Summary
SUMMARYThis summary highlights selected information that is presented in greater detail elsewhere, or incorporated by reference, in this prospectus. This summary does not contain all of the information you should consider before investing in our Class A common stock. You should read this entire prospectus carefully, including the sections captioned “Risk Factors” in this prospectus and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, filed with the Securities and Exchange Commission, or the SEC, on February 16, 2017, or the 2016 10-K, and in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2017, filed with the SEC on May 11, 2017, or the First Quarter 10-Q, each incorporated by reference in this prospectus, and our consolidated financial statements and the related notes incorporated by reference in this prospectus, before making an investment decision. Unless the context otherwise requires, the terms “The Trade Desk,” “the Company,” “we,” “us” and “our” refer to The Trade Desk, Inc. and its consolidated subsidiaries.
Our company provides a technology platform for ad buyers.
With our self-serve platform, ad buyers are able to share their customized messages and ideas with the people and in the context they deliberately choose.
Our mission is to help our clients compete in the marketplace of ideas—the place in media and public discourse where ideas and messages compete in the open market for the mindshare of men and women around the world. Since most traditional and digital media is primarily monetized with advertising, ads are the currency of media and the Internet, and therefore at the center of the marketplace of ideas.
Our platform makes media monetization more effective. Instead of disrupting the foundation of media and advertising, we enable it. By offering compelling improvements in effectiveness, efficiency and reporting, we aim to change media and advertising globally.
Our platform makes it possible to message specific ideas to specific people. We give advertisers of all sizes the power to have simultaneous 1-to-1 customized interactions with billions of people around the world. Most advertising dollars are spent on awareness, where a brand pushes new information and ideas to a broad audience. Conversely, search engines respond to specific requests from individuals for information. Our technology combines the best of both, making it possible to push out a precise idea or message to a targeted audience with global scale.
Founded by some of the pioneers of the programmatic ad market, we established our company in 2009 with the intent to make advertising better by deploying massive amounts of data. By providing ad buyers with tools to leverage their first-party data as well as third-party data, we aim to provide a higher return on every advertising dollar spent. While our technology platform is deployed to directly serve ad buyers, the entire advertising marketplace benefits—publishers and content creators can experience a higher yield on their inventory, while consumers can receive advertising that is more relevant and interesting to them.
We believe that an average consumer might be exposed to over one thousand digital advertisements on a typical day. Most consumers are unaware that when they land on a webpage, watch a video, use a mobile app or watch an Internet-connected TV, there is often an auction for advertising inventory being run in about 1/10th of one second behind the scenes as the content loads. Our platform provides access to approximately 4.7 million ad spots on average every second for our clients to bid on across millions of different scaled media sources—websites, shows, channels, stations and streams. Our technology makes it possible for ad buyers to compete in those real-time auctions. Our platform helps our clients determine what ad will display and what price they should pay for every ad opportunity a buyer can consider.
In 2016, approximately $651.7 billion was spent on global advertising (including approximately $225.4 billion on TV advertising and approximately $54.6 billion on display advertising), according to International Data Corporation, or IDC, and in 2016, approximately $19 billion was transacted in the programmatic advertising spot market via real-time marketplaces, according to Magna Global. We aim to power every agent of every advertiser in both the spot and forward markets, including upfront purchases, for programmatic advertising.
We also believe that the efficiency of programmatic advertising will lead to a greater percentage of every advertising dollar ending up in the pocket of publishers. Publishers can now generate revenue without the large sales forces that were required in the past. Higher revenue yields and lower operating costs make it possible for publishers to increase their investment in creating high quality content.
Programmatic advertising is currently a small portion of total global advertising spend. Largely because of the price discovery benefits, we believe eventually the vast majority of advertising will be transacted programmatically.
We enable the programmatic marketplace with our self-serve platform. The unique architecture of our platform allows users access to highly granular targeting and reporting options, which we refer to as expressiveness. When combined with our data management capability and first-party data, our clients can reach their highly specified audiences with customized messages and generate favorable campaign outcomes.
By using our technology and the reach of the Internet, we can power this data-driven 1-to-1 messaging with massive global scale. We believe in order to do this effectively, we have to be a buy-side only platform across a spectrum of media, which we refer to as omnichannel. As the biggest brands desire to communicate with consumers worldwide, we have to be global, which is why we have employees and offices around the world.
We derive nearly all of our gross spend and revenue from ongoing master service agreements that give users constant access to our platform, instead of insertion orders, which typically are one-off deals to run single campaigns.
We have grown faster than the programmatic market and have achieved significant revenue scale with $1.0 billion in gross spend in 2016. Our revenue was $202.9 million in 2016, representing a growth rate of 78% over $113.8 million in 2015, while programmatic advertising spend in the industry grew to $19 billion in 2016, according to Magna Global, representing a growth rate of over 27% from 2015.
We generated net income of $15.9 million in 2015 and $20.5 million in 2016. We generated Adjusted EBITDA of $39.2 million in 2015 and $65.2 million in 2016. Our net income (loss) was $(1.0) million for the three months ended March 31, 2016 and $4.9 million for the three months ended March 31, 2017. Our Adjusted EBITDA was $4.3 million for the three months ended March 31, 2016 and $6.3 million for the three months ended March 31, 2017. Adjusted EBITDA is a financial measure not presented in accordance with generally accepted accounting principles, or GAAP. For a definition of Adjusted EBITDA, an explanation of our management’s use of this measure and a reconciliation of net income (loss) to Adjusted EBITDA, see “—Adjusted EBITDA.” For additional financial information, see the consolidated financial statements and related notes incorporated by reference herein.
Since the introduction of ad-funded television in the middle of the 20th century and continuing through the present day, most advertising inventory has been transacted based on a rate card. Publishers, content owners, and their agents set a price for their inventory, and buyers place an order to purchase that inventory. Similar to how the equities and commodities markets have transitioned from paper transactions on trading floors to electronic trading, advertising is transitioning from manual to programmatic.
Several trends, happening in parallel, are revolutionizing the way that advertising is bought and sold. The rise of the Internet has led to a wholesale change in the way that media is consumed and monetized, as ads can be digitally delivered on a 1-to-1 basis. In traditional methods of advertising, such as broadcast TV, ads can target a specific network, program or geography, but not a single household or individual as digital ads can.
Some of the key industry trends are:
Media is Becoming Digital. Media is increasingly becoming digital as a result of advances in technology and changes in consumer behavior. This shift has enabled unprecedented options for advertisers to target and measure their advertising campaigns across nearly every media channel and device. The digital advertising market is a significant and growing part of the total advertising market. According to IDC, global advertising spend was approximately $651.7 billion in 2016 and is expected to grow to $767.1 billion in 2020, a compound annual growth rate of 4.2%. Also according to IDC, global digital advertising spend was $205.4 billion in 2016 and is expected to grow to $339.9 billion in 2020, a compound annual growth rate of 13.4%. We believe that the market is evolving and that advertisers will shift more spend to digital media. Since media is becoming increasingly digital, decisions based on consumer and behavioral data are more prevalent.
Fragmentation of Audience. As digital media grows, audience fragmentation is accelerating. A growing “long tail” of websites and content presents a challenge for advertisers trying to reach a large audience. Audience fragmentation has substantially impacted TV content distribution, perhaps more than any other channel, which we believe is setting up a significant change in how TV advertising inventory is monetized. Mirroring the fragmentation occurring in content, the number of devices used by individual consumers has increased. Both of these fragmentation trends are opportunities for technology companies that can consolidate and simplify media buying options for advertisers and their agencies.
Shift to Programmatic Advertising. We believe that the advertising industry is in the early stages of a shift to programmatic advertising, which is the ability to buy and sell advertising inventory electronically. Initially available for digital display advertising and transacted through real-time bidding platforms, programmatic advertising has evolved and is increasingly being used to transact across a wide range of advertising inventory, including display, mobile, video and audio among other inventory types, including TV.
We believe that TV advertising is just beginning its transition to programmatic. According to IDC research sponsored by our company, programmatic TV advertising spend is projected to grow from $239.8 million in 2015 to $17.3 billion in 2019.
Automation of Ad Buying. The growing complexity of digital advertising has increased the need for automation. Technology that enables fast, accurate and cost-effective decision-making through the application of computer algorithms that use extensive data sets has become critical for the success of digital advertising campaigns. Using programmatic inventory buying tools, advertisers are able to automate their campaigns, providing them with better price discovery, on an impression by impression basis. As a result, advertisers are able to purchase the advertising inventory they value the most, pay less for advertising inventory they do not value as much, and abstain from buying advertising inventory that does not fit their campaign parameters. Most of the growth in programmatic advertising to date has been driven by transactions on spot markets on advertising exchanges. Forward advertising markets and upfront purchases, which have traditionally been delivered manually, are also beginning to be handled programmatically.
Increased Use of Data. Advances in software and hardware and the growing use of the Internet have made it possible to collect and rapidly process massive amounts of user data. Data vendors are able to collect user information across a wide range of Internet properties and connected devices, aggregate it and combine it with other data sources. This data is then made non-identifiable and available within seconds based on specific parameters and attributes. Advertisers can integrate this targeting data with their own or an agency’s proprietary data relating to client attributes, the advertisers’ own store locations and other related characteristics. Through the use of these data sources, together with real-time feedback on consumer reactions to the ads, programmatic advertising increases the value of impressions for advertisers, inventory owners and viewers who receive more relevant ads.
Driven by these industry trends, programmatic advertising is expected to grow from $19 billion during 2016 to $42 billion by 2020, according to Magna Global. We believe that programmatic advertising will continue to grow as more content providers, content distributors and advertisers are able to realize its benefits. In addition, we expect that programmatic advertising will help grow the overall advertising market by enabling more advertisers to deploy more spend across a broader range of inventory channels.
We are a technology company that empowers advertising agencies to purchase advertising more efficiently and effectively. We provide an intuitive self-serve platform that enables our clients to manage data-driven, digital advertising campaigns using their own teams.
We believe the following attributes and capabilities form our core strengths and provide us with competitive advantages:
The key elements of our long-term growth strategy include:
Our business is subject to numerous risks and uncertainties, including those in the section captioned “Risk Factors” in this prospectus. These risks include, but are not limited to, the following:
We were incorporated in Delaware in November 2009. Our principal executive offices are located at 42 N. Chestnut Street, Ventura, California 93001, and our telephone number is (805) 585-3434. Our website address is www.thetradedesk.com. The information on, or that can be accessed through, our website is not incorporated by reference into this prospectus, and you should not consider any such information as part of this prospectus or when deciding whether to purchase our Class A common stock.
The Trade Desk and our other registered or common law trademarks, service marks or trade names appearing in this prospectus are the property of The Trade Desk, Inc. Other trademarks, service marks or trade names appearing in this prospectus are the property of their respective owners. We have omitted the ® and ™ designations, as applicable, for the trademarks used in this prospectus.
The Jumpstart Our Business Startups Act, or the JOBS Act, was enacted in April 2012 with the intention of encouraging capital formation in the United States and reducing the regulatory burden on newly public companies that qualify as “emerging growth companies.” We are an emerging growth company within the meaning of the JOBS Act. As an emerging growth company, we may take advantage of certain exemptions from various public reporting requirements, including the requirement that our internal control over financial reporting be audited by our independent registered public accounting firm pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, certain requirements related to the disclosure of executive compensation in this prospectus and in our periodic reports and proxy statements, and the requirement that we hold a non-binding advisory vote on executive compensation and any golden parachute payments. We may take advantage of these exemptions until we are no longer an emerging growth company.
We will remain an emerging growth company until the earliest to occur of: (1) the last day of the fiscal year in which we have $1.07 billion or more in annual gross revenue; (2) the date we qualify as a “large accelerated filer” with, among other things, at least $700 million of equity securities held by non-affiliates; (3) the date on which we have issued, in any three-year period, more than $1.0 billion in non-convertible debt securities; and (4) the last day of the fiscal year ending after the fifth anniversary of our initial public offering, or our IPO, which was completed in September 2016. Based on the trading price of our common stock and holdings of our non-affiliate stockholders as of the date of this prospectus, we expect to lose emerging growth company status at the end of 2017.
For certain risks related to our status as an emerging growth company, see the section captioned “Risk Factors.”
Assuming no exercise of the underwriters’ option to purchase additional shares, following this offering, outstanding shares of Class B common stock will represent approximately % of the voting power of our outstanding capital stock, and outstanding shares of common stock held by our executive officers, directors and holders of more than 5% of our capital stock will represent approximately % of the voting power of our outstanding capital stock. See the section captioned “Description of Capital Stock.”The total number of shares of Class A common stock and Class B common stock that will be outstanding after this offering includes shares of our Class A common stock and shares of our Class B common stock, and excludes, in each case as of March 31, 2017:
Except as otherwise indicated, all information in this prospectus reflects where applicable, a 1-for-3 reverse stock split of our common stock and a proportional adjustment to the conversion ratio of our convertible preferred stock, which was effected on September 2, 2016, and assumes no exercise of outstanding options to purchase common stock after March 31, 2017 and no exercise of the underwriters’ option to purchase additional shares. We have assumed that all of the shares of Class A common stock to be sold in this offering will be issued at closing upon the conversion of outstanding shares of Class B common stock.
We refer to our Series Seed, Series A-1, Series A-2, Series A-3, Series B and Series C convertible preferred stock collectively as “convertible preferred stock” in this prospectus.
The following tables set forth our summary consolidated financial data for the periods indicated. We have derived the consolidated statements of operations data for the years ended December 31, 2014, 2015, and 2016 and the consolidated balance sheet data as of December 31, 2015 and 2016 from our audited consolidated financial statements included in our 2016 10-K that is incorporated by reference in this prospectus. The summary consolidated statements of operations data for the three months ended March 31, 2016 and 2017 and the summary consolidated balance sheet data as of March 31, 2017 are derived from our unaudited condensed consolidated financial statements included in our First Quarter 10-Q that is incorporated by reference in this prospectus. The consolidated balance sheet data as of December 31, 2014 were derived from our audited consolidated financial statements that are not included, or incorporated by reference into, in this prospectus.
The following consolidated financial data should be read together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2016 10-K and First Quarter 10-Q incorporated by reference herein and our consolidated financial statements and the related notes appearing in our 2016 10-K and First Quarter 10-Q incorporated by reference herein. The unaudited interim consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and reflect, in the opinion of management, all adjustments of a normal, recurring nature that are necessary for a fair statement of the unaudited interim consolidated financial statements. Our historical results are not necessarily indicative of our future results, and the results for the three months ended March 31, 2017 are not necessarily indicative of the results to be expected for the full year or any other period.
For more information regarding stock-based compensation expense, see Note 10 in the Notes to Consolidated Financial Statements contained in Item 8 in our 2016 10-K incorporated by reference herein and Note 8 in the Notes to Condensed Consolidated Financial Statements contained in Item 1 in our First Quarter 10-Q incorporated by reference herein.In addition to our results determined in accordance with GAAP, we believe that Adjusted EBITDA, a non-GAAP measure, is useful in evaluating our business. The following table presents a reconciliation of net income (loss) to Adjusted EBITDA for each of the periods indicated:
We use Adjusted EBITDA as a measure of operational efficiency to understand and evaluate our core business operations. We believe that Adjusted EBITDA is useful to investors for period to period comparisons of our core business. Accordingly, we believe Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors.
Our use of Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our financial results as reported under GAAP. Some of these limitations are as follows:
Because of these and other limitations, you should consider Adjusted EBITDA along with other GAAP-based financial performance measures, including various cash flow metrics, net income (loss) and our GAAP financial results.