Greetings, welcome to The Trade Desk's third quarter 2018 conference call. At this time, all participants are in listen only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Chris Toth, Head of Investor Relations for The Trade Desk. Chris, please go ahead.
Thank you, operator. Hello, good afternoon. Welcome to The Trade Desk third quarter 2018 earnings conference call. On the call today from our headquarters in Ventura, our Founder and CEO, Jeff Green, Chief Operating Officer, Rob Perdue, and Chief Financial Officer, Paul Ross. A copy of our earnings press release can be found on our website at thetradedesk.com in the Investor Relations section. Before we begin, I would like to remind you that except for historical information, the matters that we'll be describing will be forward-looking statements, which are dependent upon certain risks and uncertainties. I encourage you to refer to the risk factors included in our press release and our most recent SEC filings. In addition to reporting our GAAP financial results, we present supplemental non-GAAP financial data. A reconciliation of the GAAP to non-GAAP measures can be found in our earnings press release.
We believe providing non-GAAP measures combined with our GAAP results provides a more meaningful representation regarding the company's operational performance. Lastly, I would like to highlight the following events. On Wednesday, November 14th, we will be attending the RBC Technology Conference in New York City. We are also planning an Analyst Day on Wednesday, March 6th, 2019 in New York. We will provide more information on this event before the end of the year. I will now turn the call over to Founder and CEO, Jeff Green. Jeff?
Thanks, Chris, thank you all for joining us today. Before we get into our results, I want to set the context of where The Trade Desk fits into the overall programmatic advertising industry. Global advertising revenues are estimated by IDC to be $700 billion in 2018. Digital is nearly half of that. Inside of digital, programmatic is one of the fastest-growing segments. We think nearly all of advertising will eventually be digital, and nearly all of that will be programmatic. In 2018, Magna Global estimates programmatic will grow 21%. The Trade Desk is growing over two times that. In Q3, our revenue grew 50% year-over-year. This means our growth rate for Q3 2018 equals our growth rate for Q3 2017. Even though programmatic is one of the fastest-growing corners of global advertising, we're growing more than two times as fast. There are several reasons for our growth.
First, there is strong momentum by advertisers to diversify their ad spend on digital. Programmatic is benefiting from this diversification. Advertisers are taking a more data-driven approach to the way they spend, and marketers are realizing that traditional advertising methods do not deliver the best ROI. Another reason for our growth in Q3 is that media is rapidly fragmenting, especially in TV. From an agency and advertiser perspective, The Trade Desk is the best way to target audiences effectively across fragmenting distribution channels. This fragmentation enhances our value proposition. We are independent and objective, we nimbly move where the advertising ecosystem moves. This is driving the momentum for advertisers to spend their incremental marketing dollars beyond the traditional search and social websites. Finally, our independence. Avoiding conflicts of interest by not owning any media and serving only the demand side is more valuable today than ever before.
The market continues to validate our business model. This is now the second quarter in a row where our growth rate has equaled the prior year's growth rate. We are seeing measurable results in our numbers. For Q3, I'm pleased to report The Trade Desk had another record quarter. Our revenue increased to $118.8 million, once again exceeding our own expectations. We have seen significant growth in our most strategic channels, 46% of Q3 spend in our platform was in mobile. This is the highest percentage of mobile spend we've ever had. Our Q3 mobile video growth was up nearly 100% year-over-year. Mobile in-app growth was also nearly 100%. A very positive sign is the rise of the use of data. Data spend on our platform grew by over 70% since Q3 of last year.
We are extremely excited that our first acquisition, made almost a year ago, has already paid for itself. Cross-device spend was up 3X compared to last year. Perhaps most exciting is what we're reporting in Connected TV. Connected TV once again grew more than 10x from a year ago. CTV growth and our CTV market share continue to exceed our own expectations. Our expansion in international markets also continues at a strong pace. Once again, Q3 international spend grew more than the domestic spend. This puts international spend on track to exit the year at a much faster pace than the U.S. We continue to expect rapid growth outside the U.S. for the foreseeable future. We're also excited to report that we signed up three more of Ad Age's top 200 global advertisers.
This includes one of the biggest retailers in the U.S., a huge multinational consumer technology firm. One of the biggest global beverage companies in the world. We view most of their current spend in our platform as small tests relative to what we expect them to do in 2019. This continues a trend we saw last year when we signed a number of large brands on our platform in the second half of 2017. They began with small campaigns. As they saw measurable results, increased their spend. The large advertisers we signed up in 2017 have driven, in part, our 50% year-over-year growth so far in 2018. Over the past 12 months compared to the same period last year, nearly half of the Ad Age Top 200 brands increased spend with us by more than 50%.
One of the most bullish themes I will share today, of the top 200 brands that have signed with us since 2017, spend has increased by over 5x year-to-date compared with last year. This positions us very well for continued growth, not only in Q4, but also in 2019. While too early to quantify, we are more bullish on 2019 than we have ever been going into another year. We're more optimistic about our ability to gain market share than we've ever been on our business. Add to this the growing adoption of connected TV by large advertisers. Advertisers have only just started to move budget over from linear TV, which is why connected TV will possibly be the most important channel for our company's growth in 2019 and beyond.
The largest part of the $700 billion worldwide advertising market is TV, estimated at $230 billion, according to IDC. When TV spend is reallocated to web video, social video, mobile video, and CTV, video content will approach about half of the growing global advertising pie. While TV's move to digital is still in its very early days, we are witnessing a generational shift with the global convergence of the internet and TV. Within the next 10 years, linear TV as we know it today will be dead. Technologies such as 5G are expected to start rolling out in China, Japan, and the U.S. very soon. Increased speeds and reduced latency are a big deal for advertising. 5G is expected to accelerate what consumers already want, on-demand content. 5G will change the advertising and media landscape. Mobile video usage will increase.
Cable companies that leverage 5G will have a huge advantage over those who don't. This monumental change is making new forms of distribution possible. This is one of the many reasons that TV content owners are showing more commitment than ever to having a direct relationship with consumers. We recently met with the head of a major television network and their team. They were one of the earliest partners to make a significant of online inventory available programmatically. They know about CTV, OTT, and programmatic, but are not in the trenches every day. In our meeting, the TV network made their main point very clear. CPM is king, and they will embrace anything that maximizes ROI on content. Of course, content continues to get more expensive. This is where we come in. Programmatic more effectively monetizes content.
It was awesome to see one of the most senior executives at one of the largest content companies in the world embrace programmatic in The Trade Desk. Driving better CPMs is one of the reasons content owners are coming directly to us. By doing so, these content owners are eliminating many steps in the distribution channels and are monetizing their ad inventory more directly and efficiently. We expect to work with any TV, cable, or online channel who wants to have a direct relationship with consumers. We think that in a very short time, that type of relationship will be existentially required for any content creator that isn't included in the skinny bundles that many of the virtual MVPDs are packaging. Better monetization and the fact that no single company dominates the market share in TV leads us to believe that a walled garden approach will not succeed in TV.
TV market dynamics are much different from those of other channels. The Google and Facebook playbooks for search and social do not apply to the TV industry. It is virtually impossible for any one content provider to own as much market share in TV as Google has in search or Facebook has in social. This is why our objectivity from not owning media ourselves makes The Trade Desk one of the most important partners to these TV content owners. For example, take the current NFL season. The Trade Desk is running ads on NFL inventory with many of the networks such as Fox, CBS, and ESPN, in addition to the virtual MVPDs, not just a single partner. We are nine weeks into the season. Ratings are up.
The NFL season is on pace for more overtime games than ever before. This means that more hours are being watched as a result and more inventory is available. That is a huge opportunity for the network showing the games. We think that in the long term, we may be the one company who can partner with everyone in digital, from Amazon and Snap to traditional publishers with a growing online presence because of our scale and independence with no conflicts of interest. That's why we can work with many of the biggest digital publishers on the planet, from Google in most of the world to Baidu in China, from Amazon in the U.S. to Alibaba in China, and globally on Spotify. Don't forget, in TV, AT&T, ABC, Dish Network, Fox, Scripps, and DirecTV.
This is why we are so excited about our new global partnership with Tencent. You may recall that we have announced our partnerships with Baidu and Alibaba previously. This is a big announcement. Before I talk about China and our international efforts, let me finish a few things on TV and the CTV front. Recently, AT&T launched its new ad tech division called Xandr. One of the exciting parts of this launch was the announcement that AT&T will not only sell its own household addressable cable advertising from subsidiaries like WarnerMedia and DirecTV, but will also sell other companies' inventory. This would effectively make AT&T the largest CTV-focused open market exchange in the world, and clearly differentiate it from the duopoly of Google and Facebook. This is a compelling commitment from a leading player on how to best monetize CTV.
We expect to continue to be a demand partner for their marketplace. We expect Comcast and Disney and others to continue similar strategies. They try to own distribution to consumers, they wrap their own and other companies' content. They partner with us for ad demand. Our CTV spend was up strongly again this quarter at over 10x year-over-year. The number of advertisers running on CTV has increased about 100% over the past year. The early investments we made in this channel continue to yield increasing returns. We expect continued growth as the CTV ecosystem matures. The success in CTV is not only happening in the U.S. We are also seeing great progress in Asia and Europe. Many of our Asian office delivered record results in Q3 of 2018, with Hong Kong and Australia both growing over 100% year-over-year.
We recently announced partnerships with Tencent Social Ads, or TSA, and iQIYI. Both of these are major players in the Chinese market. Integrations with these premium inventory sources have already begun. Connecting multinational brands with the more than 772 million internet-connected consumers through premium inventory is a very compelling value proposition to them. We also recently signed an exclusive deal with iQIYI Taiwan. iQIYI Taiwan has a massive user base that is highly engaged with its innovative video and gaming content. It is one of the largest publishers in Taiwan, because Taiwan is a market, like others, where Facebook and Google have a strong presence, but iQIYI Taiwan is a must-have inventory source for digital marketers, and that inventory is now available exclusively through The Trade Desk. In Hong Kong, we recently ran a large CTV branding campaign for a large multinational skincare company via TVB's myTV SUPER.
myTV SUPER is the region's largest OTT gateway and serves about 1/3 of Hong Kong's households. The skincare advertiser's goal was a high completion rate and a lower cost per completed view than with their current video campaigns. The results were fantastic. The completion rate was nearly 100%, and the cost per completed view was 62% lower than on the competing video platform. As advertisers see results like these, it's no wonder they're moving incremental ad spend from other large search and social media companies over to The Trade Desk. We're also seeing growth in Europe. In Q3, we had, again, record spend in the U.K., Spain, and Germany. Our Hamburg office, to cite just one instance, increased its business over 200% from a year ago. Despite the concerns of some, we have not seen diminished spend in Europe as a result of GDPR.
Instead, GDPR has enabled us to build trust with publishers and customers. We continue to win spend. For example, a global media company moved spend from a large competitor due to GDPR. The competitor was favoring its own inventory instead of supporting the inventory partners that the media company wanted to reach. We see this regularly, and it is yet another example of why our objectivity is so valuable to advertisers. At The Trade Desk, we can partner with all publishers that provide premium inventory. Moving to the data side of our business. We are enabling the activation of data to make smarter decisioning much easier for advertisers. As a result, we've seen increased adoption of cross-device data. In Q3, our cross-device spend was up over 3x. Last year, we bought a cross-device company. It was our first acquisition.
Our intent behind acquiring Adbrain was primarily as a service to our customers, not as a key revenue generator for us. When the ability to buy inventory and track results across multiple channels in one place became available, our customers embraced the opportunity and began building multi-channel media plans. By any measure, the acquisition has more than paid for itself, but the strategic value of our enhanced ID offering is worth even more than the revenue. Over the last year, we integrated multi-channel campaign capabilities in our platform in a practical, actionable way. 1/3 of our customers are buying inventory in five or more channels in our platform. Like in the past quarter, we see much of the incremental revenue from their increased spend going straight to the bottom line. Our multi-channel proficiency enhances our position and reputation as the independent alternative to the walled gardens.
Facebook is where people go to buy Facebook, Google is where people go to buy Google. Amazon is where people go to buy Amazon, but The Trade Desk is the place where people go to buy everything else worldwide. That's why a recent study by Advertiser Perceptions showed The Trade Desk ranked third, right after Amazon and Google, in overall demand-side platform usage last year by surveyed marketers and advertising agencies. We were also a strong third in intended usage for the upcoming year, and we are the number one DSP for self-service campaigns and the top multi-channel DSP according to these same advertisers and marketers. They also regard us as number one in thought leadership, the ability to articulate a compelling vision of programmatic. Our position as the leading independent, objective, transparent demand-side platform continues to grow and continues to consolidate.
Recently, I met with the CMO of one of the world's largest consumer packaged goods companies. They own some of the most valuable brands and consumer data on the planet. He told me, "I have to advertise with Google and Facebook, I know that. It doesn't excite me, though. When I hand over our data and get nothing in return, what I want is independent insights. I want a more symmetrical relationship. With The Trade Desk, I get the inventory and the insights that we need." We're hearing more and more marketers and advertisers from some of the largest brands in the world express the same sentiment, that The Trade Desk delivers ROI and insights that nobody else can. Our numbers reflect that. As the worldwide programmatic advertising market grows, we continue to outpace that growth.
Our fundamental business model continues to be validated by our clients and the overall marketplace. As I have stated many times before, we believe our business model is exceptional. We also think the soon-to-be $1 trillion total advertising market presents an opportunity for us that most companies of any size never see. We benefit from faster revenue growth than the programmatic industry at large, strong profitability, and strong operating leverage. We expect to continue to see this for the foreseeable future. In Q3, our financial performance, both in terms of revenue growth and our adjusted EBITDA, was better than what we estimated. We often benchmark our results against the 40% rule of other SaaS companies, in which the health of a technology company is expressed as the sum of a company's growth rate and EBITDA margin.
40% is healthy, we're on pace to be about two times that this year. All this while we are investing in our future as fast as we can. Programmatic is only getting started. It is growing. We believe it will continue to grow. As our numbers quarter after quarter show, The Trade Desk is growing even faster. We anticipate these trends will continue for the rest of this year and into 2019. I'd like to turn things over to Rob to discuss our operating performance for the quarter. Rob?
Thanks, Jeff. Good afternoon, everyone. We continue to execute well on all fronts. As a result, our business continues to deliver outstanding results. Our Q3 yielded record revenue of $118.8 million for the quarter. We continue to add new agencies. We continue to see strong cohort growth. Perhaps most importantly, like last year in Q3, even into Q4, we have won significant amounts of new business. Large global brands are moving additional spend onto our platform, including one of the largest retailers in the U.S., just in Q3. These wins continue to come from a diverse group of verticals, including brands and sectors such as food and beverage, retail, fashion, fitness, consumer technology, and business services.
While we see some incremental spend in Q3 and Q4 from these new client wins, we expect all of these brands to be much bigger contributors starting in 2019 as they ramp up on our platform. Outside the U.S., the trend is similar. As we saw last quarter, nearly every office outside the U.S. set records again in Q3, led by Spain, which grew 380% year-over-year, Hamburg or Germany at 206%, and Hong Kong, which grew by 107% on a year-over-year basis. In Europe, there were two notable wins that represent much of the success we see worldwide. One was a high-end luxury automobile manufacturer that moved spend from a large competitor due to our ability to partner with many publishers in those specific regions that provide premium inventory.
The other was a large global bank and financial services company that moved spend due to our ability to do custom attribution modeling using the advertiser's own first-party data. This just cannot be done on other large competing platforms. In Asia, I want to highlight some of the successes we are seeing in the Australian and Indonesian markets. In Australia, after a long and thorough RFP process, we recently won one of the largest travel companies in the country. Our success was due to our omni-channel buying capabilities and a customer service and product support model is, as our client put it, "Literally second to none." Like what we see with large brands in the U.S., the agency is also working closely with the brand and providing strategy and executing buys on our platform. Turning to Indonesia, we've had some great client wins in this quarter.
For example, two large independent agencies we have cultivated over the past year recently signed onto our platform and are starting to ramp up spend with us. Those agencies saw the value in our business insights, the reporting data we provide, and stellar customer support. We were also selected as the preferred DSP by a global agency on behalf of a multinational auto manufacturer for their Indonesian marketing efforts. Through an RFP process, we went head-to-head versus a large global competitor. During the process, our platform significantly outperformed the competitor on many key performance metrics. We won the business. From a channel perspective, our growth was again driven in part by our mobile video and in-app channels, which each grew nearly 100% on a year-over-year basis. Connected TV, which again grew over 10x.
Our audio spend was also very strong in Q3, growing nearly 200% on a year-over-year basis, as advertisers allocate dollars to a channel we regularly describe as one of the most on-sale portions of advertising in the market today. Total mobile dollars reached 46% of total spend in the quarter for the first time, while display is now less than 30% of spend, as media continues to fragment and our omnichannel strategy continues to drive spend growth. As I've described before, from an operating perspective, we have three core priorities that we focus on. One is remaining the objective and independent partner for our clients. Two is growing our omnichannel presence, three, expanding our international footprint. One of the largest differentiators between The Trade Desk and other large advertising platforms is our objectivity and the independence that comes with not owning media.
Those qualities serve as a foundation of trust that we then build on with our agency and brand partners. The proof is not just in our top-line revenue results or the performance on our platform, but by a 95%+ customer retention rate for the 19th straight quarter in a row. We are very proud of that. In a time where there's a lot of focus on privacy and brand safety concerns, advertisers seeing The Trade Desk provides the control they need to buy only the premium inventory they want to reach the audience they intend, and we are winning spend from traditional digital channels as a result of this. A great example of this shift in spend is a large multinational life sciences company that is now on pace to spend over $5 million annually on our platform, which is up 20% from their original plan for the year.
We won additional spend for two reasons. One, the marketer had brand safety concerns on other large competing platforms, two, our approach and commitment to blocking fraudulent impressions. Our partnership with White Ops, which is now about a year old, gives marketers assurance that we are building and maintaining a high-quality marketplace for them to spend their marketing dollars on. Next, I want to focus on growing our omnichannel presence. The ability to target marketing messages throughout a complete customer journey is a key function for an omnichannel buying platform. In Q3, we have seen more and more advertisers use multiple channels in the advertising mix. This includes mobile, video, connected TV, audio, native, and of course, display.
Those clients using six of these ad channels increased by 84% from a year ago, advertisers using four, five, or six channels now far outnumber those using one, two, or three channels. From an omnichannel perspective, one of the most effective ways for an advertiser to maximize their ROI is by utilizing our new Identity Alliance product. Since launch, the success of this product has been phenomenal. Identity Alliance accounted for 46% of all cross-device usage in the quarter and was used on nearly 25% of all impressions by the end of Q3. This enables the ad buyer to leverage cross-device data from major cross-device vendors such as Tapad, LiveRamp, Drawbridge, or Oracle that best considers the intended target audience for every single impression. It is delivering significant results for agencies and advertisers. The last area I want to touch on in our channel mix is connected TV.
Every day we see results from the field where our platform significantly outperforms the competition. As more brands are shifting their connected TV spend from a testing phase to now incorporating connected TV into their core media plans, they are seeing measurable improvements in results. One example of that is a global web services company that recently tested advertising on premium content on connected TV versus video content from a leading user-generated content, or UGC, platform. Previous campaigns on that UGC platform yielded a competitive cost per completed view metric, but the company hoped to reduce that metric below the UGC site's benchmark while still maintaining a high video completion rate. Their agency tested out the two strategies by activating connected TV with our platform on The Trade Desk.
Within a few weeks, it was very clear that connected TV on our platform was a more effective way to spend their ad dollars to achieve their marketing goals. The agency saw the value in The Trade Desk's audience targeting in the connected TV channel and also the high-quality inventory we had available. After proving that connected TV content and advertising with The Trade Desk can perform better than its UGC benchmarks, the company quickly ramped up their ad spend budgets to include significantly more connected TV spend on our platform. Running connected TV campaigns on The Trade Desk resulted in a cost per completed view that was two times better than their previous UGC benchmark. Additionally, the company maintained significant audience scale as well as very high user engagement, measured by a 95% video completion rate.
These results were amazing, and it provides a great example as to why more advertisers are turning to The Trade Desk for their connected TV plans. The final priority we are focused on is extending our geographic footprint as we continue to see success outside the U.S. In Q3, international growth has put us on a pace to grow international spend at a much faster rate than the U.S. for the full year 2018. The teams in many of our offices outside the U.S. each reached their all-time record spend in Q3. The adoption of programmatic and the market growth we saw across both Asia and Europe was very strong. In Europe, three of our offices posted their all-time record spend in Q3. We continue to sign new MSAs and see spend moving over to our platform from large competitors and social media platforms.
The new business wins included large global brands such as a major consumer technology company and another large global beverage company. We have seen this momentum continue into Q4, and our prospects in Europe are well positioned for rapid growth over the long term. In Asia, all of our offices are posting good growth numbers, and our client teams are regularly opening up new inventory and winning new business with large global brands. One recent example of expanding our inventory and running new connected TV campaigns comes from Southeast Asia. One of the largest TV networks in Thailand operates an ad-funded OTT service, and we recently partnered with them. Last month, two large global agencies began running new campaigns to open up the connected TV market in Thailand. This is a very exciting development for us and what we think is a harbinger of the future.
Overall, we feel great about what we accomplished in the third quarter and the momentum we have entering Q4 and into 2019. We have secured big wins with new advertisers this year, many later in the year than we have seen historically, and we are consistently gaining incremental spend from existing clients and regularly winning incremental spend when we go up against other large competitors and social media platforms. We are very confident in the trajectory of our business. Now I'm going to turn the call over to Paul to discuss our financials.
Thanks, Rob, and good afternoon, everyone. Q3 was another record quarter for The Trade Desk. We were pleased with our Q3 financial performance and overall execution. Revenue increased 50% year-over-year, similar to the growth rate we saw in Q3 of last year. Adjusted EBITDA increased 49% year-over-year, and net income increased 98% from a year ago to a record $20.3 million, all while we continued to invest aggressively for future growth. Revenue for the third quarter was a record $118.8 million, which was above our expectations and reflected increased spend by our existing customers and the addition of new customers and advertisers, as Rob elaborated a moment ago. For the quarter, approximately 91% of our third quarter gross spend came from existing customers who've been on our platform for longer than a year.
With the growth of our business, our operating expenses grew to $97 million in Q3 of 2018 from $61 million during the same period in 2017. This increase was primarily due to increased investments in technology and development and our platform operations as we invested for future growth. GAAP net income was $20.3 million for Q3 or $0.44 per fully diluted share. Our Adjusted Net Income was $30.2 million or $0.65 per fully diluted share, compared with Adjusted Net Income at $15.3 million or $0.35 per share in the comparable period. Adjusted EBITDA was $36.6 million, with a corresponding margin of 31% of revenue during Q3 2018. The increase in Adjusted EBITDA reflects the strong growth of our top line, offset by our increasing investments in product, people, global expansion and corporate expenses.
Net cash provided by operating activities was $26 million for Q3, and our trailing 12 months of operating cash flow and free cash flow were $63 million and $46 million, respectively. We continue to have zero debt on our balance sheet, and our cash position continues to climb, exiting the quarter at $166 million. As you may have seen in our SEC filings, we recently entered into an amended credit facility that enables us to borrow up to $150 million on our revolver, down from $200 million prior. The reason for the change was a combination of lowering our borrowing costs while increasing our flexibility as we moved from an asset-based line to a cash flow-based line.
While cash flow from operations will inevitably fluctuate from quarter to quarter due to seasonality and timing, we continue to expect our cash balances to continue their overall trend of up and to the right. We believe that our strong cash position of $166 million, combined with our revolver and our ability to generate free cash flow, are more than sufficient to manage any working capital needs for the foreseeable future. For Q4 of 2018, we are expecting revenue of $147 million, which represents accelerating growth versus our growth rate in Q4 last year, and adjusted EBITDA of $53 million.
For the full year 2018, inclusive of our guidance for Q4, we now expect revenue for the year to be $464 million, which approximates to 50% growth year-over-year, and corresponding adjusted EBITDA to be $145 million or 31% of revenue. With that, I will hand it back to Jeff for any final comments and of course, Q&A. Jeff?
Let me close by giving some commentary on the remainder of 2018. For all of 2018, we are expecting revenue of $464 million and an adjusted EBITDA of $145 million. If we just meet our goals in Q4, we will have produced year-over-year growth acceleration, beating last year's Q4 growth rate of 42%. Brands are coming to us directly at a record pace. TV content creators are coming to us directly at a record pace. Our data business has grown 70% year-over-year. Cross-device has grown 3X. Mobile video was up almost 100%, and mobile overall is almost half of our revenue. We saw a remarkable 10x increase in connected TV yet again. With those trends, you can see why we're so bullish for Q4 and 2019. Our investments are paying off. When we see surprises, they typically are to the upside. There is more opportunity in front of us.
We believe The Trade Desk is well-positioned to realize continued growth for Q4, next year, and beyond. That concludes our prepared remarks. Operator, please open it up for questions.
Thank you. We will be now conducting a question and answer session. In the interest of time, we ask you please ask one question, then return to the queue. Once again, that is star one if you would like to ask a question at this time. In the interest of time, we ask you please ask one question, then return to the queue. After you press star one, a confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, that is star one to ask a question. We ask you please ask one question, then return to the queue. Our first question today is coming from Brian Schwartz from Oppenheimer.
Your line is now live.
Hi. Thanks for taking my question this afternoon, and congratulations, Jeff, Rob, and Paul on a terrific quarter here. Jeff, you mentioned a couple of times here you are more bullish about 2019, and that is quite a diversion from the other SaaS companies that I am talking to who really are not willing to talk about 2019 yet. You did a good job giving us some of the company's specific trends that you have that are looking positive. It looks like the share gains are happening faster, the metrics are supporting that. The question I wanted to ask you, just based on the customer conversations that you have going on, when you think about 2019 and you think about that big digital advertising pie that is out there, do you see tailwinds or headwinds out there for next year? Thanks.
Awesome. Thanks. Really appreciate the question. It is always a really important time of the year where we are prepping for 2019 or prepping for the next year. Let me give you some of the things that I think answer your question very specifically, and I will skip to the end of the book, which is we have the wind at our back. We are in a better position than we have ever been at this point in the year with more confidence than we have ever had at this position in the year. The first thing is, just looking at our own performance, it is pretty remarkable that in Q2 we equaled our growth rate of 2017, and in Q3 over quarter, meaning Q3 2018 over Q3 2017, we once again equaled our growth rate.
Given that we're making much bigger numbers at this point, we're very proud of that, and that outperforms even our own expectations. It goes even further when we guide today that for Q4 we expect to accelerate and grow faster this year than we did last year. That is in part because of some of those numbers that we talked about that are the winds at our back. Maybe the two most exciting are just the channels where all the growth are coming from. First, mobile, the fact that 46% of our revenue came from mobile and that mobile video, which is one of the most exciting channels we'll ever see, grew by 100%. Then connected TV, once again growing at 10x.
Data growth where anytime people are making data-driven decisions, we think that that is good for us because it means that once they compare a data-driven choice to a non-data-driven choice, which I think is most of advertising still, it just makes it so the house always wins. Like that's always in our favor. The fact that our data spend grew so much and data usage as a whole went up by even more than that suggests that the winds are even more at our back than we thought. With all of those things happening, we're more confident for 2019 than we ever were. I compare this to a year ago when we're looking at the next year. It's just night and day difference in terms of our confidence.
Thank you. Our next question is coming from Vasily Karasyov from Cannonball Research. Your line is now live.
Thank you. Good afternoon. Jeff, I would like to ask you to sort of simplify for us the connected TV advertising process. Can you tell us what are the top three, let's say, sources of inventory for you in the U.S.? What percentage is transacted programmatically? Because I think there is still some of the OTT inventory that's sold manually or the traditional way. That would be great. Thank you.
You bet. First, let me just give everybody a little bit of context for connected TV. You may recall that in Q1, I said the most bullish thing I'm reporting in this report is that inventory for connected TV went up by 1,000%, went up by 10x. Then the next quarter, I said the most bullish thing that we've said year-to-date, even more bullish than the thing I said last quarter, is that our connected TV spend went up by 1,000%. When I said that, I never anticipated that when we were giving our Q3 results as we just did, that I would once again say that connected TV spend went up by 10x quarter-over-quarter, Q3 2018 over Q3 2017. I never expected that to happen, and that, once again, has wind at our backs.
To give you an example of where the inventory is coming from, more and more of the channels that are not included in the skinny bundles, they have their own channels popping up on the Roku and Amazon Fire and the equivalents. Of course, most of those are ad-funded. As media continues to fragment, especially in TV, and channels are going direct to consumers, that represents new ad opportunities, and we're working very closely with those companies. Maybe even more inventory is coming in through virtual MVPDs, and those companies are essentially putting together their own bundles, and that creates opportunity. In order for them to stay reasonably priced and competitive, they need to rely on programmatic to be the primary source of demand. In virtual MVPDs, it's often the primary source of demand.
In some of the bigger ones, like for instance, Hulu or some of the other bigger channels where they have big digital efforts and they've been doing digital for a long time, it's actually that programmatic is the minority, and most of those are through direct sales forces. In answer to the second part of your question, most of digital is still sold from sales forces, which represents a tremendous opportunity for us because your cost of sales goes up when you do that, as well as the ability to use data and get richer CPMs as a result because targeted is better and therefore generates better CPMs for publishers or content owners. It makes it so that there is the possibility for us to inject data and lower the cost of sales and get them a higher net CPM as a result.
That's where we're seeing a tremendous amount of this growth. The fact that the majority of it is still sort of hand sold, if you will, represents upside. Then, of course, there's the macro secular tailwind that is moving everybody off of traditional cable and what I think is becoming an even worse user experience for what is on demand. That, of course, as that continues to increase, given all the trends I just talked about, fragmentation continues, and then the need for holistic media buying, especially to control reach and frequency, comes in from a platform like ours. We've never seen an opportunity like CTV before, and I don't think we'll ever see one like it again. It is the biggest opportunity we've ever seen and probably ever will. Thanks.
Thank you. Our next question today is coming from Aaron Kessler from Raymond James. Your line is now live.
Yes. Hey, guys. Congrats on the quarter. A couple of questions. First on the, I think last quarter you talked about Google limiting how its DoubleClick ID can be used. Additionally, just your thoughts on maybe Facebook also kind of limiting advertiser data, if that's starting to benefit you as well. Thirdly, just the any commentary around election spend, if you guys benefited from that in the quarter. Thank you.
You bet. Just so that everybody understands exactly what was happening with DoubleClick ID, just because I know following all the ID stuff can sometimes be hard. What used to happen, and actually I referenced this on the prepared remarks when I was talking about the large CPG company, talking about how they would rather give essentially their leftover spend to Google and Facebook because of the change. Let me explain why. What DoubleClick used to do is they used to share their ID with everybody. That was great because it basically became a common currency. It was fine for the industry. It worked well.
They decided to limit the use of that mostly because of the liability of owning a search engine and the desire to protect the data that comes in through their search engine so that it never has the opportunity to leak. That's the same thing that I believe Facebook made the decision to not ever use their ID again. In the case where it's anonymized and we, of course, not trading in personally identifiable information or directly identifiable information because we don't transact in that, using an ID to make it possible for an advertiser to track exactly what they bought is something that's much more feasible for us because, again, we don't have a search engine. As a result, we will share our ID with a large CPG, for instance, and will not.
It makes it really hard for that CPG company to know what they bought on Google, especially it makes it impossible for them to compare the performance on Google to something else. As a result, we're getting new inquiries from advertisers and agencies saying in cases where we used to spend with Google or Facebook we'd like to spend with you. In fact, we'd prefer to spend with you and spend as much as we can with you first, then we'll backfill with them just because we don't get the insights back. Because it's complicated and nuanced, I think we've only scratched the surface of what we will ultimately see as a result of this policy change. It is a huge advantage that we have.
I understand why they made that choice, because their DSP is not core to their strategy while of course that's at the center of what we do. The second part of your question-
Political spend
Oh, political spend. Sorry. I made a note here and I couldn't read my own handwriting. The political spend, we did have a little bit of political spend. It was very low single digits, so I imagine the reason you're asking the question is, did we have some windfall that is going to go away? That's not the case. We had a small amount, we actually made a deliberate decision this year to make less efforts in political spend than we have in years past. It's relatively small.
Thank you. Our next question today is coming from Shyam Patil from SIG. Your line is now live.
Hey, guys. Congrats on the great quarter and outlook. I had a couple of questions or two-part question. First one, Jeff, you kind of talked about this a little bit just now, but can you just talk a little bit about your new audience ID solution, just what it is, how it helps advertisers, how it fits into the advertising ID consortium? Second part, you mentioned Amazon a couple of times in your prepared remarks. I was just wondering if you could just talk about that relationship a little bit more. Thank you.
You bet. Let me first explain what we're after in our Unified ID, and some of you that were at our Investor Day a year ago might remember that we talked about it as one of the five most important parts of our strategy. We said then, even before Google made their policy change, that we would have an ID available that would ultimately have a bigger footprint than any walled garden would create. In some sense, that was a fairly bold assertion, but it's happening. What our initiative is, basically as I mentioned a second ago, Google used to be the currency or one of the currencies which all data could be transacted on, so it's anonymous ID. Mobile advertising actually built sort of their entire infrastructure on a mobile ID that works the way that the rest of devices we wish worked like that.
Instead, things like desktop and even mobile web transact using cookies, which makes really fragmented IDs. What we've done is we've said we're willing, given how many times we touch consumers, given that we essentially look at nine million ad opportunities every single second, which represents another touch of a consumer, that we have the ability to be one of those currencies that can be much bigger than any one inventory source could ever be, even Google, Facebook, or anybody. What we did is we then created the standard and immediately started sharing it. Because our footprint or our currency was already bigger than nearly everybody else, we started sharing it with the independent ad tech community. Since then, nearly every major SSP has committed, many have implemented it or are in the process of implementing it.
Actually, the largest independent SSP or ad exchange rolled it out GA less than a month ago. The results are unbelievable. That's Index Exchange, and the match rates between it in at least the initial test were above 99%. That effort is well underway, and it will be paying dividends for years to come. As we continue to grow and continue to get adoption, that will only have more and more of a positive impact. Certainly on Investor Day, we'll talk more about it. To answer your second question, I think that we, going forward, will have a more complex relationship with Amazon. Let me first explain why I think that that relationship will be more complex.
I believe that Amazon is going to be a significant player in the connected TV, sort of OS as a result of their efforts in Fire, and that creates an opportunity for them to have influence over advertising. I believe that just like anybody in TV, and this is true of anybody in TV, nobody has enough of the inventory under their control that they can build a walled garden. There is no walled garden playbook that will ever work in TV. Because Amazon is smart, they recognize that they will have to welcome demand from other players. I anticipate that we'll be one of those, which I welcome and hope to be a partner of Amazon's when that time, in my view, inevitably comes.
Which will make it more complex, because on another front, Amazon is somewhat of a competitor in the sense that they're trying to get advertising dollars, especially for their site. amazon.com has become an amazing place for brands to advertise. They're sort of the new end cap if you think of them as a new retailer. In that regard, we don't compete with them at all just because we're trying to get dollars that we can help allocate. Whether we'll ultimately have access to their inventory, I think we will at some point, but I think that's a long way down the road just because their business is still very young, and they can manage a lot of it for a long time on their own.
In terms of Amazon building a DSP or having efforts to go offsite, I worry about them way less than I do Google or Facebook on that front, simply because I think they have more of an objectivity problem than any other company on the planet. If you think of it from a CPG's perspective, I already have to sell my products through them. I'm more reliant on them than I ever was on Walmart, or any other retailer for that matter. Now they're asking for my advertising spend, not just for amazon.com, but for the entire digital media landscape. I need to reduce my dependence on them, not increase it. If they're already storing their data in AWS, the fear that is created in those companies because of the lack of objectivity is greater with Amazon than any company in the world.
As you already know, Facebook got out of the game in part because of that conflict. I think Amazon has a much tougher road than they did, so I worry less about them than even Google or Facebook, and hope that we have that complex partnership that I'm describing.
Thank you. Our next question tonight is coming from Mark Kelley from Nomura Instinet. Your line is now live.
Hi, this is Andrew Marok for Mark. Two questions, if I could. First, can you talk a bit about what you're seeing broadly in the competitive environment for spend, especially with respect to DoubleClick, Bid Manager, and Facebook? Second, you mentioned in your prepared remarks that you haven't seen diminished spend in Europe due to GDPR, but just wanted to get your thoughts on the potential spread of GDPR-style regulation being considered or potentially passed outside of the EU. Thanks.
You bet. First on the competitive stuff for DoubleClick. When they made the strategic choice to remove the DoubleClick ID or Google's sort of common currency, which was the DoubleClick ID from sharing with their clients, it created a huge opportunity for us. It also effectively said, we're making the strategic priority that within Google, we are deprioritizing DBM, or the artist formerly known as DBM. That's been humongous for us, and it means that in more and more head-to-heads, we have advantage.
As we continue to build out our offerings, especially like the cross-device, our offering's getting more competitive more quickly as we're more focused, because I would just summarize their value proposition as, hey, we have a unified stack, and maybe on the buying tools, we're not as competitive as The Trade Desk, but we're more integrated to other parts of your advertising or marketing stack. We do more integrations, as we continue, like in June when we shipped the biggest upgrade to our product ever, when we continue to do that, we continue to distance ourselves on the buying products. Those two things together make it so we're winning at a faster pace than ever, and we think we're gaining ground.
On the GDPR theme, there's probably not a place in the world where there was more discussion about GDPR than Germany. We just talked about how we had a nearly 200% year-over-year growth rate inside of Germany, one of the fastest-growing in the world, and more scale than more than half the markets we're in. The growth in Europe has been fantastic, and we haven't seen any negative impacts from GDPR. I think your question, though, is more about, hey, what about GDPR-like implementations like in individual states and things like that. I'll just bring you back to the big picture. The internet is based on a quid pro quo. You share data and see relevant ads in exchange for all the free content. I don't believe that quid pro quo can ever be changed because there's so much gravity around it.
What all the regulation and all the discussion is around GDPR and other efforts like it, I think is mostly reasonable, which is asking companies like ours to strike the balance between privacy and relevance. There's no way that the internet works if you don't have both. You have to have both. We've just made huge efforts to make certain that we respect consumers' privacy and avoid any of the gray areas. As a result, we think that we've won more spend, and I think the proof of that is in the data as a result of our stance on privacy and the way that we've handled GDPR.
We've massively increased our legal resources, not as preventative or reactionary to it, but more as preventative, which is to say that we want to make certain that we're doing the right thing and that we understand thoroughly the law everywhere in the world so that we're constantly in compliance and doing the right thing. I think we're doing as good a job as anybody in our space at that.
Thank you. Our next question is coming from Mark Mahaney from RBC. Your line is now live.
Okay, great. I know there was some details in the comments earlier about China and Tencent. Could you quantify that at all? Do you think that there's the ability for China to be your largest international market, then potentially your largest market within a certain period of time? You've got at least three really large partnerships in that market. Are there other ones you need in order to gain critical mass, or do you think you already have it there? Then if I could just go back to the product itself, the Next Wave, and unless I missed it, I don't think you've talked a ton about it on this call. What impact you've seen that product have in terms of either client retention, client spend?
As far as we can tell, it looks like, you've certainly talked about how it being the biggest product cycle upgrade improvement that you've had. Can you talk about how that's actually impacted spend or client retention? Thanks a lot.
You bet. First, on the China piece, I absolutely believe that at some point, China will be the largest market for us in the world. While today it's the smallest market that we're in, we think that can change really rapidly as it will be the largest advertising market in the world. We think at end state, our pie, if you divide it up geographically, it's going to match the pie of global advertising spend, China will be the largest advertising market in the world. Because of that opportunity, especially because so many of the advertisers that spend a lot of money in China are not based in China.
That's what makes China a little bit different as a market in terms of the way you go in, as well as something that makes it very different for us in the way that we go into that market versus like a B2C company who's just trying to win over Chinese consumers to their brand. We're not doing that. We're taking brands that they already know and love into that market. That creates a level of trust with both the brand and the agency that is global and most often not based in China, to bring to them essentially trusted inventory where Baidu, Alibaba, and Tencent have more control as a percentage of the Chinese market than, for instance, Google, Amazon, and Facebook have in the U.S. market. It means that developing relationships with Baidu, Alibaba, and Tencent are really important.
We alluded to an announcement that we'll make more public in the next couple of days around Tencent, which is that we have signed Tencent. We've been public before about our partnerships with Baidu and Alibaba. Our partnership with Tencent is as important, if not more important, than Baidu and Alibaba in the sense that they're more invested in ads, especially video ads, than arguably the other two. We're super excited about the partnership and believe that with those three, we have the foundation to be way more aggressive in the way that we go to market going forward. That said, we've done little in terms of forecasting or planning, only because we don't want to put the pressure on our own teams to go faster than we should.
We definitely are in the business of winning trust and going slow, that means just being a little bit more cautious while investing aggressively in the inventory that we buy and doing a lot of due diligence. We're super excited at the opportunity, and we'll invest more in 2019 and expect to start seeing real spend happen in 2019. As it relates to Next Wave, one stat that I can share that we haven't shared yet is that we just launched the product in June, and you're always trying to monitor how much of that adopts your new product. How many people upgrade from iPhone 9 to iPhone 10? We offer both of them today and our legacy product, as well as all the products associated with Next Wave.
I'm excited to report that already in that time, 42% of our clients have upgraded, and all of them have seen increases in performance and cost. We've quantified that we believe we've saved at least tens of millions of dollars in increased efficiency. By some measures, over $100 million. It also, I think, is the best explanation as to why the data spend was up so much more because we just made it easier for them to make data-driven decisions. When they do that, it just increases efficacy, that increases retention, and the flywheel spins faster. That is one of the top reasons why we're forecasting for the first time in the history of The Trade Desk, acceleration.
Thank you. Our next question is coming from Tom White from D.A. Davidson. Sir, your line is now live.
Great. Thanks for taking my question. It's about your data offering. I'm just kind of curious if you could kind of characterize maybe the next areas where you guys can innovate or roll out new offerings on the data front. Is it just about kind of refining and improving the cross-device multi-channel, or are there other things? Then I guess sort of related, I'm just curious, can the fact that a large percentage of your customers integrate with your API. Does that give you any sort of advantage or insight into what data offerings might be the most compelling or lead to the best outcomes for advertisers?
You bet. Let me start in reverse order because there's some insight, I think, to the first question that will come from the second. I think you could make the argument that our most sticky customers are those that leverage our APIs. That means they've taken the time to put dev work into connecting to us. They also are doing things in a more automated or sophisticated way. It just represents a larger investment. I think we have massively under-invested in selling and distributing our APIs, even in developing our APIs, which you'll see more investment go into that in 2019. That creates even stickier customers. There's definitely an opportunity for us to do more in APIs. They do represent some of the most sticky customers. As an aside, I'll say, in the independent ad tech world, AppNexus is probably our biggest competitor on this.
I do believe them being acquired by AT&T massively changes their focus to just focus on building products for TV and especially for traditional television.
Yeah
Additionally, connected TV. That does create a big opportunity for us to own much more market share in the API world than we have in the past. I think there's big opportunity there. As it relates to other new products in data, we've done a decent job of investing in our DMP, but there is so much more that we can do, and especially to make it easy for brands to put their first-party data to work and to automate some of the lookalike modeling that they do today. There's so much opportunity for innovation, and there are very few places, maybe the only one being connected TV, where we will invest more than this. In other words, this is our second-biggest investment area coming into next year, and there's just so much to do.
We have only scratched the surface in terms of what we can do in data and data innovation. I just want to always caveat that we'll always do that in a consumer-safe way and be constantly thinking of how can we make certain that we strike the right balance between consumer privacy and relevance for consumers. There's so much more we can do.
Thank you. Our final question is coming from Brian Fitzgerald from Jefferies. Your line is now live.
Thanks, guys. You got into an acceleration on the top line growth in Q4. You highlighted some strong client additions. How should we think about the scale of these new clients relative to what you've seen before in past cohorts? Maybe also the speed with which you're seeing these newer clients and cohorts ramp spend. Thanks.
You bet. Let me give you a couple numbers. From Q1 2017 to Q1 2018, the new advertisers that we've added, they added nearly $200 million in new spend to the platform. Of the top 200 brands that we've added since 2017, spend has increased over 5x. A 500% increase as a result of those that we added. Of course, many of those came in in early 2017, which is why they've had time to ramp up like that. If you're thinking about the cohort, one other thing to think about, and in order to give you this insight, I have to give a little bit of a preface. Let me just reinforce. We've always been close partners with the agencies. I always anticipate that will be the case.
While we've talked about signing more MSAs with advertisers directly, that does not represent a change in strategy for us, which is it doesn't mean that we're going around the agency to go sign with brands. Instead, what we're doing is we're signing with the brands so that we can activate their first-party data in conjunction with all the things I talked about in the last question, then we're asking the agencies to do the work. We want to give the brand reassurance. Last year, we signed, I think it was five brands directly. This year, we're up to 15, and the increments are way bigger, by some measures, 1,000% bigger in aggregate over those original five.
There is so much opportunity that's come from those relationships, if you use history as any guide, there will be meaningful growth in all of those added in next year. It's one of the many reasons to be bullish about next year.
Thank you. We've reached the end of our question and answer session. That also does conclude our teleconference for this evening. We thank you for your participation today. Have a great night.