The Trade Desk, Inc. (TTD) Q2 2025 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call highlights strong financial metrics, product innovation, and strategic partnerships, along with optimistic guidance and confidence in market share gains. Despite some concerns in the Q&A about competitive pressures and specific segment performance, the overall sentiment remains positive, supported by the accelerated adoption of Kokai and strategic focus on long-term growth. The lack of specific data on ad spend shifts is a minor issue, but the overall outlook suggests a positive stock price movement.

Key Financial Performance

Revenue $694 million, representing 19% year-over-year growth. Excluding political spend related to the U.S. elections last year, revenue increased around 20% year-over-year. Growth was driven by strong performance in CTV and retail media, fueled by the shift into decision channels for buying TV and the rapid adoption of retail media across verticals and regions.

Adjusted EBITDA $271 million, approximately 39% of revenue. This reflects strong top-line performance and operational efficiency.

Net Cash Provided by Operating Activities $165 million. This reflects the company's ability to generate healthy cash flow.

Free Cash Flow $117 million in Q2. This is indicative of strong cash flow generation.

Cash, Cash Equivalents, and Short-term Investments $1.7 billion at the end of the quarter. This highlights a strong liquidity position.

Share Repurchase $261 million of cash used to repurchase Class A common stock. This reflects the company's strategy to offset dilution from employee stock issuances and maintain shareholder value.

DSOs (Days Sales Outstanding) 91 days, up 1 day from a year ago. This indicates a slight increase in the time taken to collect receivables.

DPOs (Days Payable Outstanding) 77 days, up 2 days from a year ago. This indicates a slight increase in the time taken to pay suppliers.

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Operating Highlights

Kokai platform: Kokai is the company's most significant platform upgrade, powered by advanced AI technology, Koa. It has shown significant performance improvements, with clients like Samsung achieving a 43% improvement in audience targeting and Cashrewards seeing a 73% improvement in cost per acquisition. Around 75% of client spend is now running through Kokai, and clients transitioning to Kokai are increasing their spend by over 20%.

Deal Desk: A new feature in beta, Deal Desk leverages AI to improve deals between advertisers and publishers. It helps optimize deal performance and showcases alternatives when deals underperform. Disney is an early adopter, aiming to shift 75% of its ad revenue to biddable programmatic by 2027.

CTV (Connected TV) growth: CTV remains the fastest-growing channel, with strong partnerships with Disney, NBCU, Walmart, Roku, LG, and Netflix. The company is well-positioned to capture growth in this area.

Retail media and international expansion: Retail media and international markets are key growth areas. International growth outpaced North America, with CTV leading the expansion globally. Partnerships with Instacart and Ocado enhance retail media capabilities.

Operational rigor and leadership changes: The company strengthened its leadership team with the appointment of Vivek Kundra as COO and Alex Kayyal as the new CFO. Laura Schenkein will transition out of the CFO role by the end of the year. Omar Tawakol joins the Board of Directors, bringing expertise in creative AI.

Supply chain efficiency: OpenPath and OpenSincera initiatives aim to improve the digital advertising supply chain. OpenPath has driven significant revenue growth for publishers like The New York Post and Hearst Newspapers. OpenSincera provides free supply chain data to improve ad quality.

Focus on objectivity and AI: The company emphasizes objectivity in advertising, contrasting with walled gardens like Google and Amazon. AI-driven tools like Koa and Kokai enhance campaign performance and transparency.

Dual-class share structure extension: The company proposes extending its dual-class share structure to maintain long-term strategic focus and independence, citing its success in driving growth and innovation since its IPO.

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Risk or Challenges

Economic Volatility: The company acknowledges the potential impact of economic volatility caused by tariffs, which could disrupt operations and financial performance.

Regulatory Scrutiny: Ongoing regulatory scrutiny of walled gardens and the digital advertising landscape could pose challenges to the company's operations and strategic objectives.

Supply Chain Inefficiencies: The inefficiencies in the open Internet supply chains for both media and data are highlighted as a challenge that the company aims to address.

Competitive Pressures: The company faces competition from walled garden platforms like Google and Amazon, which have vested interests in guiding ad spend to their owned and operated media.

Adoption of New Platforms: The transition to the Kokai platform, while showing promise, requires all clients to adopt it by the end of the year, which could pose operational risks.

Dependence on Large Global Brands: The company’s performance is significantly influenced by large global brands, and any disruptions in their spending due to macroeconomic factors could impact revenue.

Geographic Revenue Concentration: North America represents 86% of the company's spend, indicating a heavy reliance on this region and potential vulnerability to regional economic conditions.

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Guidance & Outlook

Revenue Expectations: The company expects Q3 revenue to be at least $717 million, reflecting 14% year-over-year growth. Excluding the benefit of U.S. political ad spend in Q3 of 2024, the estimated growth rate in Q3 of this year would be approximately 18% year-over-year.

Platform Transition: The company anticipates completing the transition of all clients to the Kokai platform by the end of the year, which is expected to drive better campaign performance and increased client spending.

Geographic Growth: International growth is expected to continue outpacing North America, with a strong contribution to overall growth in the years to come, led by CTV.

Market Trends: The company anticipates continued growth in CTV and retail media, driven by the shift to decision channels for buying TV and the adoption of retail media across verticals and regions.

AI and Technology: AI, particularly through the Kokai platform, is expected to play a significant role in improving campaign performance and driving growth. The company plans to leverage AI for tasks such as forecasting, supply chain optimization, and campaign precision.

Operational Efficiency: The company is focused on creating a more efficient supply chain for digital advertising through initiatives like OpenPath and Deal Desk, which are expected to improve transparency and performance for advertisers and publishers.

Strategic Partnerships: The company is expanding partnerships with major players like Disney, Sky TV, and Omnicom to enhance capabilities in live sports advertising and other areas.

Retail Media: The company expects a record amount of spend influenced by retail data, with expanded partnerships with Instacart and Ocado providing more granular data for advertisers.

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Shareholder Return Plan

Share Repurchase Program: In Q2, we used $261 million of cash to repurchase our Class A common stock via our share repurchase program. Given our strong balance sheet and consistent cash flow generation, we plan to continue opportunistic share repurchases while also offsetting dilution from employee stock issuances.

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Key Q&A

Q:What gives you the most confidence as you think about how the digital ad environment is evolving and how you're positioned to lead through it?

A:Jeff Green expressed excitement about their position heading into the second half of the year and 2026. He highlighted several factors: uncertainty as an opportunity to gain market share, the measurable and performance-driven nature of programmatic advertising, a favorable supply-demand imbalance, underappreciated data assets combined with AI, and the shift of ad spend from walled gardens to the open Internet. He also mentioned operational improvements, product innovation, and partnerships as key strengths.

Q:How are you evaluating the evolving competitive landscape with Amazon's advertising efforts, particularly with DSP and Prime Video ad inventory?

A:Jeff Green stated that Amazon is not a significant competitor as their DSP is not their top advertising priority and lacks objectivity. He emphasized The Trade Desk's independence and objectivity, which attract major brands. He noted that Amazon's focus on selling its own inventory and conflicts of interest with advertisers make it less competitive in the open Internet space. He also mentioned that The Trade Desk could potentially partner with Amazon if they open Prime Video to external demand.

Q:How do you see the dynamic of uncertainty due to tariffs playing out in terms of ad spend for the remainder of the year, and how are you factoring that into your Q3 guidance?

A:Jeff Green acknowledged the pressures on large brands due to tariffs and related policies, which have caused volatility in ad spend. However, he noted that programmatic advertising thrives in such environments due to its control, agility, and performance. He highlighted that while some categories like auto and CPG experienced volatility, things have stabilized. He also mentioned that joint business plans with major advertisers are growing faster than overall platform spend, and the shift to programmatic is accelerating.

Q:Could you elaborate on the progress with Kokai, both from a product perspective and from the engineering changes made late last year?

A:Jeff Green highlighted significant progress with Kokai, describing it as the most significant platform upgrade in the company's history. He noted that Kokai integrates AI into various areas like forecasting, campaign optimization, and supply path optimization, leading to performance improvements. Examples include Samsung's 43% increase in audience reach and Cashrewards' 73% improvement in cost per acquisition. About 75% of spend is already flowing through Kokai, with full adoption expected by year-end. He also mentioned the beta rollout of Deal Desk, which uses AI to optimize deals.

Q:Is there a snowball effect to the 20-point improvement across key KPIs for campaigns running in Kokai?

A:Jeff Green explained that the 20-point improvement can vary depending on how well campaigns were previously optimized. While some improvements are immediate, others take time as clients learn to use the tools effectively. He emphasized that the potential for improvement goes beyond 20 points and depends on client engagement and feedback.

Q:Why are the home and garden and style and fashion segments underperforming?

A:Laura Schenkein explained that home and garden is a seasonal category, accounting for about 8% of the business, while style and fashion represent about 4%. She noted that some categories naturally perform below the corporate rate at times.

Q:How do you envision the share shift between walled gardens and the open Internet over the next few years?

A:Jeff Green argued that the open Internet, particularly premium content like CTV, audio, and journalism, offers better performance and brand association than walled gardens. He acknowledged the short-term success of platforms like Facebook but emphasized the long-term potential of the open Internet. He believes that as inefficiencies in the supply chain are resolved, the majority of ad spend will shift to the open Internet.

Q:Does the usability and AI features of Kokai make the SMB market more attractive for The Trade Desk over time?

A:Jeff Green stated that while The Trade Desk's focus remains on large advertisers, they aim to eventually serve SMBs. He explained that starting with large advertisers allows them to develop robust tools that can later be simplified for smaller clients. However, he emphasized that the large advertiser segment still represents significant growth potential, particularly in CTV.

Q:Review of Unclear Management Responses

A:Management avoided directly addressing the question about the share shift between walled gardens and the open Internet. While Jeff Green provided a passionate argument for the open Internet's potential, he did not offer specific data or timelines to substantiate the claim that the majority of ad spend will shift to the open Internet.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

TTD Transcript

The Trade Desk, Inc. (TTD) Q3 2025 Earnings Call Transcript

Positive11-6

The earnings call reflects strong financial performance with significant revenue growth and a robust cash position. The company is advancing in AI and international markets, and strategic partnerships are expanding. Despite a slight deceleration in Q4 guidance, the overall outlook remains optimistic with a focus on retail media and CTV growth. Share repurchase activities also indicate confidence. The Q&A session highlighted strategic focus areas and industry positioning, boosting the positive sentiment.

The Trade Desk, Inc. (TTD) Q2 2025 Earnings Call Transcript

Positive8-7

The Trade Desk, Inc. (NASDAQ:TTD) Q1 2025 Earnings Call Transcript

Positive5-9

The earnings call reveals strong financial performance with a 25% revenue increase and a 34% EBITDA margin. Positive developments include AI investments, a strategic acquisition, and an ongoing share repurchase program. Despite macroeconomic uncertainties, management is optimistic about growth and competitive positioning. The Q&A section highlights favorable market dynamics due to antitrust rulings against competitors. However, increased operating expenses and economic headwinds are concerns. Overall, the sentiment is positive, with potential stock price appreciation driven by strong earnings, optimistic guidance, and shareholder returns.

The Trade Desk, Inc. (TTD) Q1 2025 Earnings Call Transcript

Positive5-8

The earnings call summary highlights strong financial performance, including a 25% revenue increase and significant share repurchases, indicating confidence in the company's value. The Q&A section suggests positive sentiment towards product and market strategy changes, with reduced competition from Google seen as a victory. However, economic uncertainties and competitive pressures are acknowledged. Overall, the positive financial metrics, strategic initiatives, and optimistic outlook outweigh the risks, suggesting a positive stock price movement over the next two weeks.

TTD Slides

The Trade Desk Q1 2025 slides: 25% revenue growth amid recovery from Q4 miss

2025-05-08

The Trade Desk Q2 2025 slides: 19% revenue growth amid digital ad transformation

2025-08-07

TTD Report

Trade Desk, Inc. 10-K

10-K

2025-02-21

Trade Desk, Inc. 10-Q

10-Q

2024-11-07

Trade Desk, Inc. 10-Q

10-Q

2024-05-10

Trade Desk, Inc. 10-K

10-K

2024-02-15

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