During the pandemic, one industry that investors counted on taking a hit was advertising. Even digital advertising was expected to get rocked, as negatively affected businesses reduced or even paused their ad spend.
But some digital advertisers have been showing surprising resilience. Last week, Facebook crushed expectations and posted 10% year-over-year growth in its advertising revenue. Earlier this week, Roku's platform segment, which includes revenue from both advertising and subscriptions on its platform, grew 46% year over year.
This week's surprise comes from data-driven advertising company The Trade Desk (NASDAQ:TTD), which reported sharp growth in CTV ad spend, a strong bottom line, and a better-than-expected outlook for Q3. Here's a closer look at The Trade Desk's second-quarter results, as well as management's guidance for Q3.
The Trade Desk returns to growth
For The Trade Desk's second quarter, total revenue declined 13% year over year, which put revenue at $139.4 million. Analysts, on average, were expecting revenue of $134.9 million.
The same agility that helps The Trade Desk when advertising spend is ramping up worked against the company in the beginning of the quarter. Advertising "hit the pause button early in the second quarter," The Trade Desk CEO Jeff Green explained in the company's second-quarter earnings release. But Green said its ad spend on its platform improved throughout the quarter, with "with ad spend growth turning positive on a year-over-year basis" by the end of June.
There was also some impressive strength in three of The Trade Desk's advertising channels on its platform -- even during Q2. Connected TV (CTV) ad spend jumped 40% year over year, mobile video ad spend rose 15%, and audio spend increased 20%.
A promising outlook
While analysts weren't too far off with their estimates for The Trade Desk's second-quarter revenue, they appear to be underestimating the current quarter by a significant margin. The company guided for revenue during the period to increase 8% to 10% year over year to between $177 million and $181 million. Analysts, on average, were modeling for revenue to fall 4% year over year to $157.6 million.
Green remains particularly optimistic about the opportunity in CTV. "In this environment, advertisers value the agility and flexibility that our platform provides, along with the ability to measure the ROI of every advertising dollar," explained Green in The Trade Desk's second-quarter earnings release. "Nowhere is this more apparent than television, where the accelerated consumer shift to streaming services and the greater availability of premium inventory, allows advertisers to apply data to their massive TV campaigns for the first time."
As the tech company works through the current environment, The Trade Desk is in a position of strength relative to many peers. The company's business model is inherently more profitable than most growth stocks with similar revenue. The digital ad-buying specialist brought in $25 million of net income on $139 million of revenue during Q2, with net income only down $3 million year over year. During the second half of the year, The Trade Desk will likely rake in substantial profits.