#90: Google Anti-Trust Case Day #3
What is the meaning of "meaningful"?
Yesterday was day #3 of the DOJ’s anti-trust trial against Google’s adtech business and alleged monopoly. Ari Paparo’s outstanding play-by-play coverage (get it on Marketecture) continues to lead the way.
Here’s an interesting statement from Trade Desk testimony that stood out like a mirage in the desert — appealing at first glance but not what it seems upon closer inspection.
TTD hasn’t been able to meaningfully grow in the open web display market despite investment.
How can that be? Since 2015 — the year before TTD went public — gross ad spending on its platform grew from $553 million to $9.4 billion in FY23. That’s a 43% compounded annual growth rate (CAGR).
Over the same eight-year period, Google’s “network revenues” (GAM, AdSense, AdMob, DV360, Google Ads, and CM360) grew from $15 billion to $31 billion — a CAGR of just 9.6%.
If we narrow our scope down to only compare one DSP against the other (DV360 vs. TTD) over the same period, we have to do a little math:
We know from court filings that DV360 processed $6.7 billion in 2020.
We know from eMarketer that the overall display market grew by 31%, 8%, and 12% in 2021, 2022 and 2023, respectively. If we assume DV360 grew at eMarketer rates, then gross ad spend processed by the platform in 2023 was around $10.5 billion.
All things being equal, we can run a basic proportional equality math using $15 billion in Google Network revenue in 2015 and $31 billion in 2023 to solve for DV360’s gross ad spend in 2015 which would be $5.1 billion which will give the same 9-year CAGR as before, 9.6%.
Alternatively, we can use our estimated values from 2020 to 2023 as a seed and backward calculate to 2015 gross ad spend on DV360 using a natural log which comes to $3.4 billion and a 15% CAGR over the 8-year time frame.
Any way you cut it, The Trade Desk has grown in a very meaningful way. Moreover, some folks might even say a portion of Google’s –5% decline in network revenues from FY22 to FY23 probably benefited TTD because media money always has to go somewhere and it’s usually to the next best (or least worst) alternative.
To put a final point on mathematical fact vs. what appear to be unsubstantiated statements, according to eMarketer, the overall global display ad market experienced a 23% CAGR over the 8-year time frame. So, not only did TTD crush DV360’s growth rates but it also smashed the overall market which means it took share from someone.
All this reminds us of a Bill Clinton-esque moment:
“It all depends on the meaning of meaningful.”
Focus on your business, not the other guy’s
Urban legend says McKinsey consultants have a go-to rule of thumb. When in doubt, just say:
We have a massive opportunity. It’s not going to be easy. We have a plan to get there.
When your market cap is $51 billion with FY24 estimated forward gross ad spend of $12 billion, you clearly must have a massive opportunity to capture. And it’s certainly not going to be easy.
Not only does TTD need to engineer and grow EBIT margins from 22% in FY23 (adjusted EBIT including all R&D capitalized ) to at least 30% (which is top percentile performance across all companies in the universe), but they also need to somehow keep take rates at ~20% and somehow capture a whopping $200 billion in gross spend which would be 13% of all ad spend globally. That’s a long way from TTD’s 1.2% global share today which is already incredibly impressive on a relative basis across any peer out there in the advertising space.
So, the only question that remains is, “What is TTD’s plan to get there?”
Perhaps management should be more focused on executing the plan at a faster clip and less focused on the other guy —Google.
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