Trade Desk Inc (TTD) 2017 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to The Trade Desk Third Quarter Fiscal Year 2017 Earnings Conference Call. (Operator Instructions) At this time, it is my pleasure to turn the floor over to your host, Chris Toth, Investor Relations. Sir, the floor is yours.

Thank you, operator. Hello, and good afternoon. Welcome to The Trade Desk Third Quarter 2017 Earnings Conference Call. On the call today are founder and CEO, Jeff Green; Chief Financial Officer, Paul Ross; and Chief Operating Officer, Rob Perdue. A copy of our press release can be found on our website at thetradedesk.com in the Investor Relations section.

Before we begin, I would like to remind you that except for historical information, the matters that we will be describing will be forward-looking statements that are dependent on certain risks and uncertainties. I encourage you to refer to the risk factors included in our press release and in our most recent SEC filings. In addition to reporting our GAAP financial results, we present supplemental non-GAAP financial data. A reconciliation of the GAAP to non-GAAP measures can be found in our earnings press release. We believe providing non-GAAP measures combined with our GAAP results provides a more meaningful representation regarding the company's operational performance.

Lastly, I would like to highlight our participation in the following Investor Relations events. In early December, we will be at the Raymond James Technology Conference in New York.

I will now turn the call over to founder and CEO, Jeff Green. Jeff?

Thanks, Chris. Good afternoon, and thanks to everyone joining us today. Q3 was a great quarter for The Trade Desk. We exceeded our own expectations for both revenue and adjusted EBITDA. Revenue was $79.4 million, which was an increase of 50% compared to the prior year, and we posted an adjusted EBITDA margin of 31%. We are also excited to see the shift in dollars and percentage points move to more effective channels.

One of the most exciting data points from the quarter was that for the first time, mobile, which includes in-app, mobile video and mobile web, was 40% of our total spend. Given that 4 years ago, mobile represented less than 10% of our spend, this channel represents the fastest-growing scaled channel we've ever seen. Mobile video spend is up 140% compared with a year ago. Mobile advertising remains a big opportunity for us globally, and we expect it to continue to grow around the world.

As it has been at The Trade Desk, most of the surprises in our business are to the upside. Most of the unforeseen events of Q3 were customers spending more or giving us new budgets. This happened in a range of companies across various categories: beauty, food and beverage, automotive, and e-commerce. We continue to gain market share in programmatic advertising. We continue to grow faster than any scale player in programmatic advertising. Year-over-year, our international operations grew over 2x as fast as of those of the United States. Finally, all of our new channels continue to grow rapidly, including connected TV, which grew 159%; audio, which grew 21x; and native, which grew 13x, all from the same quarter a year ago.

The nearly $700 billion advertising pie expected in 2018 is growing about 4% a year, and digital advertising is growing by 15% according to IDC. Of course, digital is taking share from traditional channels, which typically don't have much targeting or data attached to the advertising. The programmatic advertising space is growing by about 22% according to Magna Global. By comparison, over the last 3 years, The Trade Desk has had a compound annual revenue growth rate of 126%. We have measurably been taking market share.

While programmatic may be the fastest-growing segment of advertising, we are still growing exponentially faster. We grew 128% faster this quarter than programmatic is growing, according to Magna Global. We think digital advertising is better than it's ever been. We think programmatic is better than it's ever been.

However advertising is not without its challenges. All the large publicly traded agencies reported less than stellar growth in Q3 and all highlighted various headwinds as the advertising industry transforms itself into the digital world. One of the brands advertising on our platform, Toys "R" Us, declared bankruptcy [in its state]. While the impact of that one advertiser is small compared to the 18,000-plus others, there is a bigger trend to watch. Advertisers are spending more deliberately. They are trying new things because they have to, and that's good for us. However, some companies in CPG and retail are reducing their advertising budgets as their margins are under pressure. Over the long term, any move to deliberate choices in advertising or data-driven choices in media buying should help our business. But in the short term, we are working harder to help our clients and brands transition to the digital data-driven world. Because of the effectiveness of our technology and data-driven advertising, we are confident we will power the brands and agencies that win market share during this transition. However, the reality is that not everyone we power will be winners.

Now I'd like to talk about how we are progressing on some of the long-term goals that we discussed at our recent Investor Day and talk a little bit about next year. So first, I'd like to share for the first time publicly some of our strategy in data. Second, I'd like to talk about the progress we've made on China and international expansion. Third, I'd like to give some guidance for the rest of our year. And finally, fourth, I'd like to talk about some of the tea leaves for 2018.

So let me outline a portion of our data strategy. Managing the anonymized identity for the same user across multiple devices. The thing that makes programmatic advertising so promising is that advertisers and brands can use technology like ours to deploy data in every single advertising decision they make. In the past, they couldn't do that. They would spray and pray. They were guessing. Advertising is at the top of its game because of data and choice. Our value proposition is unique because we can buy media in all digital channels in all major media markets in the world and do it objectively. However, to have a common understanding of the user across the entire Internet and all geographies, we have to create a richer offering for our clients. Consumers and their households have more devices than ever, and we are confident we can make unified marketing across all of those devices possible. The fact is advertisers are often spending billions and inadvertently annoying consumers. They need our help to connect one device to another and serve the right message on the right device at the right time. While we are doing that well today, we can make it better. We think we can create the best cross-device offering in advertising by executing on a 3-part strategy: one, leveraging our data; two, building our own identity product; and three, building a marketplace.

Concerning our own data, we believe that we are sitting on one of the greatest assets on the Internet. As we speak, we receive over 9 million ad requests per second. We get to listen to most of the websites in the world and learn millions of things every second. We learn things about users by just doing our job every day. In fact, our machines are running 24/7. Because of those numbers, we estimate that we've served ads to almost every Internet user in all the markets we've invested in, which is over 100 countries in the world. But to date, we've only had a few resources mining this data. We have only scratched the surface of using this data. We think we can use it exponentially more than we do today. We can use it for targeting, for insights and also as a basis to tie together activity for the same user on multiple devices. With the over 9 million touches every second across the Internet, we have the fabric. Now we need to sew it together.

To capitalize on this massive data asset, we've made 2 additional investments. First, we've invested millions of dollars in 2017 getting access to hundreds of millions of anonymized user IDs. This provides a bridge to connect devices to the same user because when they log into multiple devices, we now have a way to sew together the data from different -- 2 different devices for the same user. This also serves as a true set for probabilistic methodologies, which leads to the second investment. A few weeks ago, we acquired the assets of a small company, Adbrain, and hired most of its 20 employees. This is the first acquisition we have ever made as a company. Adbrain is a cross-device technology that stitches together activities of the same user from all of their devices. This acquisition will help our customers better reach a user with unified messaging across all devices a user is using, whether it be a mobile phone, a desktop web browser, a connected TV or any other identifiable device. Financially, it is about breakeven from an EBITDA perspective and is expected to be accretive sometime next year. The company did not have much revenue, but we acquired Adbrain for the technology and the people, not the revenue. Adbrain's value is much higher to us than it was as a standalone company. This will not have a noticeable impact either in a positive or negative direction in Q4. We expect it to start paying dividends the second half of next year, after we improve the technology and integrate it into our business in the first half of next year.

We acquired Adbrain for a few reasons, but the primary one was to make sure our data marketplace has a vibrant offering in identity to connected devices. We believe no one in advertising, including the walled gardens, have a cross-device identity solution that is sufficiently scaled and sufficiently accurate. And this is a problem. As a result, we have a third part to our strategy, a data marketplace. This cross-device identity problem is not likely to be solved by one company. We think this is a "it takes a village" sort of problem. So we provide a marketplace where other companies can sell their data. I recently spoke with the management teams of these cross-device vendors such as Tapad, Oracle, Drawbridge and LiveRamp Acxiom. My main message is that this transaction should not make it so that we do less business together but, in fact, more business together. All of us need to better understand a user's anonymized identity in a privacy-safe way for the consumer and work together if we want the solution to be scaled globally and always accurate.

Now moving on to our global expansion opportunity. I recently spoke at an RTB China event in Shanghai. I was surprised to learn how well-known our company is in China. I was also excited to learn how much companies want to partner with us. The China and U.S. media and advertising markets are more similar to each other than any 2 markets in the world. Both are very fragmented media markets, and both heavily rely on markets to optimally monetize as a result. There are some differences, though. Regarding programmatic advertising, the China market is much more nascent than the United States. It will take several years to catch up in terms of scale. However, China is also the only media market in the world that is both larger and more fragmented than the U.S. media market. Since most Chinese ad tech and digital media companies of all sizes have had something of a go-it-alone strategy regarding digital monetization, market consolidation and competition has made every digital player much more open to partnership. The OTT video and connected TV markets in China are also exciting for us because this is where all of our biggest initiatives for growth intersect: connected TV, mobile and international. The ad-funded OTT market is much more mature in China than it is in the U.S., and most media people in China believe linear TV has even fewer years of life left in China than in the United States. This represents a huge opportunity for us in China, given that we represent so many multinational companies.

Because the U.S. market has been built on Netflix and Amazon primarily, the ad-funded apps are behind in adoption to ad-free subscriptions, but they're experiencing explosive growth because the consumers are now preferring ads to paying more to get rid of them, which is the way it's always been in China. Because most consumers are more price-sensitive in China, the explosive growth of ad-funded OTT has already happened. But publishers are looking for better ways to monetize and fund more premium content. Interestingly, in both the U.S. and China markets, programmatic advertising provides the ad variety, the CPMs, the user experience and the cost of sales that are critical parts of growth of connected TV and video. In our view, programmatic is inevitable as the primary method of monetizing the future of TV in both markets.

We think we have the potential to become the best global partner of many Chinese media companies. Because China is one of the 2 largest media markets in the world, it is important to note that we're one of the few companies that can objectively buy media for global brands from around the world. The overall market opportunity in China is amazing. According to GroupM's China media industry 2017 forecast, ad spending in China is expected to hit $81 billion this year, up nearly 4% from 2016. China currently has 731 million Internet users, which is more than half of China's population, according to official Chinese figures. That's a huge number, more than twice the entire population of the United States. And mobile there is going strong. In smartphone-addicted China, mobile Internet has become the main engine propelling Internet advertising spending into the future according to the GroupM report. An astounding 95% of all Chinese Internet users went online through mobile devices at the end of 2016 according to official data from China's government.

But to make the most of this opportunity, we have a lot of work to do. It starts with building out the team on the ground in Shanghai and Hong Kong and focusing on inventory and data integrations before we can aggressively go after the largest demand in the world. We do expect some incremental demand next year, but 2018 will be all about integrating inventory and data and building trust with the agencies in China. We approached the China market the same way we have entered all major media markets around the world. We invest ahead, we build trust, we demonstrate our value add, and then we see those investments start to pay dividends over time as the market adopts programmatic. It has worked in the U.S. and in every other worldwide location. We expect it to work in China, too. We are off to a great start. We are already partnered with Baidu, and we continue to have good dialogue with other major publishers in China. We expect that we will have many important partners there early in 2018.

As we continue to expand globally, we've been watching carefully what impact Apple's Intelligent Tracking is having on our business. Since its launch in September, we have seen no impact in our mobile spend as a result of Apple's Intelligent Tracking Prevention. In fact, although it has always been a very small portion of spend on our platform, we actually saw desktop Safari increase during the month of October, the first full month of ITP implementation.

Finally, I'll take a minute to talk about the rest of the year and then give some thoughts on the things we're excited about as we enter 2018. As I've stated many times before, we believe our business model is exceptional, benefiting from faster revenue growth than the programmatic industry at large, strong profitability and strong operating leverage. We expect to continue to see this for the foreseeable future. In Q3, our financial performance, both in terms of revenue growth and our adjusted EBITDA was better than we estimated. In Q3, the U.S. business had its biggest quarter ever, growing multiples faster than the industry. For Q3, we continued to have some of our international markets break out. Keep in mind that 2/3 of the global advertising pie comes from outside the U.S. and breakouts internationally represent land grabs in market share. For Q3, Germany grew 131%. The U.K. grew 82%. And Southeast Asia grew 123% year-over-year. You may recall we are now doing business in France and Spain, opening offices there earlier this year. Those investments are already paying dividends as France grew over 600% compared with last year.

For 2017, we are raising our revenue guidance and adjusted EBITDA guidance for the year. We expect our Q4 to be about $101 million and our revenue for the year to be about $306 million. We expect our Q4 adjusted EBITDA to be about $34 million or 34% and adjusted EBITDA for the year to be about $90 million or 29%. As a result, we expect 2017 to finish with over 50% growth compared with 2016. We believe the slowdown in spending we are seeing from some large advertisers is transitory. These sophisticated marketers are becoming more deliberate about the way that they spend, and that's a good thing. Large advertisers recognize using a data-driven approach with both first- and third-party data is the way to deliver the most effective advertising programs and so are becoming more invested in programmatic and The Trade Desk.

As we exit Q4 and enter 2018, we are focused on several areas that make us extremely positive for the future. First, brands and agencies are being forced to make more data-driven choices to stay competitive. This is good for us. In the long run, all moves to data-driven choices lead people to global omnichannel platforms like ours.

Second, we carefully monitor which global advertisers are the biggest spenders of the $700 billion advertising pie. Two out of the top 4 biggest ad spending brands just started spending with us in 2017. In fact, 6 of the top 9 have only begun spending with us in the last 24 months. We think 2017 has mostly been a year of winning trust with these big advertisers. Perhaps the most bullish stat I can share from this quarter about our hope for 2018 is that in Q3, we added 3 large global brands that collectively spent over $3 billion in the U.S. on ad spending last year, according to Ad Age. And of course, they've only just began. We view most of their current spend as small tests relative to what we expect to do with them in 2018.

The third area for 2018 is connected TV. 2017 has been a year of adding supply. We expect the spend in connected TV to increase by well over 100% in 2018.

Fourth, global expansion, and most notably, in China. We expect international growth to be at least double the U.S. business again next year.

Fifth, we expect the amount of third-party data usage to increase in 2018. We think our partnerships with companies like Oracle, Acxiom, Lotame and others will experience outsized growth next year. The total dollars will increase. The amount of data per impression will increase significantly. Our percentage of revenue coming from data will also increase, and 2018 will be a great year for data. Additionally, we will progress the cross-device segment, fueling a competitive marketplace with multiple partners and enriching the Adbrain assets we've acquired.

Sixth, we spent about 1/3 of our development resources in 2017 on media planning products and improved customer experiences that have just barely entered a private beta. We've significantly improved our product, and it will leave beta and be available to all of our clients in the first half of 2018. We anticipate that we will see those dividends start paying off in Q2 of 2018.

Finally, seventh, we expect to maintain the client retention and client expansion that has fueled this business since inception. We expect to continue to offer the best scaled objective media-buying platform in the world.

Now I'm going to turn the time over to Rob to discuss our quarter in more detail.

Thanks, Jeff, and good afternoon, everyone. Our business continues to deliver outstanding results, and we delivered another all-time record in the September quarter with, $79.4 million in revenue. Nearly every office outside the U.S. set records in Q3, and they were led by Seoul, which grew 260% year-over-year; our German office at 131%; and Singapore, which grew by 123% year-over-year. Overall, during the quarter, our international business grew more than 2x faster than our North America business.

From a channel perspective, our growth was again driven in part by our mobile video channel, which grew 140% on a year-over-year basis, and connected TV, which grew 159% year-over-year. Our native channel spend was also very strong in Q3, surpassing all 2016 native spend on our platform combined. If you'll recall, native was launched for us in the second quarter of 2016. As Jeff mentioned previously, mobile reached 40% total spend in the quarter for the first time, while display remained at less than 40% of spend as media continues to fragment and our omnichannel strategy continues to drive spend growth. Also in Q3 and even early into Q4, we have won a significant amount of new business and brought large global brands onto our platform. These wins come from a diverse group of verticals, including brands in the health and beauty sector, in food and beverage, automotive and several large e-commerce companies. These wins came a little later in the year than we have seen in the past. And while we did see some incremental spend in Q3 and into Q4, we expect that all of these brands to be much bigger contributors in 2018 than in 2017 as they ramp up on our platform.

Now as I've described before, from an operational perspective, we have 3 core priorities that we focus on: one, remaining the objective and independent partner for our clients; two, growing our omnichannel presence; and three, expanding our international footprint. I regularly highlight how hard we work to win new business, train our clients on the platform and become their trusted independent partner. And this is why we've maintained a 95% client retention rate for, now, 15 quarters in a row.

One example of this work is that with a large brand we recently won on our platform in Q3. It started with persistence in staying front of mind and getting our foot in the door to run a small test campaign, which allowed us to prove our value head-to-head with a competitor through both performance on the platform and the service from our team. Our team delivered, and working closely with the agency, we not only won the test, but we launched a fully omnichannel campaign with a very fast turnaround. It will take some time to fully ramp up, but we expect this advertiser to be a meaningful revenue contributor in 2018.

As many of you have seen in person or on the webcast at our Investor Day last month, we hosted a client panel that included Barry Lowenthal, the President of the Media Kitchen, and Gabe Cohen, who is now running teams on many large brands inside of Starcom, the large global agency. When responding to what differentiates The Trade Desk, they each talked about our global footprint, our agility and especially our technology. However, they both very emphatically stressed that our service is what makes The Trade Desk special because we had helped enable their teams to scale and their teams to become experts in the programmatic space. This is exactly how we build trust and add value in the eyes of these agency executives, by empowering their teams and helping them to deliver better marketing outcomes for their brands. We grow our business by helping our clients shine.

Next, I want to focus on our growing omnichannel presence. The strong growth we've seen in mobile and video has enabled our clients to have a higher level of coordination and consolidation of their marketing spend across the whole marketing funnel, from brand awareness to consideration to purchase. But now, we've also added connected TV into the mix. In Q3, we released our connected TV audience targeting and measurement products, which give our clients the same functionality as other channels in our platform. Advertisers can now seamlessly launch targeted TV buys through Internet connected TVs, including smart TVs and streaming devices, to reach their desired audiences on the biggest screen in the home. Our connected TV product enables media buyers to target viewers using both first and third-party data. They can also measure the impact of connected TV advertising using both digital and traditional TV metrics, including video completion rate, gross rating points, or GRPs, and attributing view through conversions. We also provide the ability to retarget households that view connected TV commercials across other devices, which makes our omnichannel approach even more compelling for advertisers. Our client-facing teams have been working closely with agency trading teams to incorporate more connected TV buying into their clients' overall programmatic strategy. There's a lot of trust to build on this new channel, but our team is delivering, and we are winning significant tests with major brands in connected TV across many verticals that we believe will really pay off in the years to come.

One last area I want to touch on in our channel mix is both native and audio. Our native channel again saw robust growth as media buyers continued to use more native ad formats on our platform. Native, in many ways, is replacing desktop display and proving to be a much more effective format to engage consumers. We continue to focus on training media buyers at agencies on how to incorporate native into their ad campaign strategies, and we've really only scratched the surface of what eMarketer estimates to be a $22 billion native market.

The same is true in audio. There is a large and upcoming market there as well, with over $3 billion in that market today, according to PwC digital radio estimates, and in terms of pure percentage growth, it continues to be one of our fastest-growing channels. We continue to integrate new sources of audio inventory and expect to see broader adoption of this channel by advertisers in 2018 as audio regularly delivers very high performance metrics. For example, one international digital agency added audio campaigns to their omnichannel approach for a large automotive client, and they were able to extend the scale and reach of their campaigns, but also achieve a near 100% completion rate across all audio impressions that we served.

The final priority we are focused on is extending our geographic footprint, and we are continuing to break new ground. In Q3, international growth was over 100% and grew more than 2x faster than the U.S. Now last quarter, we talked about how our German office broke through to win more significant spend with the larger agencies, and that momentum has continued in Q3 to show results, as Hamburg grew by 131% compared with a year ago.

In Asia, all of our offices are posting very strong growth numbers, and our client teams are regularly testing and our client teams are regularly testing and winning new business with large global brands. One recent example comes from the Philippines, where we recently won spend from a major global restaurant business that has been in our pipeline in Southeast Asia for a while now. Even outside of Europe and Asia, we continue to look for opportunities to expand programmatic with our agency partners. As one recent example, a large global agency has already awarded us spend in South Africa and in Turkey starting in 2018. Now those markets still need education on programmatic, and we are helping to grow these markets by training local digital programmatic specialists from our existing offices in EMEA. It's encouraging because they are fast-growing emerging markets where programmatic is still in the very, very early stages of adoption.

Overall, we feel great about what we accomplished in the third quarter and the momentum we have entering 2018. We have secured big wins with new advertisers this year, many later in the year than we have seen historically, and we are consistently gaining incremental spend from existing clients and regularly winning business head-to-head when we go up against other large DSPs. Despite some of the challenges the industry is facing, which Jeff alluded to earlier, we are very confident in the trajectory of our business.

With that, I'm now going to turn over the call to Paul to discuss our financials.

Thanks, Rob, and good afternoon, everyone. As you've seen in the numbers, we had a terrific third quarter across all of our key metrics. Q3 revenue was up 50% year-over-year. Adjusted EBITDA increased 47% year-over-year, and adjusted net income was $15.3 million, a 63% increase from a year ago, all while investing aggressively back into our business in areas critical to our future growth.

Revenue for the third quarter was $79.4 million, which was above our expectations and reflects both the expansion of our share of spend by our existing customers plus the addition of new customers and advertisers. For the quarter, approximately 85% of our third quarter gross spend came from existing customers, whom we define as existing customers that have been with us over a year.

Our operating expenses scaled with the growth of our business to $61 million in Q3 of 2017 from $38 million during the same period in 2016. The increase in operating expenses was primarily due to, a, our increased investments in personnel, primarily in technology and development; b, an increase in platform operations expenses, which reflects hosting costs to support the increasing use of our software platform; and c, G&A expenses, which reflect public company costs, which did not exist for much of Q3 a year ago. Total other expense was $2.4 million net and income tax expense was $5.8 million in the quarter.

GAAP net income was $10.2 million for the third quarter of 2017 or $0.23 per fully diluted share. Our non-GAAP adjusted net income was $15.3 million for the third quarter or $0.35 per fully diluted share compared with non-GAAP adjusted net income of $9.4 million or $0.24 per share in the comparable period a year ago.

Adjusted EBITDA was $24.4 million with a corresponding margin of 31% of revenue during Q3 2017 as compared to adjusted EBITDA of $16.6 million or 31% of revenue during the same time last year. The increase in adjusted EBITDA dollars reflects growth of our top line and the leverage of our business model, all while we continue to invest in product, people and global expansion in addition to incurring public company expenses compared with a year ago.

Net cash provided by operating activities was $19 million for Q3 of 2017. Over the past trailing 12 months, we've generated $43.1 million and $28.3 million of operating cash flow and free cash flow, respectively.

Our DSOs at the end of Q3 were 102 days, and our DPOs were 83 days. The delta of 19 days represents the smallest we've seen in some time, and the improvement reflects our continuing efforts to match up our receivables and payables cycles as closely as possible.

Our net cash position increased to $105.8 million from $89 million last quarter.

For Q4, we are expecting revenue of $101 million and adjusted EBITDA of $34 million. Updating full year 2017 expectations, we now expect revenue to be approximately $306 million and adjusted EBITDA to be $90 million or 29% of revenue. Total other expense net is expected to be approximately $6 million, and our income tax rate for the full year is expected to be approximately 25%, reflecting the discrete benefits we received during the first half of the year.

With that, I will hand it back over to Jeff for final comments and, of course, Q&A. Jeff?

Thanks, Paul. In closing, we have made significant progress throughout the year, but are continuing to work hard to better enable media buying for both agencies and brands and empower a thriving marketplace within our platform. The programmatic revolution that is fueled by data-driven decisioning continues to gain momentum in the market, and The Trade Desk remains the clear independent industry leader as we move forward. I have never been more bullish on programmatic and on the future opportunities for The Trade Desk, and I'm looking forward to the road ahead.

So with that, we look forward to your questions. Operator, let's begin.

(Operator Instructions) Our first question comes from Shyam Patil.

I have a couple of questions. First one, there's been a lot of talk about Facebook and Google taking incremental ad dollars in Internet. Yet this is, I think, the fifth straight quarter of you guys being public where you reported pretty strong year-over-year growth. Can you just talk about that a little bit and just kind of how you're thinking about 4Q? And then second, Jeff, I know you can't comment too much on supply partners, but it looks like Twitter is opening up its walled gardens to DSPs. Can you just talk about generally what you're seeing with walled gardens? And is it happening -- is that opening up happening faster than you originally thought?

So let me start with walled gardens, because I do think there are a lot of myths around sound bites that we keep hearing, whether that's all the digital spend is moving towards Google and Facebook or they're getting 100% of incremental share, and I want to put a couple of the myths to bed. But before I do, let me first just say Google and Facebook are amazing growth stories. They're amazing companies. They've done an amazing job. At times, I've been a shareholder because I believe in their ability to monetize Google.com and Facebook.com. But as digital continues to shift, not only are dollars moving from traditional advertising into digital, but of course, digital dollars are moving into programmatic. And as we've been taking share away from ad networks and other less efficient ways of digital, to me, the most important metric to keep an eye on is how things are moving into programmatic. And the reason for that is because the only real price discovery that's happening inside of advertising is what's happening in what we call "price discoverable programmatic." So if I can inspect that impression and understand using metadata what every single ad opportunity is worth, then and only then can I figure out the right price and then I can grade everything on a relative basis. Walled gardens do not enable that relative basis. And so to me, the most important thing, especially if you believe like I do that eventually, what is now this $700 billion pie, which in 10 years will be approximately $1 trillion, which is the advertising industry, that eventually all of that will be transacted programmatically. Then, watching very closely what Magna Global measures as the size of price discoverable programmatic, which is RTB programmatic, if you look at what our percentage is, in 2014, we had 2.7%. In 2015, we had just short of 5%. In 2016, we had just shy of 7%. And in 2017, we'll finish somewhere between 8% and 9% market share. That to me is the most important metric to track in all of advertising. It's how are you gaining market share in the portion of this that will last long term. It's hard to switch gears to the Twitter question and sort of implicit in there is also a question about Snapchat, which is -- first, I can't really comment on partners like Twitter who have certainly said programmatic a lot lately. I can say that we've been a partner of MoPub's for a long time and, therefore, sort of indirectly with Twitter. And I'm a big believer in their strategy. And I do believe that eventually, there will be no walled gardens because it's economically irrational to monetize your inventory without getting as much demand as you possibly can. I know you didn't ask explicitly about Snap, but because you're asking about walled gardens in there and I've been asked a million times in the last couple of days about Snapchat, I just want to comment that Snap made a bunch of comments about programmatic in general. First, we don't do anything with Snapchat. We don't work with them today. And that's because we think there's a difference between price discoverable programmatic, which is where we can examine an impression opportunity, look at all the metadata and then decide whether we want to buy it or not. In price discoverable programmatic, I'll just highlight something we said earlier on this call, which is that mobile video grew for us by 140%. Roku just put up an amazing quarter where we've been an amazing partner of Roku's. And that's largely because there's a shortage of demand of great inventory in video, including on mobile video. So when people talk about weakness in mobile video because of programmatic or because of a programmatic option, one, I think it's more a commentary on not enabling price discoverable programmatic; and two, I think it's a commentary on the walled garden strategy does not work outside of Google and Facebook and, long term, won't work for anybody.

Our next question comes from Mark Kelley.

You talked a lot about some of the objectives for next year. Can you just help us think about how all these growth drivers and the moving pieces will translate into the financials? Any higher level thoughts going into 2018 will be helpful. And then second, you talked a lot about the importance of data, again particularly next year. Can you just expand on that a bit? Talk about what percent of your revenue or spend, however you want to frame it, comes from data today and where that goes over time.

You bet. So first, on 2018, and especially just what's happened in 2017, first, I'll just comment that more than half of our revenue comes from agencies, and I think this has been a little bit of a tough year for agencies. They've been transitioning a lot. And I think a lot of people have questioned their staying power in the future, and I think that's a mistake. I really do believe the agencies have a tremendous amount of staying power. They're just in a transition, and their roles will transition. Now that said, there is no question that we also have to get closer to brands as well as closer to our agency partners, and we are getting closer to brands, arm-in-arm with agencies. And so perhaps the most optimistic things that we've shared, at least today, on our 2018 plan, are the fact that 2 of the top 4 brands we signed in the last 12 months -- in fact, we signed 3 large global brands in Q3 that represent over $3 billion in spend. Six of the top 9 brands we've signed in just the last 24 months. And if you combine that with our retention rate, those of you that have studied our cohort analysis, which we've made public since the IPO, there's a very high probability that we're going to continue to grow those brands, and we think we've just scratched the surface in terms of what's possible. So in 2018, especially with the trend line we have in mobile and in international and in connected TV, we're super optimistic that we're going to continue to outpace the growth of our industry, and that the trust that we've been working really hard to build in 2017 with brands like P&G that we weren't quiet about winning earlier this year, we're super excited to expand with those, and obviously, thousands of other brands. So when you have over 18,000 brands on your platform, like we do, it seems like there will be some winners and some losers, but we represent so many of them that we think that we're going to win no matter what. And just a reminder that advertising is going to continue to grow. So we have secular tailwinds that should not be dismissed as our industry as a whole marches towards a $1 trillion industry. As it relates to data, so data represents a very small minority of the revenue that we create today. Nearly all of it is attached to media in some way. And part of that is strategic, because we look at data as making more informed choices about what media to buy, and we want to get that flywheel spinning. And that is the way that we think about it, which is the more people are making data-driven decisions about what they buy, the better choices that they'll make. So it represents a small percentage of our revenue today. We do think that, that percentage will go up, but we'll also increase the consumer surplus that we provide to both brands and agencies as we do that. So this is one of those scenarios where we think our strategic efforts in 2018 and all the things we talked about on the call today as it relates to data will actually be a win-win-win, where brands and agencies will be better off, the data companies will make more money, and we'll make more effective decisions because there's that much room and efficiency left as we continue to expand and monetize all of the Internet and television.

Our next question comes from Brian Fitzgerald.

Jeff, I wanted to know if you could walk us through how the -- how you think the dynamics of implementing Ads.txt will impact the business in the near term? And maybe even looking longer down the road? We've heard that publishers are seeing rising CPMs as their impressions are valued better and it removes some of the impressions that aren't validated and removing the bad impressions. So I want to know how you see that playing out. Do you think the spend from your ad partners is going to remain at the same levels, but focused on those higher-quality ads?

You bet. So for those unfamiliar, let me just give a 30-second primer on what Ads.txt is. So earlier in the year, a few of us, of the larger players in advertising technology, got together and decided to roll out together this program, which is Ads.txt. And us and Google were among the first to roll out this program. And it's very simple, which is you ask every publisher in the world to create a text file that just publicly on their domain, so you can type in any publisher's name like Google.com/ads.txt, and then you can see which SSPs and exchanges are authorized to sell their inventory. And this becomes really important if you're a premium publisher like CNN or something where there are people that are actually spoofing your domain and pretending to be you so that they can monetize your inventory. So it gets rid of any doubt as to who is authorized to rep the inventory. And by asking every publisher in the world to do this, we're effectively telling CNN, if you make very clear to us who's authorized, then we'll make sure to only buy from those that you tell us to buy from. It gets rid of some of the sub-syndication and resellers of resellers, where things can be misrepresented, and then in those small cases where there's actually fraud. So we started broadcasting early in the year, publishers adopt this. It's been one of the most unbelievable programs that I've ever been a part of. It's been great to be working with Google on this so that together, we're promoting the adoption of this. Of the top 500 publishers, almost 80% of them have some forms of Ads.txt public so that we then can eliminate those that are unauthorized and make certain that they don't make any money from it. The effect is that CPMs for things like CNN, have gone up. And that's good because publishers should make more money and we should actually make certain that we're buying inventory only from those that are authorized so that we are certain that we get the quality inventory. So it, overall, just makes the entire ad ecosystem better. But because the efficacy of those ads are obviously going to be so much better than anybody who's misrepresenting it or sub-syndicating it that by doing that, whatever the increased price is, it's overcome by the increased efficacy. So overall, everything is better for the Internet and for our business, which is the reason why we promoted its adoption so much. So we've begun blocking already. We're going to make a huge move in blocking all the unauthorized traffic the middle of next week, actually, as we announced earlier this week. And what that means is that there will be some adjustments on some publishers, but we don't expect the marketplace effect to be substantial. So overall, we think it's good for quality. But in terms of revenue or financial implications, we think it will have very little changes to our business and certainly won't have any impact on our forecasts.

Our next question comes from Kerry Rice.

Maybe a couple of questions on guidance. It was a little bit lower than what we were expecting. And I don't know, Jeff, if this is what you're alluding to from maybe some slower -- somewhat slower ad spend from CPG and retail, and that's maybe taking a little bit off the top there. If there's anything else to maybe conclude from your Q4 guidance? And then maybe on visibility, when you think about -- or when you enter the quarter, how much visibility do you have into that quarter? And I think if I remember correctly, that kind of varies depending on seasonality, like Q1 may be a little bit less than maybe Q4.

Yes. So first, let's see be big picture for just a second. So we gave guidance for the year. We increased our guidance for the year to match exactly what we had done before. And as we've said before, for us, these first 4 or 5 quarters have been about gaining trust with Wall Street. And we beat and raised every single time, including today. So we're super happy with the performance, and we think that the fact that we've been able to do that while most of the agencies posted weaker quarters in Q3 is a commentary on how everything is moving to programmatic. To also just stay big picture just for one more minute, we talked a little bit about this on Investor Day. It is absolutely true that there is more pressure on retail and CPG than there has been in the past, on their margins and their business models. And business models are having to change and evolve. But big picture, it is easier to buy stuff than it has ever been before, and people are buying more stuff than ever before. Advertising is growing, and it is the biggest industry that it's ever been, and it's only going to get bigger. And I would argue that the coefficient on success of any business is more dependent on advertising and branding and winning hearts and minds in a more noisy space than ever before. And therefore, the need for advertising is greater than it's ever been before, and that's only going to continue. And so if you look at those secular tailwinds and that everything is moving towards this price discoverable programmatic, all of that is great news for us. But businesses do have to create a transition, and when your margins are being cut as a traditional CPG company or as the big companies that have often fueled most of advertising, as they have to transition their businesses, it's not unexpected that they'll pause or rethink what they're doing on any individual campaign. We haven't experienced anything meaningful in that regard. So yes, a Toys "R" Us will go out of business, but we literally power companies that are spending more selling toys than Toys "R" Us ever did with us. And that's -- to us, what we think is a sort of the great part of our business model, which is that by powering so much of the advertising space, we think that we're sure to win. So I don't think that there's anything in terms of seasonality that's negatively impacting our business. I don't think those pressures on CPG or retail will have any long-term effect on our business. It is hard to tell what effect it will have in the short term, but as you can see from the results, it hasn't had any material impact on it to date. You mentioned about the seasonality in terms of visibility. It is true that we have -- there's always a little bit of a reset on the calendar year, so advertising does tend to follow the calendar year. But that is the reason why those numbers that we've given concerning this quarter, which are that 3 major brands have spent over $3 billion, signed in this last quarter, and then in 2017, 2 of the top 4 advertisers joined our platform, and in the last 24 months, 6 of the top 9 advertisers just started spending on our platform because all of those represent significant upside to us in 2018. And we think, based on our track record, it's a pretty safe bet to assume that our outpaced growth will continue.

Our next question comes from Youssef Squali.

Just following up on the prior question. Can you guys help us maybe quantify, or at least give a range of the importance of CPG and retail on a global level for you guys as a percentage of gross spend or revenues or any way -- any color there would be helpful? And for 2018, 2017 was definitely an investment year. As you go into 2018, help us understand a little bit the investment intensity that you see in the business and the potential impact on margins, meaning do you expect 2018 to also be an investment year and see some pressure on margins the way we saw in 2017? Or is there enough leverage on the top line to kind of create some positive margin leverage there?

Yes. So as our business matures, it gets harder and harder for any one industry to outpace another one. And it's just because basically, the percentage of spend that we get is basically reflecting the pie of all industries. So in other words, the way that GDP is divided among automotive, CPG or any other channel is basically it's the same way it's reflected in our platform. The only exceptions are that we under-index a bit in retail and over-index a bit in CPG. So when you put those 2 things together, we're basically mapping the global economy, and that's going to continue to look more and more like the global economy as time goes on. When you talk about, like, investing and are we going to invest and put pressure on margins, I don't fully understand what you're saying because you'll recall that we have EBITDA margins that are higher than basically every publicly traded SaaS company out there. And there was 1 quarter this year that I felt like I was apologizing for producing too much EBITDA. As we basically produce EBITDA around the 30% mark, I am just constantly looking for ways to deploy that capital to continue to grow. So right now, it's landgrab time. 2017 was landgrab time. 2018 is landgrab time. We're going to continue to look for opportunities to deploy capital as aggressively as we can. And as we put up growth of over 50%, it certainly gives us the luxury to reinvest. But it's rare that you have the sort of growth that we've had and the sort of EBITDA that we had, which just creates the luxury for us to say let's grow as deliberately as we possibly can. So I just want to remind everybody who's listening, the only reason we haven't deployed more of our EBITDA is because we want to grow responsibly and deliberately, and we don't want to put the rest of our business at risk. I wish that I were telling you that our EBITDA was lower than it actually is because I wish I could deploy more of that because I'm just looking at all the land we could be grabbing, and I want to take more. So we're investing as aggressively as we possibly can, and we're going to look at 2018 to do that again. We're super excited at the infrastructure that we've created, especially by hiring some really key people, in 2017 because we think that will make it easier for us to do more in 2018. And things like the Adbrain acquisition are good examples of places where we might be more aggressive. I'm not predicting that we'll do more M&A, but I'm just saying that we will be opportunistic in deploying capital as aggressively as we can.

Our next question comes from Mark Mahaney.

Can you talk a little bit more about the international traction that you're getting and how you're getting that? So you got some pretty good growth rates, I understand that's off a low base. But were you able to do that just directly going to new agencies, new advertisers in those markets? Or are you just -- and/or are you able to leverage the existing kind of global agency relationships you have, and that makes the international expansion just at the margin more efficient? Just talk about that go-to-market in international markets and how that differs from the U.S.

You bet. So first, I know I've said this before, but I just -- I can't emphasize it enough. The global advertising pie is 2/3 of it is outside of the United States. So to keep our eye on the ball, we absolutely have to continue to grow internationally. And so I mentioned that some of the wins with brands with us going arm-and-arm with the agency are some of the most bullish numbers that I could share. If I could pick the second most bullish numbers that we've shared, it's all the international growth, because that is the lion's share. That is the 2/3 of the pie that we want to be getting next. And the thing that is so beautiful about the growth that we're seeing in international is that it comes sometimes from the brand saying, oh wow, this is working. And then they insist that their agencies, which sometimes are not even the same agencies they use in the United States, but they insist that their agencies in other markets use The Trade Desk. And then there's other times, in fact, this is more common, when the agency says, oh wow, it's working in New York. Let's just drop a quick note to the team in Sydney, or the team in Germany, or the team in Tokyo, or the team in Singapore, or the team in Spain, and let's make certain that we deploy the exact same thing. So it's been a really beautiful thing on our side to sit on coordination calls where there are people from all over the world, sometimes at ungodly hours for them, coordinating the global spend for some of the biggest multinational brands. Or to see the look of relief from a multinational brand when they say, oh, you have a team in Singapore? Oh, can we get them involved? And an e-mail later, we're kicking off a new campaign. So the fact that we have so many ways to connect with these brands is the reason why we're so confident in our international growth, and it's the reason why we've opened so many offices around the world, because we look at it, in a lot of ways, as lower hanging fruit than in the United States because there's less competition and we do get to piggyback on the growth -- or the groundwork that we've already laid in the United States.

Our next question comes from Aaron Kessler.

A couple of questions. First, just on your user tracking initiatives. Can you talk about maybe going it on your own, as you mentioned, versus it sounds like there's some open-source kind of data consortiums being formed? So, thoughts going on your own versus partnering? And then on China, other companies have had challenges in the past, other ad tech companies, especially getting some of the local China companies to share data there. Can you talk about how a Trade Desk approach may be different than some of the companies in the past?

Aaron, just one clarification. On the identity, are you talking about deterministic? Or are you talking more about the anonymous, like, cookie IDs?

Yes, more like kind of deterministic, or I guess, just sharing kind of anonymous data to try to, obviously, better track that user. I think Avnet is just putting together a consortium as an example.

Okay. So let me separate the 2 issues just a little bit. So there are deterministic ideas, which are basically anonymizing logins so that you can connect together device IDs that are also anonymized, but they are for specific devices. And there are efforts for companies to use these deterministic IDs to thread together all of these different devices so that you are essentially having an ID built around the user, an anonymized ID built around the user. And then there's also these efforts to make certain that people are pooling cookies so that there is a common understanding of users, especially on desktop and devices where they're using cookies. So we have -- we made a really bold move in 2017, which was to go to all of our supply partners and effectively ask them to merge their ID pools, or databases, if you will, with ours. And by merging those, we make it so we all have a common understanding of the user and we make it so that everyone in Internet advertising has a common understanding of the user in a consumer safe, privacy safe, anonymized way. And it makes it so we all have better match rates, and The Trade Desk then is way more competitive, especially with the walled gardens who have so many consumer touches. By making that move earlier this year, we think especially in 2018, we'll have a much better ID footprint on the device side. On the deterministic side, or weaving together all those devices using IDs and identities around a person and not just around a device, we think that it's impossible for any one company to solve that optimally for the entire Internet. It doesn't matter how big you are. It doesn't matter if you're Google, Facebook, AT&T, Verizon. It doesn't matter who you are. We think that in order to do that well, you're going to have to work in sort of a marketplace fashion. And so what we've done is created a marketplace where all of those companies can make available to us that data, again, in a consumer-safe way, so that we can have a common understanding of the user across all of their devices. And by creating that marketplace, we and many of the cases of the cross-device vendors, we have become their single largest partner to multiple of those companies who that's all they focus on. And so we're really bullish on the fact that we've managed to create such strong partnerships. We're one of the few companies who've said we want a marketplace-driven approach instead of just a go-it-alone, like, we're going to build the best algo and aggregate as much data as possible on our own. Instead of doing that, we've created a marketplace, and we think that's the only way to win in this game. So that's our strategy around data.

Our next question comes from Andrew Boone.

So to piggyback on your answer to Youssef's question earlier, can you just help us rank -- or can you help us by ranking the investments as you think about their priorities into 2018 and kind of beyond? Like where are you most focused? And then as we think about some of the larger clients that you've added this quarter, Procter & Gamble has been publicly acknowledged as a client. Can you just remind us about how they move spend onto The Trade Desk and kind of their cadence there?

Sure. So in terms of investment opportunities, first and foremost, I would just say it's improving on the base that we've already built. So it's not to say that it isn't important for us to expand in mobile or to expand in TV. We have massive amounts of resources assigned to those. We expect to increase those investments in 2018. We'll continue to grow in those channels. But first and foremost is to make certain that we keep the clients that we have happy because of the fact that we have 95%-plus client retention and have since we've ever publicized those numbers. We'll continue to maintain our customer and client retention. But that's where we have to make the investments first and foremost. Second, we have to make certain that we get more insights into the hands of brands, and we'll do that, again, arm in arm with the agencies. But there is a bunch of things that we can do to get insights into the hands of brands because we believe sincerely that we've created the most transparent, most robust reports in all of advertising. And when we contrast our reporting with those of the walled gardens, we think that the level of transparency as well as the level of objectivity as well as the level of media access that we provide in our platform, the only thing that stands between us and gaining market share even faster is for us to really help brands understand exactly the data around the choices that we're making. As we do that, we'll continue to win market share. We, of course, will continue to invest in our data products as we've highlighted today, it's a huge opportunity for us. I would list that alongside with connected TV and mobile as big opportunities. I also mentioned the low-hanging fruit of international. I don't think it takes as much investment or as much risk of capital, because that sort of goes into the business as usual category. But there's so much incremental spend for us to win around the world that, of course, that, too, will be a priority. Was there a second part to your question that I didn't answer?

Yes, just how larger advertisers move onto the platform just over time. Just kind of give an idea what the cadence is.

That's right. It's different for every brand. And so one thing that we've never tried to be is, like, the pushy partner who is like, when are you going to give me all your money? When are you going to give me all your money? That's not the way that we partner with any of these companies. The same way that we've said to Wall Street, our goal is to create trust, and we're in it for the long game. Of course, that's the exact same thing that we're saying to brands. We're here to gain trust. As you might imagine, there's a number of players in ad tech who have made it hard for companies like Procter & Gamble to trust, and so it's really important for us to move at their pace. And every brand moves at their own pace. And the good thing is because of all transition that's happening in just the world at large, and largely because of the advent of digital, there is pressure that makes it so that all those businesses are moving as fast as they possibly can to make more data-driven decisions. And as they do that, we're there. We're their partner. We're always there, always on, always taking calls, always responding. But we're doing it, to some extent, at their pace. And it doesn't mean that we don't lead. It doesn't mean that we don't have lots of advice. We certainly do. But we're in the business of winning trust, and we're in it for the long haul. So it's almost impossible to talk about the formula to move over from the biggest brands because every big brand moves at a different pace, has different strategies, different thoughts and approach.

And this looks like our final question. It comes from Shyam Patil.

Just really quickly. I know you haven't guided to next year, and you mentioned some of the large wins you've had thus far this year. Just wondering, can you just kind of help us think about seasonality for next year, particularly for the top line? Just kind of how to think about that through the year.

Shyam, it's Rob. Sure thing, I'll start, and I'm sure Jeff will echo. So just like nearly every other year, you can think about our revenue seasonality is just like the advertising industry, right? So roughly 15% in Q1; sort of low 20s, Q2; mid-20s, Q3; and then 35%, 38% in Q4. And just to add, when you're thinking about '18 in particular, remember, we had a really blowout quarter in Q1 of '17 when we benefited from YouTube's brand safety issues. And we just had a lot of monster wins. So we had a monster Q1 last year. And so when we think about going into next year, I would think about that normal sort of 15%-ish for Q1.

And when you say last year, you mean 2017?

Sorry, yes, earlier this year. So when you think about the comparable.

Exactly. So in terms of seasonality, or in terms of anything that we can provide on 2018, of course, we're going to give guidance as we wrap up Q4. Beyond the fact that we've won so many advertisers in this year, I'm extremely optimistic about our Q4, which is why we, of course, have given the guidance that we have. The long-term piece, and this is, I think, the most important thing to keep your eye on, is the market share of programmatic, because eventually, all $700 billion, and eventually, that will be $1 trillion, will all be transacted programmatically. And are you winning share in programmatic? And so to us, the thing that we are constantly getting our team focused on is make sure that you're winning as much as possible above programmatic. And particularly as you're looking at what are going to be the large land grab opportunities in 2018, I think you'll see in international, there's huge landgrab opportunities. And that's why when we talk about what we've done this year, it gives you some visibility into what we're expecting for next year in terms of landgrabs. But also, the moves that are happening in television, we started the Q&A by talking about Google and Facebook. And I don't think enough has been said about the fact that the biggest media companies in the world are looking for alternatives to monetize beyond walled gardens. And, in fact, they're looking for partners on the demand side. So many of the biggest media companies in the world are having conversations with us saying, can you be our biggest demand source as we transition? And so particularly as they're thinking about distribution on their own, more and more of them are coming to us. And that gives us a huge amount of optimism for 2018. So just a couple of the things that we're thinking about as we think about the future.

And that was our final question. Thank you. This concludes today's call. Thank you for joining. You may now disconnect.