Unlike $AppLovin Corporation(APP)$ which beat expectations and guided optimistically on one side, $Trade Desk Inc.(TTD)$ missed expectations with its Q4 earnings report, plunging 27% after hours as the company reported weaker than expected revenue for the first time in 33 quarters and higher total expenses, reflecting some twists and turns in its ongoing strategic restructuring.For the first time in 33 quarters, the company's revenue fell short of expectations and total expenses were higher, reflecting some of the twists and turns in its ongoing strategic restructuring.
Q4 missed internal expectations, which management attributed to execution errors, and the company is in the midst of a strategic transformation that includes reorganization, a focus on operational scalability, and a shift to agile product development teams
Optimism about long-term growth potential in CTV, retail media and international markets, and accelerated progress on the Ventura operating system and UID2 solution.
Results and Market Feedback
Q4 revenues of $741.0 million, up 22% year-over-year, but below market expectations of $759.6 million; CTV continues to lead growth, accounting for more than 40% of the business
Strong growth in retail media and international markets, with over 30% of mobile advertising; growth in direct brand advertiser partnerships outpacing the rest of the business by 50%.
Customer retention rate remained above 95%.
UID2 Adoption Rate Increases, Ready for Cookie-Free Era
Investment Highlights
Execution Challenges & Business Reorganization
The company is undergoing the largest reorganization in its history to improve operational efficiency and scalability.
Moving to agile product development teams to respond faster to market changes.
Increased resource allocation to direct brand relationships, which grew 50% faster than the rest of the business.
CTV & Retail Media a key growth engine
CTV continues to lead growth with over 40% of the business and strong performance in international markets.
Retail media and international expansion accelerating, retail media partnerships deepening, TTD strong Technology neutrality and transparency a competitive advantage
Launch of Ventura, the Ventura operating system for CTV, designed to improve the supply chain of the open Internet, with support from industry giants such as Disney, Paramount, Tubi and Sonos, minimizing the complexity that can be encountered in the ad delivery process and combining it with advanced technologies such as OpenPath and UnifiedID 2.0 (UID2) to improve theprecision in ad delivery
Competitive risks and transformation concerns
Execution risks highlighted by management, admitting internal failures in Q4
AI platform rollout delayed, with its Kokai platform (a new digital media buying platform designed to optimize upgrades through a combination of distributed AI) technology, performance measurement, partner resource integration, and a revolutionary, intuitive user experience) scheduled to be available to all users later this summer;
Seasonality: macroeconomic factors, including political ad spending volatility and a potentially polarized advertising environment, are viewed as potentially unfavorable, putting more pressure on FY25 results,
Conclusion
While management remains optimistic about the long-term opportunities, especially in CTV and retail media, with the start of new technologies and a lot of scope for international market development, strategic initiatives including the adoption of Kokai and supply chain efficiencies through Sincera are aimed at enabling the company to achieve sustained growth in the fast-evolving digital advertising space.
But in the short term, the stock is likely to come under further pressure as it has been too slow to incorporate AI, resulting in missing out on what is generally the best period of growth and allowing other industry players to eat into its share.For now, the advertising market is changing trends very quickly.
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