- The Trade Desk/Twitter
When we catch The Trade Desk’s CEO Jeff Green on the phone on Wednesday he is “beside himself.”
It is an hour after the ad tech company’s IPO, which soared 59% at the open to $28.75 per share, up from the $18 price range the firm had set earlier that week.
TTD’s opening day was a huge vote of confidence for the demand-side platform, whose S1 filing revealed healthy financials: Triple digit revenue growth and profitability – rare in a sector that is seeing much of its growth chomped away by the duopoly Google and Facebook.
At a time when the majority of ad tech companies are flailing on the public markets (except for Criteo), and when there hasn’t been an ad tech IPO in more than a year (and that was a disaster), and when VC funding is increasingly hard to secure, many people within the industry are hoping The Trade Desk’s IPO will reignite interest in the maligned sector.
We asked Green what he feels his company’s IPO means for the market, what sets The Trade Desk apart from his rivals, what the firm plans to spend the money on, and what its current financials spell out for its future growth.
This interview has been lightly edited for clarity and length.
Lara O’Reilly: You’ve had a great day so far: opening 59% up and currently trading (at the time of the interview) around $28.5. How do you feel about that price and what does it mean?
Jeff Green: It’s interesting. I sent a note out to the entire team this morning and basically said: “Whatever happens today, up or down, I don’t expect, in fact I have zero hope that Wall Street will get precise about you today.”
We need to focus on building a great business and recognize that we are way more likely to be valued better in the future
Today was about starting a conversation with Wall Street and getting to know each other. What has to be done within this space is a long pattern of building trust with Wall Street.
O’Reilly: Lots of people within the ad tech industry are looking very closely at your IPO today. What does it mean for the sector?
Green: I think what we have been doing the last couple of weeks, with roadshows with hundreds of investors, it promoted in them a sort of resurgence or a bringing back of a thesis they once had.
All of them at some point believe that $640 billion [in global annual ad spend] will be transformed and that programmatic and digital is a better way to transact advertising than phones, fax machines, and martini lunches.
It will remind them of that. Some have been hurt by past investments, and confused by a confusing ecosystem, but we have a very compelling financial profile, and a very compelling business model.
We are just trying to enable other people to make money and do well, instead of going in and saying: “we are going to solve this all ourselves, we will be the end-to-end solution that everyone comes to use”. We try to make agencies and other companies successful.
O’Reilly: What exactly is it that sets The Trade Desk apart from other ad tech companies?
Green: I think there are so many companies in our space that are perpetuating the problem.
This is a problem we are determined to solve. Advertisers are literally spending billions of dollars to make the consumers hate them.
When you think about that, it’s just insane people are showing ads to you for things you already bought. I can’t possibly go to a travel site and not already see an ad for something I already purchased. I’m constantly seeing airline tickets – maybe I buy them too early, but every single person I talk to, even ads we measure, we see companies do this again and again.
We are trying to make it so you think about buying and media holistically, instead of a siloed media budget. A platform where you coordinate transparency in terms of what you are buying to make better decisions.
— Nasdaq (@Nasdaq) September 21, 2016
O’Reilly: What do you plan to spend the IPO money on?
Green: I’m so glad you asked. We have so much optimism for the future, it gives me chance to talk about it.
Firstly, international markets. The $640 billion in global advertising spend, two-thirds of that happens outside North America. We are going all in. We already have. We have 20 offices and we are opening four more before the end of Q4
We are going all in on programmatic TV. As you know, consumers are cutting the cord and moving into a world where they can view things on demand. It’s not just the Amazons and Netflixs of this world, they are also logging on to the stations and channels that are ad-funded. We are on the other side.
Spotify recently went all-in on programmatic audio, and we are equally in that space.
O’Reilly: Your S1 filing revealed your take rate, which was around 19% in the last quarter. Is that sustainable – not least now clients are aware? What does your business look like at a take rate of 15% or 10%?
Green: One of things we did when we started the company, we went through an exercise of saying: What does business need to look like at “end date”?
I think most companies – frankly in every space, but especially in advertising technology – look at: What does the current landscape look like? How do I take advantage of that? How do I make money today?
What we said is sort of the opposite: What does it look like at 10 to 20 years from now, when things move to digital, the transformation from old school to new school media?
One of the things was we established our take rate [which should be determined on the value we add back to the client]. We charge our customers in a way we think we can sustain for as far as we see into future. It’s a real measure of a mature market when people are compensated in proportion to value they give.
O’Reilly: You have a relentless focus on agencies. One the one hand, that’s great. You’re one of WPP’s preferred vendors, it’s tough to sell to agency groups, and you’ve done it. On the other hand, marketers are becoming increasingly involved with ad tech decisions, hiring chief media officers or bringing certain elements of ad tech in-house. Netflix – and I know you have a Netflix executive on your board – brought all their programmatic in-house. Do you think you may need to diversify your client base?
Green: We have essentially made a bet that media is going to continue to get more complex. As it continues to get more complex, the need for professional money managers actually goes up – and yes we use that financial analogy.
We need more people helping advertisers and brands make sensible decisions.
In the past, media buying was simply order-taking. When the world of advertising was just order-taking, most brands outsourced.
Buying media is more complicated than buying equity, by all measures. It’s unlikely there will be a time time when every brand will say: “We will do it all ourselves.”
We continue to bet on money managers: agencies. There will be a few like Netflix that bring it in-house, but for the most part, the biggest brands in world will get smarter. They will bring things in-house from analytical standpoint: way more data, and we will use that data.
The relationship with the agency will be closer, but I think more and more we will see integrations like that from some biggest finance institutions and tech companies, which will integrate with us to share data.
O’Reilly: Looking through your S1, it doesn’t seem like you spend heavily on R&D compared to your rivals. Is that an issue – not least now you have to prove growth and profit to investors every 90 days? Where do you see your R&D spending going?
- The Trade Desk
Green: I’m not certain that I believe that the number of dollars, or the percentage of dollars as often people focused on, in R&D is necessarily the best measure of how product-centric or how technically advanced any given company is.
We operate on the perspective that, number one, we are a product-driven company.
Me as the CEO and my cofounder, our CTO, what we do every day is focus on what product we need to build so we can power the most sophisticated buyers in advertising. We ship a product every week. We have dozens and dozens of engineers on dozens and dozens of products.
We continue to invest in R&D and we factor it in as much as we can. At the core of who we are is a tech company, regardless of what our R&D percentage is, or the total count. It’s never been about that. It’s about creating the best product.
O’Reilly: In your S1, there seems to be some discrepancies between your accounts payable and accounts receivable. While all ad tech companies are essentially clearing houses for large advertisers, you’ll need to show you have enough working capital to sustain that growth and keep paying the bills, even if some clients take a long time to pay. Otherwise you could run the risk of growing yourself out of existence. How do you feel about your current level of cash and cash equivalents?
- The Trade Desk
Green: We have zero concern. There is a gap between our accounts receivable and accounts payable. [We are] in the world of advertising, particularly with ad agencies and they go to the clients to collect. We power the biggest brands in the world.
There is some delta between that and when we pay our inventory providers. We want to pay aggressively and continue to be the very best partner.
Some agencies have asked us to be a clearing house and we charge them a fee to do that, and that exceeds our cost capital. And because of the fact that we are growing very fast and we are profitable, it’s super easy to borrow from banks at good rates.
We make money as a clearing house as a result of that delta. We are very happy with the status quo. It fuels growth and brings on the biggest brands in the world. If you look at all our numbers and look at our bad debt, it’s almost non-existent. [Clients] are paying us to be a clearing house.
O’Reilly: Ad fraud is one of the biggest challenges the industry faces at the moment. How are you tackling that challenge and how do you feel the industry is dealing with it?
Green: There is ad fraud out there, of course. There are people who just want to make money from tricking the system, just like there is in any field.
But it is such a tiny minority of inventory. Essentially, what we have the luxury of doing is looking at 5 million ads every single second.
What we are doing for the buy side and biggest brands in the world is we are helping them look through those 5 million ads a second and discriminate. They get to choose which one is most appropriate for their brand. Anything questionable in any way, we don’t even buy it.
The beauty is, if you get to inspect it, if you’re suspicious at all, you don’t buy. The only place where it’s an issue is if you’re tricked to buying it.
Part of reason we grew so much is we gravitate to best media in the world: The New York Times, AOL, The Huffington Post, A+E, Turner – Turner is not fraud.
The notion that all good inventory only on Facebook.com or any other one place isn’t true. There is great media. There is more great media than ever.
- Robert Libetti/ Business Insider
O’Reilly: Do you think your IPO will encourage AppNexus to go public next?
Green: I don’t know, but I will say this: We need, as an industry, more companies to doing well. If there’s anything we are committed to doing, it is empowering an ecosystem where others do well.
I wish [AppNexus CEO] Brian O’Kelley and AppNexus nothing but the best of success. I hope they do well, whether that’s an IPO, or a sale, or if they stay private. I believe in him as a CEO and a leader. They are a great partner.