A Primer on The Trade Desk

Introduction

• The Trade Desk (TTD) offers a self-service, cloud-based ad-buying platform, enabling clients to plan, manage, optimize, and measure data-driven digital advertising campaigns.

• TTD's clients include advertising agencies, advertisers, and other service providers.

• Clients can execute integrated campaigns across various ad formats and channels, including Connected Television (CTV), video, display, audio, and native, on multiple devices.

• TTD integrates with major inventory, publisher, and data partners, offering extensive reach and decision-making capabilities.

• Enterprise Application Programming Interfaces (APIs) allow clients to customize and expand platform functionality.

• Revenue is generated through a platform fee based on a percentage of client spend and from value-added services and data.

• The company was founded in 2009 and is headquartered in Ventura, California.

Industry Trends

Several trends are driving the growth of programmatic advertising:

• Media is increasingly digital, offering unprecedented targeting and measurement options allow for more relevant ads and improved campaign performance. However, privacy regulations are impacting data practices.

• Audience fragmentation across numerous platforms and devices creates opportunities for technologies that simplify media buying.

• The emergence of CTV represents a generational shift in television viewing, creating new advertising opportunities.

• The automation of ad buying is crucial due to the complexity of digital advertising and its regulations.

The Trade Desk's Position

• TTD focuses on the buy side of the digital advertising ecosystem, aligning its core offerings with advertisers' interests to avoid conflicts of interest.

• They position themselves as an enabler, not a disruptor, empowering participants in the digital advertising ecosystem.

• TTD is data-driven, having built a data-management platform before its ad-buying technology. Clients trust TTD with their proprietary data due to their buy-side focus and strict data protocols.

• TTD does not arbitrage advertising inventory, aligning its interests with clients by providing a platform for self-service campaign management.

• Their platform is a "clear box," offering transparency in spending and performance metrics and users can enhance it with their own applications through APIs.

The Trade Desk's Platform

• At its core is a bid-factor-based architecture that enables real-time valuation and bidding on optimal impressions. This allows for highly granular bid permutations.

• The platform is easy to use, open, and customizable, and allows clients to define campaigns with numerous targeting parameters.

• The platform is integrated, omnichannel, and cross-device, providing access to various inventory and data sources through a single interface.

• Key features include:

  • Auto Optimization

  • Advanced Reporting and Analytics Tools

  • Data Management and Measurement Tools

  • Artificial Intelligence (Koa) for campaign optimization

  • Informed Media Planning tools

  • Private Marketplace Support

• The platform enables advertisers and agencies to:

  • Programmatically purchase digital media

  • Acquire and use third-party data

  • Integrate and deploy first-party data

  • Monitor and manage campaigns in real-time

  • Link digital campaigns to offline results

  • Access other services like data and publisher management marketplaces

  • Customize and expand platform functionality using APIs

Technology

• Key elements include a scalable architecture hosted globally.

• Predictive models are built using campaign data and continuously improve.

• The platform offers performance optimization through real-time scoring of impressions and dynamic bidding.

• Real-time analytics provide data on inventory, campaign delivery, and spend, feeding back into optimization engines.

Kokai

• Kokai is the company’s new platform incorporating more AI capabilities (Koa) and is the successor to the Solimar platform, but the transition is far from smooth and is in part responsible for the disappointing Q4/24 results.

• The Trade Desk's Kokai platform handles data without relying on cookies or device IDs by leveraging AI-driven optimization, contextual targeting, and first-party data utilization.

• Kokai contains a predictive algorithmic tool called Koa that utilizes artificial intelligence. Koa's AI capabilities are used across various aspects of the platform, including predictive clearing, ad impression relevance scoring, measurement and forecasting, budget optimization, and key performance indicator scoring.

• Kokai uses advanced AI to forecast campaign performance, prioritize ad spend across channels, and generate insights. This allows advertisers to make data-driven decisions without needing traditional identifiers like cookies or device IDs.

• Contextual targeting: The platform employs machine learning and natural language processing (NLP) to analyze webpage content, such as text, images, and videos, to serve highly relevant ads. This method ensures targeting is based on the context of the content rather than individual user data.

• First-party data utilization: Kokai integrates first-party data from advertisers, publishers, and retail media networks. This data is used to create audience segments and refine targeting, ensuring compliance with privacy regulations while maintaining campaign effectiveness.

• These strategies enable Kokai to deliver personalized and effective advertising while respecting user privacy and adapting to the evolving digital advertising landscape.

OpenPath

OpenPath is an offering developed by The Trade Desk (TTD) intended to give clients access to quality advertising inventory through a simplified, direct connection to publishers. Here's a more detailed breakdown of OpenPath based on the information in the sources:

• Direct Integration: OpenPath makes it possible for the biggest content owners in the world to integrate with TTD directly. If they choose to manage their own ad yield or build their own yield management systems, they don't necessarily need to use a supply-side platform (SSP); they can act as their own SSP and plug directly into The Trade Desk.

• For Content Owners: TTD expects that many of the largest content owners, especially in CTV and audio, will adopt this approach because it can be financially beneficial for them, and they gain more control over their yield optimization.

• Response to Market Dynamics: The increasing competition in streaming (streaming wars) and the fact that SSP business models have become more at odds with CTV content owners and streamers (including audio) are driving interest in direct integration with DSPs like The Trade Desk.

• Expected Benefits: TTD anticipates that OpenPath will lead to a more effective supply chain. A more efficient supply chain is expected to result in more money in the pockets of content owners. Higher CPMs through more efficient supply chains might be the only way many streamers can achieve sustainable and scaling profitability.

• Adoption by Major Players: Several major CTV players are aggressively implementing OpenPath.

  • Disney was among the first scaled CTV players to embrace OpenPath as part of their Disney Real-Time Ad Exchange (DRAX) early in the previous year. Disney aims for 75% of their ad sales to be automated by 2027, with most of those impressions being biddable.

  • VIZIO, another CTV leader with a significant number of active devices and ad-supported channels, deployed OpenPath and saw impressive results, including a 39% improvement in revenue from TTD's platform and an 8 times improvement in fill rate. VIZIO sought a clearer line of sight into advertiser demand with fewer intermediaries.

• Synergy with Sincera Acquisition: The recent acquisition of Sincera, a metadata company focused on improving the supply chain of the open internet, is closely related to OpenPath. Sincera's data signals will be embedded into TTD's platform to encourage behaviors that lead to better outcomes for clients. This includes showing advertisers which signals they want publishers to provide to value ad impressions accurately. By combining Sincera's work with OpenPath, TTD aims to accelerate a cleaner supply chain for the open internet and boost the efficiency of OpenPath both internally and externally. The goal is to use Sincera's data to ensure TTD is buying inventory from those who describe it best and most accurately, and not buying from those who don't.

• Phase of Growth: TTD expects 2025 to be the year OpenPath enters the steep acceleration phase of its S-curve growth due to the number of recent deals signed.

• In essence, OpenPath is The Trade Desk's initiative to foster more direct relationships between advertisers (on the buy side) and content owners/publishers (on the sell side), aiming for a more efficient, transparent, and ultimately more profitable programmatic advertising ecosystem for all parties involved.

Competitive strength

• The industry is highly competitive and fragmented, including other demand-side platforms (DSPs), both smaller private companies and divisions of large companies like Google and Amazon.

• TTD believes it competes primarily on platform performance, capabilities, transparency, and buy-side focus, with the capabilities of the platform and the barriers to entry (new entrants would have limited access to inventory) have solidified Trade Desk as the main DSP.

• Trade Desk obtains inventory from over 220 directly integrated ad exchanges, publishers, and supply-side platforms, and its data marketplace includes over 350 third-party data vendors.

From the Q4/24CC:

More and more the only competitors we encounter today have the worst objectivity problems... In our very first business plan 15 years ago we argued that the objective, independent DSP should get the lion’s share of the marketplace. They’d be the only company that can be trusted.

Growth Strategy

• Increase share of existing clients' digital advertising spend.

• Grow the client base through investments in sales and client service.

• Expand omnichannel capabilities, integrating new inventory sources across all channels.

• Extend reach in CTV, recognizing it as the future of television advertising.

• Ensure access to quality inventory, including through OpenPath, a direct connection to publishers.

• Further enhance identity solutions, including Unified ID 2.0 (UID2) and its European counterpart EUID.

• Continue to innovate in technology, data, and measurement.

• Expand international presence in key markets like the U.K., Germany, France, China, Japan, India, and Australia.

Clients

• Clients are purchasers of programmatic advertising inventory, value-added services, and data, including advertising agencies and advertisers.

• TTD typically enters into ongoing Master Services Agreements (MSAs) with clients.

• The client retention rate has been over 95% for the last eleven years.

• Clients generally increase their use of the platform over time.

Advertising Inventory and Data Suppliers

• TTD considers itself an important partner for inventory and data suppliers due to its significant buy-side demand.

• They obtain inventory from over 220 directly integrated ad exchanges, publishers, and supply-side platforms.

• TDD’s data marketplace includes over 350 third-party data vendors.

Sales and Marketing

• The focus is on supporting and training clients for independent platform use.

• Client service teams onboard new clients and provide ongoing support.

• The Trade Desk Edge Academy provides e-learning for clients and suppliers.

• Marketing efforts aim to increase brand awareness and thought leadership, as well as generate new leads through various activities.

Technology and Development

• Rapid innovation is a core driver, with weekly platform refreshes targeted.

• Development teams are lean and nimble.

• Technology and development expenses are expected to increase to support platform growth and automation.

Seasonality

• The advertising industry experiences seasonal revenue fluctuations, with the fourth quarter typically being the strongest and the first quarter the weakest.

Development of International Markets

• Increasing focus on markets outside the U.S. to serve global client needs.

• There is an increasing global opportunity for programmatic advertising.

• Investing in international presence and relying on the adoption of their platform by existing and new clients in these markets.

Joint Business Plans

Joint Business Plans (JBPs) are joint innovation partnerships where agencies and brands collaborate with The Trade Desk to grow their relationship and drive programmatic innovation. Key characteristics:

• Collaboration: JBPs involve a close working relationship between The Trade Desk and both brands (advertisers) and their advertising agencies.

• Growth Driver: JBPs are a significant driver of growth for The Trade Desk, as they grow about 50% faster than the rest of their business. This indicates their strategic importance to the company.

• Focus on Brands: The Trade Desk is actively expanding its brand-direct relationships, particularly through Joint Business Plans. This suggests a strategic effort to work more closely with advertisers directly, while still maintaining strong relationships with agencies.

• Structured Framework: JBPs provide a structured, mutually beneficial framework for brands, their agencies, and The Trade Desk. This implies a formal agreement outlining the goals and collaborative activities.

• Long-Term Value: JBPs reinforce the long-term value that The Trade Desk brings to the industry. This suggests that these plans are not just short-term deals but are designed to foster enduring partnerships.

• Increasing Number: The Trade Desk secured Joint Business Plans with over 100 of the world's leading brands, with many of these being established in the second half of the previous year. This highlights the increasing adoption and importance of JBPs.

• Programmatic Innovation: A key objective of JBPs is to drive programmatic innovation. This indicates that these partnerships aim to explore and implement advanced strategies and technologies in programmatic advertising.

• Higher-Level Decision-Making: Programmatic decision-making is increasingly happening at a higher level within brands, creating a significant opportunity for The Trade Desk to grow its brand relationships and share through JBPs.

• Investment Area: The Trade Desk is investing in resources, including new personnel, to focus on expanding JBPs.

Finances

And this:

Stay tuned for our quick take on the financials, valuation, and our assessment.