The Trade Desk, Inc. — FY 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. The filing was signed February 27, 2020. Figures are in U.S. dollars; financial statement amounts are in millions unless stated otherwise.
Business context
The Trade Desk operates a self-service, cloud-based demand-side platform for advertising buyers. It earns platform fees, generally calculated as a percentage of client advertising purchases, and fees for data and other services. Revenue is reported net of supplier costs. In 2019, approximately 79% of platform gross spend came from mobile, video (including connected TV), audio, native, and social channels. The company had approximately 820 clients and reported client retention above 95%.
Financial performance and liquidity
| Metric | FY 2019 | FY 2018 |
|---|---|---|
| Revenue | $661.1 | $477.3 |
| Gross spend | $3,128.9 | $2,350.9 |
| Gross billings | $3,095.7 | $2,285.0 |
| Operating income / margin | $112.2 / 17% | $107.3 / 22% |
| Net income / margin | $108.3 / 16% | $88.1 / 18% |
| Diluted EPS | $2.27 | $1.92 |
| Cash from operating activities | $60.2 | $86.6 |
- Revenue grew 39%; gross spend rose 33% and gross billings rose 36%. Existing clients added before 2019 increased gross spend 24% in aggregate and accounted for approximately 92% of 2019 gross spend.
- Operating expenses increased 48% to $548.9 million, faster than revenue. General and administrative expense rose 68%, sales and marketing 53%, technology and development 39%, and platform operations 37%.
- Fourth-quarter revenue was $215.9 million versus $160.5 million in Q4 2018, up 35%. Q4 operating income was $52.7 million versus $49.0 million; net income was $50.9 million versus $39.4 million. Operating margin was approximately 24% versus 31%.
- At year-end, cash and cash equivalents were $130.9 million and short-term investments were $124.1 million, totaling $255.0 million. Working capital was $518.8 million.
- Operating cash flow fell to $60.2 million, principally reflecting a $331.4 million increase in accounts receivable, partly offset by a $191.8 million increase in accounts payable. Year-end receivables were $1,166.4 million and payables $868.6 million.
- No debt was outstanding under the revolving credit facility; reported availability was $143.3 million, and the company was in compliance with covenants. The facility matures in May 2022.
Material changes, outlook, and risks
- Revenue growth was driven primarily by increased platform spend. Management cited client expansion, programmatic advertising adoption, CTV and other omnichannel offerings, and international expansion as opportunities.
- Management expected operating expenses to continue increasing significantly as it invested in platform operations, technology, sales and marketing, infrastructure, and international growth. It noted these investments could pressure near-term profitability. No numerical financial guidance was provided in the filing.
- Stock-based compensation increased to $80.8 million from $42.2 million, a substantial non-cash expense affecting reported operating costs.
- An April 2019 intellectual-property restructuring generated a $262.4 million deferred tax asset, offset by a $51.0 million uncertain-tax-position reserve. The company recorded a $199.2 million valuation allowance against U.K. net deferred tax assets; gross unrecognized tax benefits were $53.2 million. The 2019 effective tax rate was 6.8%, versus 16.7% in 2018, largely reflecting stock-based award tax benefits and other tax effects.
- The company adopted lease accounting guidance in 2019 and recognized operating lease assets and liabilities. At year-end, lease liabilities had a present value of $189.5 million; undiscounted lease commitments totaled $325.3 million.
- Key risks include client and agency concentration, limited contractual spending commitments, sequential-liability collection exposure, competition, and dependence on continued access to advertising inventory and device identifiers. Privacy regulation—including the CCPA, effective January 1, 2020—and browser or platform restrictions on third-party cookies could affect targeting and measurement.
- Two clients each represented more than 10% of 2019 gross billings when measured at the client level; the filing also identifies Publicis Media at 13% and Omnicom at 10%. Three clients represented 18%, 16%, and 16% of year-end receivables. The company disclosed no legal proceeding expected to have a material adverse effect.
- The company reported effective disclosure controls and internal control over financial reporting; its auditor issued unqualified opinions on the financial statements and internal control. Class B shares carry ten votes per share, and Class B holders collectively held approximately 56% of voting power at year-end.
Important facts for investors to verify
- Whether client and agency concentration, particularly the largest billing and receivables exposures, changes materially.
- Whether operating cash flow improves as receivables and payables scale, and whether collection timing or sequential-liability terms create added working-capital or credit risk.
- Whether spending growth in CTV, international markets, and other channels translates into durable revenue growth without further margin compression.
- How the U.K. valuation allowance, uncertain tax positions, and intellectual-property restructuring affect future tax expense and cash taxes.
- Whether privacy rules and cookie or identifier restrictions materially reduce targeting effectiveness, available inventory, or client demand.
- The ongoing effect of stock-based compensation and dilution, alongside the voting-control implications of the dual-class share structure.