time the market closed on Friday. As investors digest the news of The Trade Desk's robust fourth quarter, here's a look beyond the headline numbers at what management is thinking. These top three excerpts from The Trade Desk's fourth-quarter earnings call show three reasons The Trade Desk's growth story is far from over.
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1. The Next Wave is proving a worthwhile investment
The company's recent launch of Next Wave, an overhaul to the company's ad platform that includes an artificial intelligence agent, a campaign planner, and an intuitive new user experience, took a significant portion of The Trade Desk's engineering capacity. Indeed, management said it invested nearly 40% of its engineering resources for almost two years to launch the product.
But these investments were worth it, The Trade Desk CEO Jeff Green argues:
We overhauled the entire user experience and make decisioning even easier for the tens of thousands of people who use our platform. The Next Wave significantly increased our technological lead over our competition, and the engineering capacity we added to launch the Next Wave, widened the technology gap between us and the competition even further.
Highlighting the platform's success, 70% of its customers had adopted the new platform since by the end of 2018 since its launch last summer. This was significantly higher than management's goal of 50% adoption by the end of the year.
2. Profitability remains a strong point for The Trade Desk
The Trade Desk's profitability skyrocketed in 2018. Its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), for instance, rose from $95 million in 2017 to $159 million in 2018. Impressively, this put EBITDA at 33% of full-year revenue, easily exceeding management's initial guidance for a 2018 EBITDA margin of 29%. Net income also jumped, rising from $51 million in 2017 to $88 million in 2018.
Looking to 2019, management has a similar outlook for its profitability as a percentage of revenue, suggesting the company's lucrative business model is as vibrant as ever:
We estimate our EBITDA margin in 2019 to be about 29%. But like prior years, when we've seen surprises, they tend to be the upside and the upside has fallen directly to the bottom line.
In addition, Green noted that this expectation for profitability isn't a byproduct of conservative investment. On the contrary, the company is investing aggressively in growth opportunities. "While we generate EBITDA at levels much higher than our software peers, we are not aiming to maximize profit in the near term," Green explained.
3. The "Next Wave" is just the tip of the iceberg
While The Trade Desk's Next Wave was undoubtedly a massive project for The Trade Desk, the company is now positioned to make even bigger strategic bets.
"Since we started building the Next Wave over two years ago, our engineering capacity has increased by over four times," Green said.
Check out all our earnings call transcripts.
When combining this increase in engineering capacity with freed-up capacity from the Next Wave's completion and improved research and development efficiency, Green says that The Trade Desk now has "the capacity to build [the equivalent of] eight Next Wave products this year."
And The Trade Desk has every intent to utilize this capacity, planning major growth initiatives. "And we're directing that capacity to other high-growth opportunities. [Connected TV], data products, cross-device and now China are just a few great examples of our investment strategy."
