The Trade Desk, Inc. — Q1 2021 Form 10-Q
Business context and period. The Trade Desk operates a self-service, cloud-based platform for programmatic digital advertising. This unaudited report covers the three months ended March 31, 2021, compared with Q1 2020. Revenue is reported net of advertising inventory, third-party data, and other supplier-feature costs; accounts receivable and payable reflect gross billings and therefore are large relative to reported revenue.
Financial performance
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Revenue | $219.8 million | $160.7 million | +37% |
| Operating expenses | $212.0 million | $149.9 million | +41% |
| Operating income | $7.8 million | $10.8 million | −28% |
| Operating margin | 3.5% | 6.7% | −3.2 percentage points |
| Net income | $22.6 million | $24.1 million | −6% |
| Basic / diluted EPS | $0.48 / $0.45 | $0.53 / $0.50 | Both lower |
| Cash from operations | $75.1 million | $52.8 million | +$22.3 million |
Net margin was 10.3%, versus 15.0% a year earlier. Net income exceeded pretax income in both periods because of substantial income tax benefits: $14.6 million in Q1 2021 and $13.7 million in Q1 2020. The company reported no gross-profit figure in the provided filing text.
Operating expenses rose across categories: platform operations +26% to $50.5 million; sales and marketing +63% to $55.8 million; technology and development +47% to $53.9 million; and general and administrative +34% to $51.8 million. Stock-based compensation expense was $52.4 million, compared with $23.0 million.
Liquidity, cash flow, and debt
- At March 31, 2021, cash and cash equivalents were $471.6 million and short-term investments were $208.4 million, totaling $680.1 million. Working capital was $906.7 million.
- Operating cash flow was $75.1 million. Investing activities used $36.3 million, including $13.1 million for property and equipment and $1.1 million for capitalized software; financing activities used $4.5 million. Cash increased $34.3 million during the quarter.
- No debt was outstanding under the credit facility. Available capacity was $143.6 million; the facility matures May 9, 2022. The company drew $143.0 million in March 2020 as a precaution and repaid it in October 2020.
- Contractual commitments totaled $477.2 million, including $343.1 million of operating lease commitments and $134.1 million of other commitments.
Material changes and management commentary
Revenue growth primarily reflected higher platform spend by existing clients, including more campaigns per client, and a comparison with the period in 2020 when COVID-19 contributed to reduced advertising spend. Despite revenue growth, operating income and earnings per share declined as expenses grew faster than revenue. Management attributed expense increases mainly to hiring, higher stock-based compensation, hosting, and facilities costs.
Management expects operating expenses to increase in absolute dollars as it invests in platform operations, product and technology development, sales and marketing, infrastructure, and international expansion. CTV, video, audio, native advertising, and growth in markets including China were cited as opportunities. The filing provides no specific revenue or earnings guidance. Management said existing cash, investments, and operating cash flow should be sufficient for working capital needs for at least the next 12 months.
Risks, contingencies, and unusual items
- COVID-19 continued to create uncertainty for advertiser demand, client collections, credit losses, and forecasting; management said the size and duration of its effects could not be accurately predicted.
- The company’s payment model can require paying inventory and data suppliers before collecting from clients, creating working-capital and credit risks. Client contracts generally allow spend changes or termination with limited notice, and agency relationships are significant.
- Key risks include competition, reliance on programmatic advertising and access to quality inventory, privacy and data-protection regulation, restrictions on cookies and device identifiers, cybersecurity and platform outages, and execution of international expansion.
- Management reported no legal proceedings believed likely to have a material adverse effect and no material indemnification claims requiring an accrual. Disclosure controls were effective at the reasonable-assurance level, with no material change in internal control over financial reporting during the quarter.
- After quarter-end, the board approved a ten-for-one stock split, announced May 10, 2021, expected in Q2. Pro forma basic and diluted EPS for both comparative quarters would be $0.05.
Important facts for investors to verify
- Whether revenue growth and existing-client spend remain strong after the COVID-affected comparison period, and how growth is distributed across channels and customers.
- Whether rising compensation and investment costs—particularly stock-based compensation—continue to pressure operating margins and per-share results.
- The sustainability of cash generation given seasonal working-capital movements and the timing gap between client collections and supplier payments.
- Developments in privacy regulation and identifier changes, including their effects on targeted advertising, inventory access, and platform demand.
- Credit-facility terms and maturity, and the company’s capacity to meet substantial lease and other contractual commitments.