It was clear going into The Trade Desk's (TTD -4.34%) third-quarter update yesterday that digital ad spend was back in full force. Facebook and Alphabet both reported accelerated revenue growth handily ahead of analyst estimates. But investors weren't sure how this would carry over to programmatic advertising, which was hit exceptionally hard during the peak of business shutdowns earlier this year.
As it turns out, The Trade Desk's data-driven platform is firing on all cylinders, helping the company deliver revenue growth that easily exceeds third-quarter growth rates from both Facebook and Alphabet. Impressively, the strong growth follows a period in which The Trade Desk's revenue declined 13% year over year.
Here's a closer look at how the ad-tech company crushed it in Q3.
Image source: Getty Images.
Advertisers are turning to programmatic
The Trade Desk's third-quarter revenue jumped 32% year over year, making a huge comeback from a 13% decline in Q2. The $216 million in revenue the ad-tech company garnered during the period blew past analysts' average estimate for revenue of $180.9 million.
This top-line growth combined with the company's operating leverage translated to enormous outperformance on The Trade Desk's bottom line. Non-GAAP (adjusted) earnings per share was $1.27 -- up from $0.75 in the year-ago period and more than three times what analysts were expecting.
The scalability of The Trade Desk's business was in the spotlight. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) rose from $47.8 million in the year-ago period to $77.2 million. This meant the tech company's adjusted EBITDA margin widened from 29% in the year-ago quarter to 36%.
Playing a key role in the company's growth during the quarter was a 100% year-over-year increase in connected TV (CTV) ad spend on its platform and 70% increases in both mobile video and audio ad spend.
Though advertisers may have reduced spend in the prior quarter amid unprecedented lockdowns, that didn't stop them from continuing their migration to programmatic, where there is improved targeting and increased agility. "So far in 2020 we've seen several years of advertising disruption and innovation compressed into a few months," explained CEO Jeff Green in the company's third-quarter earnings release. "As a result, advertisers have become more deliberate and data-driven with every advertising dollar."
Expect more strong growth in Q4
Importantly, it seems The Trade Desk thinks this strong growth is here to stay. The company guided for fourth-quarter revenue to be between $287 million and $291 million, with the midpoint of this guidance range translating to 34% growth. This projection is far ahead of analysts' average forecast for 17% growth in 2020.
Of course, given how The Trade Desk's business was severely impacted by marketers putting the brakes on ad spend earlier this year due to the coronavirus pandemic, management warned that the company is "facing a period of higher uncertainty in our business outlook." Its guidance assumes that the economy continues to recover and that The Trade Desk doesn't face "any major COVID-19 related setbacks that cause economic conditions to deteriorate," management explained.
Editor's note: A previous version of this article mistakenly referred to the third quarter as the fourth quarter in one instance. The author regret's the error.
