Viant Technology Inc. (DSP) Earnings Call Transcript & Summary

Good afternoon, everyone. This is Nat Schindler, and I'm very happy to have Tim and Chris Vanderhook, the -- well, the Vanderhooks, who I think of as kind of the basic management team of Viant. If you guys can determine if you want, but it's Tim on the right and Chris on the left.

But let's just jump in right now to the elephant in the room because, obviously, the stock is being impacted today. I actually don't quite understand why it's impacted today, not yesterday. But on Monday, Apple made some big announcements about blocking the IP address that is often used in digital fingerprinting. This has some marketers freaking out. What does it mean to Viant?

Yes. Well, Viant is what's called a people-based DSP. And long ago, we felt that digital identifiers run stable in the IP address that you mentioned with the changes that Apple is making, it is another one of those digital identifiers, where big tech can put an outsized influence on their use. So Apple made a change that if you're an ad tech company and you have these ad tech pixels on a marketer or publisher's website that they're going to route it through and obfuscate that IP address. And what a great time to be a people-based company. Our data is based on not digital identifiers but on people-based identifiers, like if you think Experian, your name, address, phone number, e-mail. These are what we call our traditional people-based identifiers. We don't house this data. The marketer has the data and the publisher has the data. Our software makes it simple to match up on those identifiers and buy ads electronically, and measure what the returns are for the marketer. So for us, we think this will impact a lot of the cookie-based or digital device identifier-based platforms in the ecosystem. But for us, 6 years ago, we moved to this people-based concept and pioneered it because we knew these digital identifiers were going to go away. So for us, what we see this impacting is it's an acceleration away from cookie-based or device ID based into the real world of people-based identifiers, and we're the leader in this.

Yes. That's what makes it very interesting about the outsized reaction that I saw today in your stock, down 14% on what everybody is attributing to this. When you don't use digital finger printing. But on the other side of the coin, I look at some competitors who do, and they're barely moving. And strangely enough, some supply-side platforms who benefit from the -- from digital fingerprinting are actually up a ton today. What's the stock market getting wrong? And why are they getting it so?

I don't know why they're getting it wrong. I think it is due to -- we have a smaller float out there. I think it is. Some of that attributes to the larger stock price moves on a daily basis, but they do have it wrong. If you read our S1 and our public offering that we went, one of the risks was that cookie deletion was a risk factor that we cited or device identifiers going away as a risk factor to us being successful. And now Apple has checked that box, Google has checked that box. That's no longer a risk for our business model to be adopted. So I think there is confusion in the marketplace, definitely on who uses what in the ID situation. But I can assure investors, our data is based on people-based data that is not controlled by big tech, and we've been doing it for 6 years. And I think over time, the market will understand who the winners are and who the losers are, but I certainly think this accelerates our adoption.

Sorry, just I want to correct one thing to clarify that just make sure everybody understood that. A risk factor that we put in there is if cookies -- we've been betting on cookies and device identifiers. The old way that we say that the industry has been based on. If these changes don't happen, we think that, that was a risk to our business. I think that was the point. Now that these are happening, we think that -- and we've always known. People-based platforms and people-based data of the future, not the anonymous tracking across sites and apps that Apple is trying to eliminate. That's really what this is aimed after. They don't want these data trackers out there building dossiers on consumers. And so they want to make the phone a lot more secure. There's a lot of other things that go with it around distribution of malware and information security as well. But really, that's what they're trying to stop. We've always been off the device. Our data sits in an off-line database against people-based identifiers. So we really -- this is huge for our business. We just think this is going to be the way forward for the Internet and advertising in general.

Thanks for the clarification.

And as you look at this, just to put a final, for example, nail, a nail on this coffin. I mean, do you expect Apple to do -- everything that Apple does, Google to follow suit and vice versa?

Yes. I think most will, but they are going down their own paths. If you look at the web browser of Chrome versus Safari, they're going down kind of independent paths. Google is taking this approach for advertising. They want to go down an approach called flux or cohorts or groups of users. Safari is taking a different approach. They really don't want advertising in that web browser to the way it's transacted today. However, all of this as an industry, what does ad tech do? In the long term, they don't want Java script tags or pixels they call them, they call them -- Apple calls them trackers. They don't want these third-party tags on websites. They want to move them off the website so the publisher controls everything on that page. Well, what this means is it to move to the cloud, just like every other Industry has gone to moving to the cloud. We're going to get off the device or off the web page of the website visitor, and all of that will happen in the cloud, where the publisher chooses their SSP and the SSP connects with the legitimate DSPs in the market. So I think it's a good thing for our industry to advance this And just to tell you, in Connected TV, everything is already service side. The modern new devices that are there are already server-side. This is cleaning up what our legacy integrations of ad tagged on the traditional desktop and mobile devices on websites. That will all move to the cloud as well. And from my perspective, I think it's going to be business as usual.

So one of the interesting things I've had is conversations with advertisers and even ad agencies who use DSPs. And they know abstractly that cookies, which they have used and are currently using, are going away at the end of this year. But they're immensely blase about what that means. They seem to just not be thinking that it's going to change anything. How do you view what is -- and what happened on Safari and what will -- what has been announced will happen on Chrome with the end of third-party cookies, affecting current methods of advertising?

Well, one thing I think what you're seeing is that although the cookies have been going away for some time, Apple has eliminated cookies years ago. There are, let's say, the Chrome browser, which still allows them. So results are still being generated by other platforms on behalf of agencies and their clients. So they're still getting results.

Add in the cookie, the cookie is still there today. And on the desktop, 80% of the bid stream contains a cookie today. So it's a very effective means of doing targeted data-driven advertising and measuring the responses, and it's still available until Google takes that out.

I think what we're hearing, though, marketers and their agencies are now aware of this. It's -- is it a blase approach? I think that what their moat is, is that as long as I'm showing ads against cookies and it's performing, I'm going to keep that while, okay, what are we going to do plan for? Most of our discussions has been around Google and 2022 when they were going to sunset the cookie. They are now planning and having those discussions out and market on, okay, what are we going to do on a go-forward path. I think that months ago, several months ago, we weren't seeing that. There was this blase approach. But a lot of our agency partners are really focused on what they're going to do now in 2022, which is driving a ton of conversation with us.

But the future is absolutely people-based. And that's what the industry is representing. An identifier handed to you by a big tech company can be taken away at any time. So it's hard to build a business on top of that. If you're a marketer looking to do advertising, which most do, you're going to reach consumers in many channels. You're going to reach them in linear television, which you can buy through our platform. You're going to reach them using digital out-of-home boards, which you can buy through our platform. You'd also like to reach them in their app or when they're visiting websites as well. And when you take a people-based approach, you get that holistic ability to electronically buy and electronically measure what you're getting for your money across all these channels. Electronic advertising is happening at a rapid rate. Yes, there are ID changes and Apple makes changes and everyone else makes changes because Apple is an important manufacturer in that ecosystem. But the future is all about electronic buying and measurement of advertising to make it easy for a marketer to buy a TV ad in 200 markets or a streaming ad on a CTV from Hulu. They want to look for this electronic access, and that's what Viant really does well. And if you look at the market opportunity for this, in the United States, $235 billion of advertising will be spent this year. Our goal is to make sure that gets all transacted electronically, not through paper-based insertion orders sent over e-mail. That's the big opportunity is $235 billion being electronically bought and measured across every channel for many marketers.

Great. Now let's just go a little bit higher. Obviously, there are a few demand-side platforms out there with Google's DoubleClick being the biggest by far and the only way to buy some of -- a lot of, well, Google properties. But there's also The Trade Desk, there's you guys. They are a lot less than there used to be. It has concentrated down. But what makes an ad agency decide or an advertiser decide to use one versus the other. How do they come to those conclusions and how do you win your customer base over large rivals?

Why don't you start?

Oh, sure. Really, the decision the decision-making framework really comes down to several things when you're looking at a DSP. One, the whole goal of the DSP is to consolidate the spend of the marketer, make it easy for them, as Tim was just saying, about buying in different channels. So how many supply channels are you integrated with? Our Adelphic software is integrated into more channels than any competing DSP. Not only are we in all the digital channels like desktop, mobile, the exciting area of CTV, audio streaming. We're also in digital out-of-home billboards and even traditional linear television. So we offer the most channels of any competing DSP. That's a big area of focus. The second area, I would say, of focus is how good the software is because if you don't make it easy for them to buy and it's cumbersome to do so, that's a big problem. And our Adelphic software has a 95% customer satisfaction rating for about 4 years running. We're really proud of that. The last thing I'll say is, that is very important to our customers and particularly agencies as well is we service the heck out of them. Google is pretty famous for not servicing service organizations. We service them really well. We develop on their behalf in the software. So we win a lot of customer loyalty that way. I'll let you tack on the people-based piece as well.

Yes. I mean, it starts with the data infrastructure of people-based. If you think of Salesforce.com, it's a CRM system. The data that's input in there is people-based data. It's your name, address, phone number, et cetera. Our marketing customers, the advertisers themselves, have this customer data and they'd like to reach their customers in an effective way. And that's what our software makes very simple for them to do is onboard their customer platform to talk to their current customers and their potential new customers to reach algo them to try and win them. But most importantly, marketers care about measurement. They need to understand what is the return on ad spend. If you spend $100 million in advertising, did we stimulate demand from enough consumers to generate a profit? And our software does that very simply across even traditional channels like linear, local television today or digital out-of-home that we talked about. So for us, it's all about consolidating the media spend of a marketer. To do that, you got to have inventory access by channel. You've got to have data partners that are there. There's very critical data companies like Experian that these marketers work with directly. And you need to tell them what you get for your money. And as we go forward and these digital identifiers are deleted and the people-based identifiers are remaining, you'll see our platform will scale far above our competitors.

Great. One thing we want to talk about is the TAM and how it's growing. Obviously, you work in the programmatic advertising model where you can buy from a central platform and it can be measured and it's spread across the entire medium of the digital world, whether it's the web or the mobile or the like. That's been a big thing in mobile and in digital -- in online, in web for a long time. And so it would make sense that those markets are fairly mature. There isn't much more gains in programmatic to be had. Obviously, Connected TV is a new world because then you're going into that $200 billion of TV ad spend. And that's growing at a very rapid rate. And actually, for your company just recently, and I would suspect for quite a few others, it was actually more than 100% for your growth in the -- during parts of the pandemic. How do you think that balances out? And how do you think the addressable market will continue to develop in kind of the legacy areas of web and mobile as well as in the emerging area of Connected TV?

Yes. I mean, as you rightly mentioned, consumers have flocked to streaming services, and that's what's driving the boon in Connected TV and the growth rates that we're seeing, which was, I believe, more than 65% in the first quarter, we grew our Connected TV channel. But it starts with consumers. Consumers have migrated from linear pay TV services through their cable operator and are going over the top and signing up to subscriptions directly. And that's creating the ad opportunity and fueling those dollars behind it. And we don't see that slowing down at all. We're also the founders of the Connected TV business called Xumo, and we've been able to see the explosion of consumer adoption of free ad-supported streaming. And it's going to keep going as consumers migrate from a legacy pay-TV platform. But that being said, the market opportunity is all advertising spend, not just the digital channels, yes, CTV is exciting. But we view our customer as the marketer, and we want to tell that CMO, if you spend $100 million across linear TV or streaming, what you got for your money? And that's been a question marketers have been trying to solve since the beginning of advertising, and we're really there today leveraging the approach of the Viant software platform. So I believe that our market opportunity is all advertising spend being electronically bought through our DSP. And our goal is to measure that for the marketers, and that's really why they choose electronic buying is the measurement they get with it and understanding what they get for their money because there's lots of constituents in this space. They need to -- the CMO needs to answer the CFO. And everyone's answering the shareholders in the end. You've got to have a more productive approach in business today and DSPs enable marketers to do that much more so. But CTV is going to keep growing for years. It feels unbound. There's more users adopting Connected TV in over the top. And of the users who did adopt, they're watching even more content on the Connected TV. I always likened Connected TV and tell people, it's going to be bigger than you ever imagined. Very similar to the smartphone revolution when the iPhone came out, and you saw how big the app store could become and the ad opportunity within apps. Mobile really changed the game and new money is created because there's gaming businesses that didn't exist before, et cetera, et cetera. And we're seeing that same thing happen in Connected TV today. Brand-new CTV-only apps are created to bring content to consumers. And so that's going to keep going for many, many years to come.

Great. One thing to jump in and just go directly into the -- more specifics in what's happened to you during the pandemic and coming out. You had -- there were obviously impacts on advertising, but you had some concentrations that some of the other customers -- your other competitors did not have. And particularly retail, automotive and travel. What is the -- those being obviously limited because of their demands and then just the lack of their ad spending during the pandemic. When do you see their spend returning? And do you see them coming in as kind of as early reopeners or late?

Yes. I think those are really all you kind of got to handle on one by one. So if you think in travel. Travel, retail and automotive in 2019 represented, call it, 43% of the business or so. Now when you look at it over the last 12 months, really the trailing 12 months ending the first quarter, that business -- those 3 categories were down 28%. Now though, as we're seeing the recovery happen, as the stay-at-home orders are going away and people are getting out and traveling, we are seeing travel spend come back. We do think that what we've seen and what we stated on our last earnings call is that we see a lot of the travel bureaus and the government spending really open up, saying, travel to Utah, travel Texas, travel to the Bahamas, those types of things. We are also starting to see the other constituents around airlines and hotels coming out. So we see that, that is coming back. We think that there will also be a longer travel season that we're hearing from our clients, and we expect them to spend in the second half of the year, probably more so than they would have in previous years. Retail, I would put in a similar category. As the stay-at-home orders are lifted, people are going into retail stores. We're seeing that come back. The only one that we still see that is lagging is automotive. And that is due to this chip shortage that's out there. So if these chips aren't put in the vehicles, they're not producing them. Those aren't unlocked, they aren't spending the advertising. So that's what we're still -- that's the only category that we're seeing now still holding back spend, but we're hopeful that, that one comes back second half as well.

Great. Going back a little bit to what's going on with the end of the third-party cookie. Obviously, there are other competitors with methods other than people-based. You have Unified ID 2.0. What are the pluses and minuses of all the different platforms or the different approaches to targeting? And where do you think governments, and really in the end, the platforms themselves who are trying to prevent government intervention will come out?

Well, I think just the long arc of it all is that we think a lot of these things move to consumers opting into it. So obviously, a website can't know your e-mail unless you give it to them. And so you've mentioned some of our competitor approaches in moving into this people-based world. Whereas to replace the cookie, let's have every user log into every website that they visit with their e-mail address and the ad tech community would use that in lieu of the cookie. And we just didn't find that to be a scalable solution, which is enter what we did on the people-based approach, and we center on what's called our Household ID. And what is the Household ID? It's a home address. And that's really it. It's more of a cohort of users at that home address that we match most of it, too. So car companies that you bought a car from can match against that, et cetera, et cetera. So to me, we just don't think hashed e-mail scales to the level of 100% of the Internet in web browsing activity, that seemed like a far fetch. However, it's not that -- Hulu, of course, will have your e-mail address. And we don't see Hulu sending it to ad tech partners, their customer data, just to receive advertising. So I think where this all goes is people-based is the future. But if you're a marketer wanting to interact with Hulu and target a customer base that is your customer also, you're probably going to push data into Hulu rather than Hulu send their entire subscriber set to the marketer to evaluate. So it becomes more of a push than a pull. But long arc, I think consumers are opting in. Marketers have relationships with consumers, publishers have relationship with consumers and we just make it simple for them to work together.

We're coming up on the time, but I want -- well, I think we have a little more. I wanted to jump in on something else that I find fascinating with this whole space in ad tech. Advertising in general has built into this concept of a cost-plus model. And effectively, software in all technology is just often whatever it may be, but a 15% premium on the cost of the media. You guys have taken an approach where you will also do it as a software service, but it seems the advertisers aren't jumping for that. And the ones that I've talked to don't seem to have any interest in changing the way they do things. Why is it that this model has gone to this cost-plus style model and -- as opposed to virtually every other piece of software that you may buy? And when will -- and will it ever change back to something more akin to how other software is sold?

Yes. So if you think about the cost plus or what we call percentage of spend, that's really geared towards the agency channel. And the agency channel has long been on kind of immediate billings kind of concept. So agencies really kind of glob onto that pricing model, and it's very effective for them. What we've heard is that the agencies aren't on long-term subscription contracts with their clients. And so that's difficult for them to sign on to long-term software contracts as well. However, what we do see, where we see a lot of interest there are clients that are getting involved in those decisions and saying, "Hey, I've been running inside of the demand-side platform in DSP for some time, I'm comfortable with them. I'm looking for cost savings and for that, I commit to term." And so really, that's where we see the opportunity is, is the marketers themselves. Even if they're using the agency, we're seeing a lot of marketers get involved in the technology decisions, and that's where those conversations are happening. And I'll tell you, subscription customers save a lot. They save a lot of money. But the good part for us is that we offer that, and it is unique to us. The scale of the spend in the software out of those types of customers has the ability to really scale.

But just adding to that, I think advertising wasn't software for many decades. It was a services business coming out of advertising agencies, which was that percent of spend model. Advertising is now quickly becoming enterprise software, just like almost every other department in the organization. An organization starts with moving to the cloud and then they sign up enterprise software for each vertical, think Zenefits in HR, Viant in advertising, you need this enterprise software layer to help manage the complexity of advertising in today's connected world. And for you to understand, is it a positive return that I'm getting or a negative return I'm getting on this advertising? And that's what we do so well for our customers. So to answer the question on subscription, that is a client direct who's adopting advertising software. They're very comfortable signing it. The ad agency channel, because of the temporary nature of their relationship with the clients, don't want to sign that long-term contract. The truth is we're happy with both. They come in on the percent of spend. We know with a 95% customer satisfaction rating, however that you're transacting on our software or paying for it, we know you're going to be satisfied with it. And over the long term, our goal is to move everyone to that SaaS-style billing mechanism.

Great. And as we're coming now towards the end of our panel here, I'm actually -- I'm really interested. You've just gone public. You've been pretty hyper volatile, but that's normal for an IPO. Let's say today might be a little bit more volatility than anyone would like, but that's fairly normal for a new company. But after seeing what's happened after being public, going on your roadshow earlier this year, where do you think the investors who have been following your company, what are they missing? What's the biggest -- what is the piece of information about Viant that they seem to have the hardest time grasping or is the biggest disconnect from what you see?

Well, I think the hardest thing for investors is that we compete with 2 really large companies. Google is one of them. Of course, everyone is aware of how important they are in advertising. And they offer a competitive DSP that they've got to rearchitect for the way forward. We also have another big competitor in The Trade Desk. And I think some investors look at the Goliath that we compete with, and it's a tall order. But to us, it's very easy. Our software works really, really well and is built for the future. It's built for CTV. It's why we're winning in these areas. When you use our software, we can measure the consumer responses both online but also in your physical retail locations. So if you're Nissan and you're selling vehicles, you're not selling those online. Our ability to match up ad spend with revenue is much better than our competitors. So what I say to investors is change is uncomfortable, but this is the change we predicted. It's why we said digital device identifiers are going away and we need to move to people-based. And we've been down this path now for 6 years in building this business. The cookie was a good solution for the past. As we go to the future, the cookie is gone, no digital identifiers are there, it's now on to people-based. And we've refined this process over 6 years. We're the leaders here, and we think more and more, marketers understand it, agencies understand it, and investors will understand it very soon.

I think one other point, too, Nat, is there's a lot of talk right now around IDs and how you store your data and all that. And I think that can be confusing, definitely, for investors. However, I just want to point out that no -- we're not in the business of selling an ID. What we're in the business of is electronically enabling our customers to be able to buy and measure their advertising. That is not going away. The wall of money that has been coming into programmatic, and is not going to stop, to make it easy to use software to buy advertising and measure it. That's never going away. And it's a $235 billion total addressable market. It's huge. There's going to be multiple winners. There won't be 1 winner that wins every single customer, that's unlikely. There will be multiple winners. The growth in that market alone is a massive tailwind. The other piece is the CTV. Another huge monster tailwind that's not stopping. So when you look at those 2 things, and yes, we do differentiate really well because we are a people-based platform. We've already invested here. We did that years ago. We're poised to win as well. But really, that's the piece that I think that people forget. We're not going to put the genie -- we're not going to take the genie out of the bottle here. And -- or I should say, put back in the bottle. We're not going to do that and go back to the old ways of buying advertising, paper-based insertion orders and sending e-mails and faxes, that's not happening. Electronic buying of advertising is not going away. And that's a huge growth tailwind for us.

Yes. And I think that's a really great point. And just to put a button on that, what -- long term, what percentage of all advertising dollars spend do you think will be going through some sort of demand-side platform?

100%. I believe, in the midterm, 100% of this. Now why hasn't it been there today? You couldn't buy linear television programmatically. We added that channel. And so when you think of programmatic advertising, it's not banners on websites, it's all advertising. I don't like to call it programmatic, I like to call it electronic. That's really what the change is, is my computer buying it from NBC or a different media company, much better than a sales force pitching ad agency staff, communicating over e-mail and that taking slow and having human labor. You can do everything now with a single log-in device technology.

Makes perfect sense and to end for our investor clients right here. This is akin to your Bloomberg terminal. You're not going back to calling a specialist to buy stock on Bloomberg term. Okay. Thank you very much for doing this. And well, let's -- I'd love to keep in touch. And hopefully, this won't be virtual next time.

You got it.

Thanks, everybody.

Thanks.