The Trade Desk, Inc. (TTD) Earnings

Management highlights

- Overall Performance & Underperformance Root Causes - Revenue growth missed internal expectations, driven by two main factors: macroeconomic pressure on key large brand clients, and internal execution shortcomings - 25% of total revenue comes from the CPG and automotive verticals, which are disproportionately impacted by tariffs, high oil prices, geopolitical volatility, and consumer wealth bifurcation that squeezes lower-income consumers; some brands in these categories have temporarily cut budgets or shifted to low-cost, low-outcome ad buying strategies like programmatic guaranteed - Most client segments and categories are growing well; strong growth is seen in financial services, technology, and pharma. Outside the top 500 advertisers, the remaining client base is growing over 50% year-to-date - Joint Business Plans (JVPs) with clients grew 38% year-over-year to 217 total in Q2, with revenue from JVPs growing 6x faster than overall revenue; most of the top 100 accounts are growing double digits year-over-year - Product Innovation Roadmap - A new industry measurement framework is currently in alpha testing, developed in partnership with large media, measurement, and data companies, to more fairly attribute value across the full customer journey and correctly measure incremental business outcomes for upper and lower funnel advertising, solving a key industry pain point - Audience Unlimited, an AI-powered third-party data discovery and activation product with an "all-you-can-eat" subscription pricing model, is in open beta with early positive results: one global client saw over 25% reductions in both cost per unique household and data CPM compared to prior campaigns - The Zuma platform usability upgrade, launching later in Q3, improves navigation, streamlines workflows, adds enhanced AI capabilities, and delivers a more intuitive end-to-end user experience - The company differentiates its AI-powered outcome-focused decision buying model from competitors' low-cost programmatic guaranteed/fixed price offerings that sacrifice objective decisioning for publisher interests over buyer needs - Leadership & Go-to-Market Updates - Multiple new senior leaders have been added to the executive team and board of directors in recent quarters, bringing deep experience scaling large organizations, fresh perspectives, and operational discipline; hundreds of customer-facing commercial leaders have also been hired to build strategic C-level relationships with large global brands, matching the shift of marketing decision-making to senior organizational levels - Strategic Long-Term Opportunity - The firm estimates it currently captures only ~1% of the $1 trillion annual global advertising market, leaving large room for growth - AI and generative AI are expanding the addressable digital ad market by creating new consumer engagement surfaces and increasing competition for traditional search market share; the company's independent, objective AI-powered decisioning model is uniquely positioned to benefit from this shift, as brands need an unbiased platform to evaluate millions of ad opportunities - The company partners with nearly all major global media companies and ad infrastructure providers, and participating retailers on its platform represent over 80% of U.S. retail sales (including a renewed partnership with Walmart); its lack of owned-and-operated inventory and objective positioning creates a competitive advantage versus vertically integrated competitors

Guidance

- For Q3 2026, management expects revenue of at least $650 million, representing a year-over-year decline, and adjusted EBITDA of approximately $160 million - The Q3 guidance reflects current visible business trends and does not assume any meaningful macroeconomic improvement during the quarter; near-term weakness is expected to persist into Q4 2026 - Going forward for the remainder of 2026, management will maintain disciplined capital allocation, focusing investments only on high-priority growth initiatives that deliver clear long-term value for clients and shareholders; some teams will grow while others will not receive additional resources, to reallocate capacity to higher-impact opportunities - Management expects that focused investment and improved execution will position the firm to return to stronger, more durable long-term growth and improved profitability

Segment performance

The Trade Desk reported total Q2 2026 revenue of $715 million, a 3% year-over-year increase. By product/channel segment: - Video (including Connected TV/CTV): 50% of total revenue, with double-digit year-over-year growth, and over 50% year-over-year CTV growth in both EMEA and APAC regions - Mobile: 20% of total revenue - Display: Low double-digit percentage of total revenue - Audio: ~7% of total revenue, and was the fastest growing channel for the fourth consecutive quarter Geographically: - United States: 83% of total revenue - International: 17% of total revenue, with EMEA and APAC each growing almost 30% year-to-date, and China growing over 100% year-over-year By vertical segment: - Strong double-digit growth was seen in medical health, automotive, and travel; automotive growth would be faster without the impact of increased industry tariffs - Continued pressure was recorded in food and drink, and home and garden sectors, as CPG brands navigate geopolitical uncertainty, soft consumer demand, and input cost inflation Financially, the firm generated adjusted EBITDA of $241 million (34% margin), net income of $64 million (14 cents per diluted share, ~9% of revenue), adjusted net income of $158 million (34 cents per diluted share), operating cash flow of $154 million, and free cash flow of $136 million. Operating expenses totaled $613 million (up 6% year-over-year; $504 million up 12% year-over-year excluding stock-based compensation).

Risks & headwinds

- Macroeconomic risks: Geopolitical volatility (including the Middle East conflict) has driven elevated commodity, energy, and shipping costs, which disproportionately pressure CPG and automotive margins and advertising budgets - Consumer bifurcation risks: Uneven economic performance has created pressure on lower-income consumers, which hurts demand for mass-market CPG and auto products, leading to temporary advertising budget cuts from impacted brands - Competitive risks: Some competitors are pushing low-margin, low-outcome ad buying models that prioritize low prices over client business outcomes, attracting short-term budget shifts from pressure brands - Execution risks: The company underperformed internal growth expectations in the quarter due to shortcomings in product and go-to-market execution - New leadership transition risk: Most newly hired senior leaders are early in their tenures, requiring time to onboard and contribute to results, which is reflected in the conservative near-term guidance

Analyst Q&A

• Q: What are your top 2-3 priorities to stabilize the business for the rest of 2026, following the Q2 underperformance?

  A: First, the company will launch the Zuma platform upgrade later this month to improve usability and unlock the full value of existing AI capabilities. Second, management will ramp up rollout of its high-potential new products: the incremental measurement framework and Audience Unlimited, both of which have delivered strong early results in limited testing. Third, the firm will continue expanding its JVP partnerships (already growing 6x faster than overall revenue) and scaling the dedicated customer win-back team, which has grown its book of business over 250% year-over-year. Finally, the new senior leadership team will be given time to onboard and drive changes to accelerate growth. ---

• Q: How does AI impact the relevance of the existing DSP business model, and what allows the DSP model to remain competitive?

  A: The core function of a DSP is to decide which of the 20 million available ad impressions per second to buy for clients — this decisioning work is inherently enabled by AI, so the DSP model is fundamentally aligned with AI advancement rather than disrupted by it. The company’s independent, objective positioning is a unique key advantage: competitors that own their own inventory use client data for their own benefit and prioritize selling their own inventory over what is best for the client, while The Trade Desk protects client data and only acts in the client’s interest. Only AI-powered objective DSPs will win in the long term. ---

• Q: How should investors think about long-term profitability and your investment philosophy given the weaker near-term revenue trajectory?

  A: Management remains focused on long-term growth and profitability, with an investment philosophy of investing with conviction in high-return priority opportunities while applying strict discipline to all other investments. Rigorous evaluation will be used to allocate resources, and the company will share updates to its long-term profitability framework as this work progresses. ---

• Q: What is your updated pricing philosophy in the current pressured advertiser environment, and do you plan to change take rates?

  A: The company’s long-standing mantra is to be the best value platform, not the cheapest, a strategy that has worked for over 16 years. Take rates have stayed within a narrow range over the past 10 public company years, rising in 5 years and falling in 5, as the firm ensures the value added always exceeds the cost charged to clients. While management will always consider pricing adjustments to win more business and simplify pricing structures, the company does not expect a dramatic change in net take rates, as it remains confident it delivers more value than it costs.