We swallow greedily any lie that flatters us, but we sip only little by little at a truth we find bitter.
—Denis Diderot

🏝⛱ I’ll be on a family vacation for the next two weeks.

The above may imply I’m going somewhere tropical and warm, but we’re actually driving not very far from home… But hey, you don’t measure good times by distance!

I never promised I’d write 3x a week, it’s just my natural cadence, and I’m not promising that I won’t write during the break, since *I enjoy writing* and may do it during my free time on vacation.

What’s most likely is that there’ll be between 0 and 1 editions next week, and 1-2 during the second week (because that one has fewer things on the calendar).

Hopefully this allows you to catch up on the backlog of editions that you never had time to get to! Enjoy the last few weeks of summer (if you’re in the Northern hemisphere). See ya soon 👋

💚 🥃 If you are not a paid supporter yet, I hope this is the edition that makes you go:

“Hey, I think I want to support what he’s doing here.”

Thank you for that! When you sign up, I’ll send you an invite to the Liberty Labs 🧪🔬🧬 🔭 private Discord as a bonus.

📊 A Word From Our Sponsor: Sentieo 📈

👉 Regular readers know that I have been providing updates on my new running shoes.

📊 Here is what the P/E valuations of the US footwear sector look like. 👟 It really is NKE vs. everyone else. They’re also all trading below their 3-year NTM P/E medians.

Extend or shorten the timeframe of this interactive chart from Sentieo.

⭐️ Sentieo's leading AI-powered financial intelligence platform gets you to better insights faster. Request your free trial today! ⭐️

🏦 💰 Liberty Capital 💳 💴

🔥 The Trade Desk Q2 Highlights 🔥

A quick look at the numbers: 35% topline growth at 37% EBITDA margin... Rule of 72? 🤨

This was 35% on top of 100% growth in Q2 2021, though that itself was a rebound from the pandemic low… Still very impressive, especially considering how competitors are doing (clearly they’re gaining market share).

I thought it was interesting to see the breakdown between verticals, showing just how diversified their customer base is:

Here are some highlights:

Geographically, North America represented about 90% of spend, and international represented about 10% of spend.

Kind of crazy how US-centric they still are, since the US represents only about 33% of ad dollars worldwide. For years they’ve been planting seeds around the world, it’ll be interesting to see what sprouts…

First, there is a secular tailwind that continues to propel us forward, and that's the worldwide shift to advertising-fueled connected television. I don't know that we've ever experienced a secular tailwind like this before. CTV is evolving faster than anyone predicted. And if we continue to execute, I believe we will benefit as much as any company in the world from this tailwind, just like we did in Q2 and through most of the pandemic.

Connected TV may be one of those rare ‘pandemic’ trends that actually keeps going after the pandemic, unlike a lot of the party balloons that we’ve seen deflate in recent months. 🎈🎈

Those who switched their TV consumption from linear to on-demand streaming aren’t going back, and while there may be an impact on the number of hours of TV watched post-pandemic, if there’s one constant in the universe, it’s that people — especially Americans where TTD is strongest — watch a lot of TV (they may have a phone in their hand while they do it now, but they still watch).

The second macro factor helping us grab share is that walled gardens like Google's ad network are being downgraded in priority. For most of the last 2 decades, when dollars moved over from off-line spending to online spending, they have gone first to Google and other walled gardens. One way to define a walled garden is to think about an Internet publisher or a content destination that is so large and dominant in their content segment that they can be draconian to advertisers and still win business. Google's advertising products are a textbook example. Many have pointed out that Google does its own performance measurement.
They have run marketplaces with questionable integrity and fairness, but they win advertising budgets because of their dominant position and their size and footprint around the world.
CTV has started to change this dynamic in our industry though because no one in CTV is big enough to be as dominant in TV as Google has been with search or with Chrome or DoubleClick, their ad server that is almost irreversibly integrated into the Google ad network machine. As a result, the marketplace for premium CTV is fair, especially in relative terms and extremely competitive

Interesting. Walled gardens certainly will keep doing well, but if you can offer advertisers a gateway to buy on the rest of the ‘open internet’ and get as good or better ROIs, they’ll take it.

If there’s a ton of friction and they need to go to 97 different places to buy, they won’t, but if the buying can be centralized, the tools are good, and you can use your first party data and run ML to optimize your campaigns, you’ve got a pretty good shot at competing… And that’s exactly what TTD has been building.

In some ways, it reminds me a bit of Shopify vs Amazon.

You don’t attack the big walled gardens head one, you find a way to counter-position and aggregate the smaller “rebels” together into something bigger.

Because of the efficacy of moving picture and sound, coupled with these competitive market dynamics, for the first time ever, some of the biggest brands in the world have a new place to spend their first dollar on the Internet, which is premium CTV. CTV is fast becoming a must buy, and in some cases, is the highest staff ranked part of the digital media plan for many brands.

In other words, brands that were slow to move to programmatic ads and that liked the TV format now have a powerful reason to jump in the water. 🏊‍♂️

Jeff Green mentions a bunch of partnerships, including with Disney, but what I really want to hear about are his thought on Netflix’s deal with Microsoft:

I for one was very excited when I learned that they had selected Microsoft for a number of reasons. As many of you know, I worked at Microsoft before I sold the first ad exchange to Microsoft. I, in fact, introduced the President of the Ads division to at the time the CEO of AppNexus, which later became Xandr. So it's been a part of my personal journey as well as the fact that I've just been very close to AppNexus and Xandr.
Of course, Xandr now being owned by Microsoft. Xandr has a small DSP but it is primarily an SSP. They primarily focus on the sell side. If you look at the -- if you were to stack rank the major players of demand for CTV, I think you'd find that we're the largest, and somewhere around #10 near the bottom of the top-10 list would be Xandr in terms of size. I would estimate that they provide less than 10% of the demand to other independent inventory or content companies.
So as a result, what I think that means for us and for the open Internet is that the role that Microsoft is going to play for Netflix is one where they are helping them get started, they are helping them create a clear identity strategy. I think they very clearly are going to have to have a strategy both for identity as well as for monetization that involves the open Internet.
Because this is early days, it's less important to me about the role that Trade Desk plays with Netflix in the crawl phase than it does in the walk and the run phase. And to me, selecting Microsoft makes it so it's nearly inevitable that Netflix will be a part of the open Internet and that they'll welcome demand from lots of different places and that, that will be the only way that they can maximize their inventory and get the highest CPMs possible. As somebody who wants to see Netflix do well and has a strong relationship with Netflix leadership, I think this is a solid plan.

This is exactly what I expected.

Microsoft’s Xandr will build on the sell side, and provide demand side infrastructure too, but not exclusively because that would just be leaving money on the table. Best to open it up to other demand-side players to have as many bids as possible on the auction to get the best prices.

TTD’s CFO mentioned on the call that unlike many other companies, they’re not slowing down investment and hiring — they don’t feel they got ahead of themselves in past years and they’re still generating strong growth and margin, so they’re not taking the foot off the accelerator.

On creating a forward market to replace the antiquated “upfronts”:

aside from CTV, my favorite topic to talk about is actually forward market. [...]
the upfronts, this process where you commit to buy ads on television was a process that was created in the early 60s. [...] You have a party or an event where you commit dollars to advertising for the better part of the year with the absence of data and transactions [...]
the forward market that we're developing with our partners is much more like the commodities market, where you have forward contracts, you use data and forecasting to get the benefits of commitment. And the thing that is really amazing about TV ads in particular is that publishers are willing to take less money if you will commit to buy it in advance. And advertisers are willing to pay more money if they can have the assurance that they're going to get it. [...]
So commitments can be a really important part of television. And so as we move to CTV, there's no reason to create a rudimentary 1960s version of a forward market. We should create one that leverages all the very best parts of programmatic, takes all the learnings of commodities markets and utilizes the very best thing about programmatic. So we've developed that.

That’s the thing I like about Green. He’s got a vision of what the future should look like, how things could be improved, and then he goes out and builds that.

He’s not trying to just do some financial engineering to milk out the current system, he builds the next one! 🔨👷‍♂️ 🚜 🏗

In the context of Google’s announcement about Chrome deprecating the use of third-party cookies (now pushed back to late 2024):

cookies and ads that are bought inside of a browser because cookies are only relevant inside of a browser, at least directly relevant inside of a browser, represents a small percentage of our business. Display is a small percentage of our business.
As a percentage, it's shrinking even though we've seen growth because growth in other areas are growing faster, it still continues to shrink. So it's a small slice of the pie.
What are much bigger are things like mobile, which don't rely on cookies, or CTV, which don't rely on cookies. They have other ways of creating identity. And of course, in CTV, nearly everything you do is on the other side of the log-in, meaning you log into Netflix or you log into Amazon or you log into Peacock or Paramount or Hulu before you view content. And that makes it very prone to be interoperable with something like UID2

👋

‘The Optimal Industry Structure’ 🏭🗄🏦

Friend-of-the-show Lawrence Hamtil (🏋️) wrote a good piece. Some highlights:

it is not uncommon for all participants in an industry with favorable dynamics to outperform, and, similarly, it is all too common for even the best operators in a poor industry to underperform. However, industry importance is not limited to economics; competitive structure is crucial as well.
Most quality-oriented investors seem to prefer an oligopolistic structure in which the incumbents have strong entrenched positions whose steady profits are protected by high barriers to entry. [...]
an oligopoly of perhaps four or five major players of roughly equal market share seems to ensure stability, and rationality when it comes to such things as competitive pricing, but that stability almost certainly comes at the expense of capping major upside; in stable industries market share gains are acquired over time and slowly at that.
For major winners, the optimal industry structure seems to be highly fragmented, as consolidators have the opportunity to acquire market share much more quickly, and to a far greater degree. Furthermore, it is industries that are generally economically insensitive and service-oriented that present the best opportunities for such massive consolidation.

He goes on to give an example with the auto parts retail industry where Autozone and O’Reilly have been crushing it for a long time.

Of course, this can’t help but make me think of companies like Constellation Software, Heico and Transdigm, that operate in large, heavily fragmented industries where the mission-criticality of what they do means that there’s pricing power and a long consolidation runway.

‘Investing is a game of accumulated knowledge’

Friend-of-the-show and supporter (💚 🥃) Andy had a thought-provoking tweet in the context of a conversation about how some very sharp analysts are also very young. He mentioned:

I don't mean to be ageist, I'm often surprised to the upside, but investing is a game of accumulated knowledge

I agree, but with a bunch of caveats that also apply to the accumulation of knowledge in most fields.

The rate at which people learn and acquire both knowledge and wisdom varies tremendously by individual. It’s not a passive thing that happens at a fixed rate just by turning the pages on the calendar 🗓

There’s a quote I like on this by Eliezer Yudkowsky:

People with highly varied lives who repeatedly encounter difficult problems creating skill gain, may have effectively 10 or 50 times the life experience of somebody who's been repeating the same day over and over for decades. 

There are 300-year-old vampires walking among us in the guise of free-loving serial entrepreneurs who have since taken up angel capital and opened their own martial arts dojo, and others who've lived less than 1000 non-duplicated days (< 3 years) since puberty. 

Human variance in age and lifespan is far greater than chronology suggests.

There’s a large number of factors that contribute to the rate of knowledge/skill/wisdom accumulation.

A few that I can think of: Deliberate practice, quality of mentors, quality of problems to work on, variety of problems to work on, intelligence, introspection, peer group, having the right tools available (ie. a computer and internet connection vs not having it), feedback (quality and timeliness), etc.

It almost goes without saying, but you also have to drive *in the right direction*.

If you work a lot, but on BS things, you can be left with very little to show for your efforts, or even learn things that have *negative* value.

And of course, a lot of this is directly impacted by luck 🍀 (both your genetics and environment), but whatever hand you’re dealt, there’s a way to play it well and a way to waste it. Make sure you play yours well! ♣️

Google Fiber restarts in 5 U.S. States

After a 5+ year “pause”, they’re looking for new metro areas:

We’re talking to city leaders in the following states, with the objective of bringing Google Fiber’s fiber-to-the-home service to their communities:
Arizona, starting in Mesa as announced in July
Colorado
Nebraska
Nevada
Idaho
These states will be the main focus for our growth for the next several years, along with continued expansion in our current metro areas.

"There was an impression 10 years ago that Google Fiber was trying to build the entire country," Google Fiber CEO Dinni Jain told Reuters. "What we are gesturing here is, 'No, we are not trying to build the entire country.'"

🧪🔬 Liberty Labs 🧬 🔭

U.S. Coal fleet capacity factors 🏭🪨🔥

We selected five of the largest coal plants in the U.S. to look at coal capacity factors […]
The combined capacity factor for these five coal plants has been consistently under 60% since late-2015 and under 50% since late-2019.
As shown on the chart, capacity factors began to slide as the U.S. experienced surplus natural gas and low gas prices.

Source.

U.S. Inflation Reduction Act includes heat pump subsidies 🥶↔🥵

Those of you who take a shot every time I mention nuclear may have to open up a beer 🍺, because this one is about heat pumps:

The $4.28 billion High-Efficiency Electric Home Rebate Program, which is baked into the IRA, will provide an upfront rebate of up to $8,000 to install heat pumps, which can both heat and cool homes. It also provides a rebate of up to $1,750 for heat-pump water heaters.

Also included are ‘up to $1,600 for insulation, air sealing, and ventilation’, which is a often a no-brainer because you do it once and then reap the benefits for decades with no additional capital…

Also: ‘Up to $840 for an electric stove, cooktop, range, or oven; or an electric heat pump clothes dryer’ and ‘Up to $4,000 for a breaker box upgrade and up to $2,500 for electric wiring.”

🎨 🎭 Liberty Studio 👩‍🎨 🎥

Where ‘notable’ people are from 🌐 👀

Map of ‘notable people’ around the world (you can zoom in anywhere).

I was born not too far from Leonard Cohen and William Shatner. Not a bad duo!

Liberty’s Highlights

318: The Trade Desk Q2, Optimal Industry…