The Trade Desk, Inc. — Q3 2023 Form 10-Q
Business context and reporting period. Unaudited results for the quarter and nine months ended September 30, 2023, compared with the same 2022 periods. Trade Desk operates a self-service, cloud-based platform for programmatic digital advertising and reports one operating segment. Revenue is reported net of supplier costs, while accounts receivable reflect gross client billings.
Key financial results
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $493.3 million | $394.8 million | $1,340.3 million | $1,087.1 million |
| Operating income | $37.7 million | $28.8 million | $56.0 million | $13.5 million |
| Operating margin | 8% | 7% | 4% | 1% |
| Net income (loss) | $39.4 million | $15.9 million | $81.6 million | $(17.8) million |
| Diluted earnings (loss) per share | $0.08 | $0.03 | $0.16 | $(0.04) |
| Cash from operating activities | Not separately provided | Not separately provided | $507.2 million | $375.3 million |
Margins and profitability. Q3 net margin was approximately 8%, compared with 4% a year earlier; nine-month net margin was approximately 6%, versus a 2% loss margin. No gross margin is presented. Revenue rose 25% in Q3 and 23% for the nine-month period, primarily on higher platform spend from more advertisers and increased campaigns by existing clients. Operating expenses grew 25% in Q3 and 20% year to date. Higher interest income, driven by rising rates, was a significant contributor to improved pretax income.
Cash, liquidity and debt. At September 30, 2023, cash and cash equivalents were $1.072 billion and short-term investments were $450.1 million, totaling $1.522 billion. Working capital was $1.867 billion. Operating cash flow for the first nine months rose to $507.2 million from $375.3 million. Cash increased $41.3 million from year-end 2022, after $426.7 million of share repurchases and $50.5 million of net investing cash outflow. No borrowings were outstanding on the $450 million revolving credit facility; $445 million was available, net of letters of credit. The facility matures June 15, 2026, and the company reported covenant compliance.
Changes, outlook and notable items
- Q3 operating income increased to $37.7 million from $28.8 million. Nine-month operating income increased to $56.0 million from $13.5 million, while the prior-year period recorded a net loss.
- Interest income, net, was $17.6 million in Q3 and $49.6 million for nine months, compared with $1.7 million and $1.3 million, respectively, in 2022.
- In February 2023, the board authorized up to $700 million of Class A share repurchases. The company repurchased 6.9 million shares for $426.7 million in the first nine months; $273 million remained authorized at September 30.
- Expenses reflect continued investment in platform operations, sales and marketing, and technology. Management expects these expense categories to increase in absolute dollars as it invests in platform development, CTV and other inventory, infrastructure, and international growth; such investment may weigh on near-term profitability.
- The former CTO stepped down on September 30. Cancellation of unvested awards resulted in $14 million of incremental stock-based compensation expense in technology and development.
- The filing provides no clear numerical revenue or earnings guidance for the next quarter or full year. Management says macroeconomic uncertainty makes the impact on revenue and results difficult to predict, and notes that Q4 advertising spend is typically seasonal.
Risks and contingencies
- Advertising demand may be affected by inflation, higher interest rates, geopolitical developments, foreign exchange movements, and economic weakness. Client spending is usage-based and clients can reduce or end platform use, limiting revenue visibility.
- Competition, access to advertising inventory, and the pace of growth in programmatic advertising—particularly CTV—could affect growth. Privacy laws, consent and opt-out requirements, and changes to cookies and device identifiers may reduce data availability or increase compliance costs.
- Client collection timing and credit risk are important: the company may need to pay suppliers before collecting from clients. Accounts receivable reached $2.434 billion, and the allowance for credit losses was $11.7 million.
- A stockholder derivative lawsuit challenges the negotiation and approval of the CEO Performance Option and seeks rescission and monetary damages. Oral argument on defendants’ motions to dismiss was scheduled for February 7, 2024. Management does not expect ordinary-course litigation to have a material adverse effect, but outcomes are uncertain.
- Contractual commitments totaled $707.8 million, including $270.5 million of operating lease commitments and $437.3 million of other commitments. The company also disclosed foreign-exchange exposure and estimated that a hypothetical immediate 10% adverse exchange-rate move on foreign-denominated accounts would result in an approximately $30 million loss.
Important facts for investors to verify
- Whether revenue growth and client platform spend continue, particularly across CTV and other digital channels, and how seasonality affects Q4.
- Whether operating expense growth, including hosting, staffing, technology investment and stock-based compensation, allows operating margins to improve or pressures profitability.
- Whether operating cash flow remains strong as receivables and supplier-payment timing fluctuate, and whether the $700 million repurchase program affects liquidity or share dilution as intended.
- Developments in the CEO Performance Option litigation, and the effect of the award’s expense recognition and potential dilution.
- Changes in privacy regulation, identifier availability, macroeconomic conditions, foreign-exchange exposure, and credit losses that could affect advertising demand or platform economics.