PubMatic, Inc. (PUBM), a leading advertising technology company, reported a robust performance in the third quarter of 2024, with a 13% increase in revenue year-over-year, surpassing market expectations. This growth was driven by significant advancements in Connected TV (CTV) and the innovative use of generative AI in political advertising. The company's financial health was underscored by a substantial 25% increase in omnichannel video revenue and a doubling of CTV monetized impressions from the previous year.
Key Takeaways
- PubMatic's Q3 revenue increased by 13% year-over-year.
- Adjusted EBITDA stood at $18.5 million, reflecting a 26% margin.
- Omnichannel video revenue reached an all-time high, constituting 36% of total revenue.
- CTV monetized impressions more than doubled compared to the previous year.
- Mobile app business continued its growth streak, expanding over 20% for the fourth consecutive quarter.
Company Outlook
- PubMatic raised its full-year revenue guidance to between $292 million and $296 million.
- Q4 revenue is expected to be between $86 million and $90 million.
- The company remains cautiously optimistic about the upcoming holiday season and growth in 2025.
- Investments in AI technologies are set to enhance efficiency and productivity.
Bearish Highlights
- No specific bearish highlights were provided in the summary.
Bullish Highlights
- Introduction of an AI-powered political ad classification tool and a CTV Marketplace for inventory curation.
- Expansion of strategic partnerships with prominent companies including Twitter, Western Union (NYSE:WU), and Dentsu.
- Achieved 70% penetration among the top 30 streaming publishers.
Misses
- The summary did not report any misses in the third quarter of 2024.
Q&A Highlights
- CEO Rajeev Goel emphasized PubMatic's unique position at the crossroads of data, commerce media, SPO, omnichannel inventory, and global scale.
- Goel also noted the increasing integration of PubMatic's platform into clients' technology stacks.
- CFO Steve Pantelik affirmed the robust fundamentals of the company's business.
In summary, PubMatic's strong performance in Q3 2024, marked by a solid revenue increase and strategic developments, positions the company favorably for the forthcoming quarters. The focus on emerging revenue streams and the optimistic outlook for the holiday season and beyond underscore the company's commitment to continued growth and innovation in the ad tech space.
Full transcript - Pubmatic Inc (PUBM) Q3 2024:
Kelsey, Zoom (NASDAQ:ZM) Operator: Well, hello everyone and welcome to PubMatic's 3rd quarter 2024 earnings call. My name is Kelsey and I will be your zoom operator today. We thank you all for your attendance today and as a reminder this webinar is being recorded. And now I would like to turn the call over to Stacy Clements with the Blue Shirt Group. Stacy over to you.
Stacy Clements, Investor Relations, The Blueshirt Group, The Blueshirt Group: Good afternoon, everyone, and welcome to POMATIC's earnings call for the Q3 ended September 30, 2024. This is Stacy Clements with The Blueshirt Group, and I'll be your operator today. Joining me on the call are Rajeev Goel, Co Founder and CEO and Steve Pantelik, CFO. Before we get started, I have a few housekeeping items. Today's prepared remarks have been recorded, after which Rajeev and Steve will host live Q and A.
If you plan to ask a question, please ensure that you've set your Zoom name to display your full name and firm. If you would like to ask a question, please use the raise hand function located at the bottom of your screen. A copy of our press release can be found on the website at investors. Paomatic.com. I would like to remind participants that during this call, management will make forward looking statements, including without limitation, statements regarding our future performance, market opportunity, growth strategy and financial outlook.
Forward looking statements are based on our current expectations and assumptions regarding our business, the economy and future conditions. These forward looking statements are subject to inherent risks, uncertainties and changes in circumstances that are difficult to predict. You can find more information about these risks, uncertainties and other factors in our reports filed from time to time with the Securities and Exchange Commission and are available at investors. Pubmatic (NASDAQ:PUBM).com, including our most recent Form 10 ks and any subsequent filings on Forms 10 Q or 8 ks. Our actual results may differ materially from those contemplated by the forward looking statements.
We caution you, therefore, against relying on any of these forward looking statements. All information discussed is as of November 12, 2024, and we do not intend and undertake no obligation to update any forward looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law. In addition, today's discussion will include references to certain non GAAP financial measures, including adjusted EBITDA, non GAAP net income and free cash flow. These non GAAP measures are presented for supplemental information only and should not be considered a substitute for financial information presented in accordance with GAAP. A reconciliation of these measures that are the most directly comparable GAAP measures is available in our press release.
And now I will turn the call over to Rajeev.
Rajeev Goel, Co-Founder and CEO, PubMatic: Thanks, Stacy, and welcome, everyone. Our 3rd quarter results exceeded expectations on both the top and bottom line. Revenue in the quarter grew 13% year over year. Clients continue to build their advertising businesses on our platform, and we are becoming more embedded into clients' tech stacks and more integrated across the ecosystem. Over the last few months, driven by the strength and scale of our CTV solutions, as well as the depth of our expertise, we capitalized on the surge of political advertising demand.
In just a few short years, we have organically scaled our CTV business, and we now work with 70% of the top 30 streaming publishers. Even as we further penetrate the head of this market, where the bulk of consumers are spending time, we also have tremendous opportunity to expand our existing streamer relationships. On average, CTV monetized impression volume was up over 100% year over year for the 3rd straight quarter, as we have reached a critical mass of streaming inventory to meet the surge in ad demand on our platform. Included in this surge was greater than expected activity from political advertising, which was heavily focused on CTV. Certainly, the increase in streaming inventory on our platform drove growth in this category, but more impactful is our ability to quickly build new products that drive incremental growth.
In Q3, we launched new tools to help unlock streaming inventory in order to better capitalize on political ad budgets. For context, many publishers typically block political ads altogether as a way to protect the user experience from unwanted political issues or candidates. But this is a blunt strategy and leaves money on the table. We developed a better approach for streamers utilizing generative AI technology. Our solution classifies each ad on granular criteria such as political party, federal, state or local candidate court issue, sentiment and more.
As a result, more than 250 incremental publishers and streamers that have historically blocked political ads chose to open their inventory to POMATIC for political campaigns that meet their user experience criteria. This enabled us to scale political spend on our platform much faster than we expected, as buyers were able to reach the audiences they were targeting, while content creators maintain control over their inventory. Further, political buyers were able to leverage Connect to curate rich political data sets on pragmatic inventory for targeted higher ROI advertising. This underlying Gen AI technology will have ongoing applications as we leverage it in other ad sensitive categories or markets such as language and sentiment detection. Looking forward, we'll continue to build solutions that unlock inventory and increase monetization.
This includes our recently launched CTV Marketplace, which offers real time inventory curation along numerous dimensions built on sell side technology. With a simple opt in, streamers can unlock more value from their inventory while making it easier for buyers to access premium content and targeted audiences. For example, ad buyers specifically looking to reach sports fans can leverage our off the shelf and easy to buy live sports inventory. DIRECTV Advertising and Roku (NASDAQ:ROKU) are already leveraging POMATIC's CTV marketplace with positive feedback from both publishers and buyers. As this CTV marketplace grows, we believe it will create stickiness for our CTV business.
We continue to onboard new streams, growing our streaming customer count by 13% year over year to over 280. For example, we recently signed Zumo, a joint venture between Comcast (NASDAQ:CMCSA) and Charter that offers streaming devices and services to tens of millions of customers per month. Through this partnership, POMATIC will bring demand from our SPO relationships across their content portfolio, including Xumo Stream Box, Xumo TV and its fast app, Xumo PLAY. Also aiding our growth are agencies and advertisers that increasingly consolidate buying on Podmatic. Half of our activity is from SPO as buyers move more ad spend to our platform due to our growing technology, workflow and data capabilities.
Major agency holding companies have moved and are in the process of moving direct buys on behalf of their clients to our platform to capitalize on their supply path optimization relationships with us, including through Activate. Earlier this year, Dentsu launched Mercury for Media, which is a centralized data, media activation and creative execution platform that is being rolled out across its agencies. We are thrilled to partner with Dentsu on this transformative initiative, as POMATIC technology is being integrated at the center of mercury for media. POMATIC's Connect will increase audience reach and cost efficiency, particularly within CTV and streaming. ACTIVATE will provide end to end cookie less digital media activation and measurement at scale.
Our platform sits at the intersection of data, commerce media, SPO, omnichannel inventory and global scale. Our innovative technology and differentiated approach are what enable us to scale with our clients and partners as they build integrated digital ad businesses. It's also why clients and partners choose PubMatic. PubMatic's SSP is one of the only omni channel platforms with the scaled SDK footprint, which seamlessly integrates directly into publishers' apps. This key differentiator was just one of the reasons that one of the largest global mobile mediation platforms expanded their partnership with us.
We are now a certified bidder and exchange partner, making it easier for app developers to integrate our solution with the click of a button, streamlining access to POMATIC's valuable advertising demand that app publishers have historically struggled to access at scale. The partnership expansion brings more than 80,000 global app developers into our sales funnel, creating a significant growth opportunity for us. Our mobile app business grew over 20% year over year for the 4th consecutive quarter. Our strong foothold in this market positions us well for continued growth. Per Magna's forecast, dollars 58,000,000,000 in mobile app ad spend is expected to flow through the open Internet this year.
The value of our comprehensive integrated platform offers multiple new revenue streams and TAM expansion opportunities like Commerce Media. As retailers and transactional commerce companies lean into advertising as a major revenue and profit driver, they are realizing their need for SSP technology. For example, POMATIC's integrated platform allows Western Union to scale its advertising initiatives more effectively. Originally integrated to support on-site monetization, we have recently expanded our partnership as they launched their Western Union media network earlier this year. Using Convert, Western Union will leverage our off-site media solutions, applying insights from their $115,000,000 annual consumer money transfer transactions in the U.
S. Across POMATIC's premium inventory. This gives them the power to manage their monetization strategy via single unified tech stack, streamline operations and enhance efficiency. At the same time, the publishers integrated into our SSP benefit from unique ad budgets only available on the POMATIC platform when Western Union data is applied. The added value customers receive through solutions like Convert also creates incremental revenue opportunities, such as data and SSP fees for POMATIC.
Another vector for our long term growth includes social media companies entering the open Internet arena, as they expand their ad businesses outside of their own walled gardens. To do this, they need solutions to help them monetize their audiences, curate their inventory and access open Internet ad budgets. Signaling a strategic focus, many of these companies have hired programmatic leaders with industry expertise and are partnering with POMATIC to help them build and scale. We are particularly excited to launch advertising with X, formerly known as Twitter, which serves more than 335,000,000 users. Historically, X had only access social media ad budgets.
They selected PubMatic as an SSP partner, opening up their traditionally closed ecosystem to tap into the 26,000,000,000 in open Internet native display and video ad spent. Pimatic is able to build differentiated solutions across these customer segments because of the strength of our integrated platform and our consistent track record of organic innovation. Over the last 2 years, we've been successfully adopting generative AI technology across our software development, testing and release process. We estimate a 10% to 15% increase in engineering productivity so far this year with more gains to come. What's even more exciting is that we are also leveraging new AI capabilities in customer facing solutions to drive higher revenue.
In Q3, we hosted our 1st AI focused hackathon, where internal teams take 2 days to ideate and innovate around the clock. In annual tradition since 2014, this was our largest hackathon to date. More than a third of our global employee base participated across 90 teams. 1 third of the submissions incorporated AI and machine learning. The idea creation and collaboration were inspiring, highlighting Pimetics' deep commitment to innovation and technology.
The AI based creative classification tool that help publishers monetize political ad budgets across our CTV inventory came from our hackathon. I'm particularly pleased with how quickly we were able to launch it in our live environment in time for this year's election cycle. Looking ahead, we have a number of additional customer facing applications on the horizon related to reporting, private marketplace deals and workflow. I recently spent time at Advertising Week in New York, where conversations were centered around the need for end to end supply chain control, transparency, efficiency, effectiveness and privacy. We'll continue to innovate and invest in key growth areas to drive greater value across the ecosystem.
As publishers, buyers and data partners build and scale their ad businesses, they must address the complex needs of the evolving ecosystem with sell side technology becoming a critical component. The growing importance of sell side technology has led Forrester to address the SSP SSP category for the first time in more than a decade. I couldn't be more proud of our team's vision and their accomplishments. Pimatic was recognized as an SSP leader in the Forrester wave, achieving the highest possible scores in the criteria of programmatic auctions, publisher protections, commerce media and innovation. Our platform provides a foundation for innovation and expansion for many of our clients across the ecosystem, including publishers, app developers, agencies and commerce media platforms.
Plus, the strength of our leading SSP is driving new entrants to the open Internet sector to select Podmatic as their tech partner. These trends have resulted in significant growth in key secular areas of the business, and I'm excited by the large opportunity in front of us as content creators and buyers alike choose POMATIC to scale their ad businesses. I'll now turn the call over to Steve for the financials.
Steve Pantelik, CFO, PubMatic: Thank you, Rajiv, and welcome, everyone. Revenue grew 13% over Q3 last year, above expectations, driven by strong growth in CTV. In addition, we successfully monetized more inventory against the strong political ad buying cycle. Even more exciting, our business grew 17% year over year excluding political advertising and the large DSP buyer that I called out earlier this year. Highlighting our differentiated infrastructure approach, gross profit increased at an even faster pace.
Due to the combination of cost management, productivity improvements and an increasing proportion of high value impressions like CTV, gross profit was up 23% year over year. Other important callouts in the quarter. We increased monetized impressions across all formats and channels with the fastest growth coming from omnichannel video impressions at nearly 50% growth year over year. With the growing mix of video, our overall platform CPM also increased. In addition, emerging revenue streams more than doubled year over year and contributed an incremental 3 percentage points of year over year growth.
Our Q3 performance underscores the value of our diverse omnichannel platform and the significant impact of our strategic multiyear investments in key secular growth areas. It also demonstrates the strength of our durable model and our ability to deliver profitable growth. We delivered adjusted EBITDA of $18,500,000 or 26% margin ahead of expectations. Breaking down Q3 by format and channel, we saw continued secular growth above market rates for omni channel video revenue, which grew 25% over Q3 last year, an acceleration from last quarter's 19% growth. The share of omni channel video revenue to total revenue hit an all time high of 36% in the quarter.
Notably, CTV montage impressions more than doubled over last year. Our mobile app business continued to perform strongly and grew over 20% year over year for the Q4 in a row. Our display revenues across both mobile and desktop channels grew 9% year over year. We saw strong organic growth as our existing publisher revenues on a trailing 12 month basis continue to grow with net dollar based retention at 112%. SPO represented approximately 50% of total activity on our platform.
Underscoring the long term strategic value and stickiness of these relationships, the trailing 12 month net spend retention rate from SPO partners with at least 3 years of spending was 113%. Across the globe, all regions grew in the Q3. Looking at growth in ad spend, the top 10 ad verticals inclusive of political increased by 20% year over year. Among the 4 verticals that I commented on last quarter, we saw some recovery in travel and arts and entertainment, while technology and automotive remains soft. Shifting to our operating priorities, we continue to make significant progress.
As a reminder, our priorities are focused on delivering multiyear revenue growth and incremental margin expansion. 1st, we continue to invest in areas where we see the highest revenue growth opportunities. We have added over 100 team members in sales and technology since Q3 of last year. As a result of our innovation and focused sales efforts, we have reached critical mass in our CTV business and are seeing strong CTV growth as buyers and publishers are making us a preferred partner. We are also investing in supply path optimization to address the large greenfield opportunities from independent agencies and direct brands.
We have filled the majority of the buyer focused sales positions we had planned to hire this year. As these team members ramp, we expect increased productivity that will position us well for continued growth in 2025. And our investment in people and technology to drive emerging revenues is paying off. As I mentioned, emerging revenue streams contributed 3 percentage points of growth in Q3 and is on track to be 4% to 5% of total revenue in Q4. We are at the early stages in the adoption cycle of these products and looking ahead, we anticipate that these innovative solutions will continue adding meaningful incremental revenue and profit growth in 2025 and beyond.
2nd, we continue to prioritize efficiency and operational excellence by optimizing our infrastructure and making prudent investments in CapEx. As a result, we've increased capacity on our platform, while improving margins and unlocking dollars to fund new products. We added 20% incremental gross impression capacity on our platform year over year. At the same time, software optimization initiatives led to lower unit costs. The cost of revenue per million impressions was down 18% on a trailing 12 month basis.
This productivity contributed to the 23% gross profit increase year over year, which was an acceleration over Q2's growth of 10%. Overall, the progress we have made against our operating priorities has allowed us to return value to shareholders through our expanded share repurchase program. For example, we increased the pace of repurchases in Q3 to 29,000,000 and bought back 1,800,000 shares or 3.3 percent of fully diluted shares outstanding. Moving down the P and L. Q3 GAAP operating expenses were 47,600,000 or 3% sequential increase from Q2 as we made targeted investments in technology and sales team members.
Q3 GAAP net loss was $900,000 or loss of $0.02 per diluted share. Adjusted EBITDA was $18,500,000 or 26 percent margin. Moving to cash and our capital allocation. We have a healthy balance sheet and generated positive cash flow, which supports our long term capital allocation strategy. We believe our strong capital structure and effective capital allocation plan will help us deliver long term shareholder value.
We ended the quarter with $140,400,000 in cash and market securities and 0 debt. Since the inception of our repurchase program in February 2023 through the end of Q3, we have bought back 7,600,000 Class A common shares for 124,100,000. Dollars As of the end of the Q3, we had $50,900,000 remaining in our repurchase program authorized through December 31, 2025. In Q3, we generated $19,100,000 in net cash provided by operating activities. Free cash flow in the quarter was $2,900,000 and was impacted by the 2 items I called out last quarter.
1, the timing of our CapEx investments, which peaked in Q3 and 2, the increase in DSOs resulting from a change in our receivables mix associated with the option changes made by 1 of our large DSPs. Review this DSO change as a short term phenomenon that will work its way through our working capital by mid next year. Now turning to our outlook. We are pleased with the growth we're seeing, particularly from secular growth drivers, and we remain cautiously optimistic as we head into the peak holiday season. In October, omni channel video revenues grew in the double digit percentages and political advertising continued its strong momentum.
As we had expected, spending from the large DSP we called out earlier this year was steady, though as a reminder, at a reduced level year over year. In terms of Q4 holiday spending, trends were muted leading up to the election. Taking all these factors into account, we expect revenue in the Q4 to be in the range of $86,000,000 to 90,000,000 dollars On an apples for apples basis, excluding political advertising and the DSP buyer, the implied Q4 year over year revenue growth rate is over 15%. As a reminder, we will lap the DSP impact at midyear 2025. For the full year, we have raised our revenue guidance to be between $292,000,000 $296,000,000 or 10% year over year growth at the midpoint, including the negative impact from the DSP buyer.
In terms of costs, we expect Q4 GAAP costs to increase sequentially in the low single digit percentages. With our revenue guidance and targeted investments associated with our operating plan, we expect Q4 adjusted EBITDA to be between $34,000,000 $37,000,000 approximately 40% margin at the midpoint. For the full year, we expect adjusted EBITDA to be between $89,000,000 $92,000,000 or approximately 31% margin at the midpoint. In summary, we are pleased with our Q3 results and the growth we're seeing across the business, especially in CTV. Our investments in the secular growth areas of video and mobile are showing excellent results and we are building the pipeline for further incremental growth in the future with our emerging revenue products.
Heading into 2025, the combination of our strong financial health, momentum in the fastest growing areas of programmatic advertising and our differentiated scale technology platform give me confidence that we are well positioned to deliver significant value to our customers and shareholders. With that, I'll turn the call over to Stacy for questions.
Stacy Clements, Investor Relations, The Blueshirt Group, The Blueshirt Group: Thank you, Steve. As a reminder, you can ask a question by raising your hand located on the dashboard. If you're on your phone, please press star 9. In the interest of time, we ask that you please limit your question to 1 and one follow-up. Our first question today comes from Shweta Khajuria at Wolfe.
Please go ahead, Shweta.
Shweta Khajuria, Analyst, Wolfe: Thanks, Stacy. Let me try 2, please. One is on what you've seen in terms of demand trends quarter to date from advertisers as well as just consumer spend. If you have that visibility, that would be great, but specifically, advertisers spend. And then the second one is next year.
So Steve, as you think about next year with headcount OpEx, how are you positioning the company in terms of your goals for next year, especially in light of maybe there was some change around 1% of headcount fairly recently? Thanks a lot.
Steve Pantelik, CFO, PubMatic: Sure. Nice to reconnect, Shweta. So first, with respect to recent trends, as I shared in the prepared comments, we started off the quarter very well. Omnichannel video continued its double digit growth as it has all year long. And we saw continued very strong political.
And as others have commented on, the political spending has been significant across the ecosystem and that did seem to mute holiday spending. But as a reminder, we are going into the peak holiday spending mid November onwards. So from our perspective, all the fundamentals are very positive. I shared the statistic that if you just look at the business that excludes the DSP change, excludes political compared to last year in Q3, that grew 17%. And the implied guidance that I shared is over 15%.
So our core business is very healthy. We're cautiously optimistic about the Q4. But big picture, we're doing all the right things in terms of investing in the right areas behind all the long term secular growth drivers. Now with respect to 2025, I'd say from our long term perspective, we've always focused on efficiency and productivity. And that's not going to be any different going into 2025.
And one of the things that we're going to do is seek to look for opportunities around efficiency. Rajiv shared some of the points around AI, but it's also going to be around productivity. So I would say that we're probably not going to add as many people in the team as we did this year or prior years and really get more leverage. And primarily it's because we did a lot of really targeted hiring for the roles that we need and we are there in place. And so we were feeling really good about the level of resources in the market right now.
Stacy Clements, Investor Relations, The Blueshirt Group, The Blueshirt Group: Thanks, Steve. Our next question comes from Matt Swanson at RBC. Please go ahead, Matt.
Matt Swanson, Analyst, RBC: Yes. Thank you guys so much for taking my question. Maybe building off Shweta's question and you mentioned the 100 team members in sales and technology. Could you expand a little bit about kind of the go to market motion with these new products in the emerging revenue stream and kind of how you're able to let people know the value proposition for them?
Rajeev Goel, Co-Founder and CEO, PubMatic: Sure. Yeah. Why don't I take that one? Hey, Matt and how are you? So I think a big part of what we've been doing over the last couple of years and is continuing is to get deeper and closer on the buy side of the ecosystem, such with agencies and advertisers, primarily given our SPO value proposition.
And we mentioned earlier in the call that we're now penetrated, 70% penetrated into, for instance, the top 30 streamers. We're growing the commerce media business. We announced Activate partnership and connect with Dentsu. So we really think that it's important that we engage with a growing sector of the buyer ecosystem. And while a couple of years ago, we started with the agency HoldCo's, there's no shortage of large advertisers that also want to engage in supply path optimization along with independent agencies.
So the go to market is really a combination of 2 things. 1 is we have relationship focused people on the buy side, so they're covering the big buyers. And then more recently, we moved to or in the process of moving to a specialist sales structure, where we will have product specialists that are going in with those relationship folks in order to expand those relationships. So we think that's a critical part of the opportunity. Again, the Dentsu example is a good one where we've been working with them with SPO for quite some time and now expanding that into Connect and into Activate.
GroupM is another good example where we've been powering the premium marketplace for a number of years and we've had a steady geographic expansion. We started in Europe, then into the U. S. And now most recently into Latin America.
Matt Swanson, Analyst, RBC: That's super helpful. And maybe just a question on the DSP change. We talked a bit last quarter about the need to do some algorithm optimization post the change and about that taking some time. Could you just kind of give us an update? I know it's still early on just what you're seeing from your reaction to the reaction, I
Ian Peterson, Analyst, Evercore: guess. Sure. Yes.
Rajeev Goel, Co-Founder and CEO, PubMatic: Go ahead, Steve.
Steve Pantelik, CFO, PubMatic: Yes. Happy to. So one of the things that I commented as Rajiv as well that it was a process that we're going to work through and we had confidence that we're going to be able to do that. And the good news is that the spend from this buyer has stabilized. And so there was an adjustment at mid year.
And since then, it's been steady going. So I'd say that as we called out, it's a change in the level of spend, but not the change in terms of how we're operating with that DSP. And we feel very enthusiastic about the ability to grow that over time. But we are going through an adjustment period, as noted last quarter and this quarter, and we will for the first half of twenty twenty five. But the key point to note is the rest of the business, which is the majority of the business over 2 thirds is growing significantly in the Q3 17%, slated to grow 15% plus in the 4th quarter.
So the fundamentals of our business are very robust. We see the DSP change as in the rearview mirror and we're just working through it now.
Rajeev Goel, Co-Founder and CEO, PubMatic: Yeah. Maybe I can just add a quick comment on that. So it's true, of course, Matt, that we're going to have a bit of a headwind with that DSP until middle of next year. But to Steve's point, we're getting much more deeply embedded into advertising driven businesses. You know, the X announcement, the supply path optimization with Dentsu, with Connect and Activate, you know, Western Union and Commerce, we've expanded the Roku relationship into CTV Marketplaces.
So these are all, I think, you know, good examples of how we're getting more and more embedded into, you know, really large players in the advertising ecosystem. What I'm really excited about is how the pieces are very much overlapping and reinforcing. So when we engage in supply path optimization, that brings more streamers and publishers and commerce media customers to our platform because they want access to those dollars. Commerce media partners, they bring more streamers to us because we can overlay the commerce data onto the streaming inventory. And then Commerce and Connect participants, they create more bids for our publishers, which generates more revenue for them.
So I think we're getting into a really interesting point here where all of these pieces are coming together and reinforcing each other.
Matt Swanson, Analyst, RBC: Thank you.
Stacy Clements, Investor Relations, The Blueshirt Group, The Blueshirt Group: Our next question comes from James Heaney at Jefferies. Please go ahead, James.
James Heaney, Analyst, Jefferies: Great. Thank you for taking the question. Rajeev, what do you think is helping you get to critical mass in CTV? Is that due to the increased focus on your buy side solutions? Or do you feel like the big difference is the amount of CTV supply growth that you're seeing?
Rajeev Goel, Co-Founder and CEO, PubMatic: Yes, I think it's a combination of a couple of things. 1 is technology innovation and then the second is our SPO buyer relationships. And then the third is what I was just referencing, but all of the pieces coming together like Connect for curation and data as well as Commerce Media and Activate. So just to kind of unpack that a little bit. We built, I think, a very significant now CTV business organically, right, over the last couple of years.
So we're excited to be at 70% of the top 30 and that creates a level of critical mass. But it's really coming through, you know, organic innovation, building all of those product capabilities. The Gen AI example that we cited earlier, is a great example of how we were able to unlock, really a significant volume of political ad spend through innovation. 2nd, of course, is supply path optimization, right. So because of the relationships that we have with buyers, then that brings streamers to our platform.
This, Dentsu, announcement is a great example where as that gets going, you know, there will be dollars flowing through Activate on our platform. And so then streamers know that, hey, in order to access, you know, those budgets, we need to be working with POMATIC. And as we mentioned earlier, those agencies are also moving their direct buys. So that's a single buyer, single advertiser to a single publisher's inventory. They're moving those buys to our platform as well.
And then lastly, as we scale up our Connect platform for curation and data partners, and we scale up Commerce Media, that just brings more and more incremental demand to our publishers. And that is not necessarily demand that they'd be able to get elsewhere. And so I think that combination of innovation and SPO and then the other demand drivers is really what's driving streamers to lean into working with us.
James Heaney, Analyst, Jefferies: Great. And then maybe just a follow-up for Steve. Can you talk about the capacity needs for the business for the rest of 202425? Do you expect you'll need to invest incrementally in infrastructure in the near to medium term to support the next leg of growth?
Steve Pantelik, CFO, PubMatic: Sure. We're already locked and loaded for 2024 and so that's done and that's reflective of the CapEx that I referenced in the prepared comments. And as we look to 2025, our expectations are going to be continuing what we see is work very effectively. 1st, we look for opportunities to optimize our existing infrastructure. So no net new CapEx.
And then when we see sort of the runway for that opportunity, then we determine the incremental opportunity. And the great news is that we are really driving our CTV impressions, our omnichannel video impressions. And those carry with it a lot higher value CPMs. And so our expectation over time is that we won't need to invest at the same level as we have historically. And there's a variety of reasons why we feel very good about the gross margin profile, but not the least of which is long term focus on efficiency and then managing our CapEx and then always looking for optimizations.
And we think those opportunities are going to just continue to be in front of us. But I do not expect sort of a major uptick in CapEx in 2025 beyond sort of the similar levels of the last year or so.
James Heaney, Analyst, Jefferies: Great. Thank you so much.
Stacy Clements, Investor Relations, The Blueshirt Group, The Blueshirt Group: Our next question comes from Ian Peterson, Evercore. Please go ahead, Ian.
Ian Peterson, Analyst, Evercore: Thank you for taking my questions. 2, if I may. First question, there's a pretty significant acceleration U. S. Revenue in Q3.
Can you just help us unpack that a little bit further? How much of that was just a function of political contribution, easier comps or other factors such as emerging products contribution? And if emerging products contribution, can you just tell or give us some hints on which products are driving that? And secondly, related to the $7,000,000 headwind you called out on the last earnings call related to DSP and macro environment. Can you just remind us how much of that played out in Q3 and how to think about that headwind that's implied in the Q4 guide?
Thanks.
Steve Pantelik, CFO, PubMatic: Sure. So with respect to the first question, just unpacking our performance, the real driver has been CTV, very strong growth, and it's all volume driven impressions that we sold. And so that was the lion's share of our performance. Now, as Rajiv also commented on, because we have such a significant scale and the innovation that we brought to bear in terms of the AI tool, Most of the political advertising that we generated was via CTV. So in that respect, they're both related.
But number 1, CTV was the key driver of our performance. Number 2, continue to see great progress with mobile app. And as you know, we recently launched a partnership with a very large mobile app company, And that gives us access to over 80,000 mobile app publishers around the world. And so we saw a strong growth out of mobile app, over 20% growth. It was the 4th quarter in a row delivering that kind of growth.
And then we also saw some solid display results. So across the board, we feel like all the levers were in place. And the areas that we've been investing in are really showing dividends, as I just outlined. Now, in terms of just thinking through the outlook that I gave, I mean, the most important point is that that situation has stabilized. And now we're just growing through that, as evidenced by the commentary that I shared on the Q4.
Overall, when you adjust for apples for apples, the expectation is that the applied growth is over 15%. So I'd say put the DSP change in a box and we're going to grow through that in Q1 and Q2. But on an apples for apples basis, it will be comparable Q3 onwards. And the most important factor is over 2 thirds of our business is growing in the mid teens, and that's helping us manage through this change that occurred mid year.
Stacy Clements, Investor Relations, The Blueshirt Group, The Blueshirt Group: Thank you, Steve. Our next question comes from Tim Nollen at Macquarie. Please go ahead, Tim.
Tim Nollen, Analyst, Macquarie: Hi, guys. Thanks for taking the question. Rajiv, I wonder if you could elaborate a bit more on this, your work you're doing in curation, particularly in CTV. It's not exactly a new concept, but maybe sort of new ish. And you referenced it as maybe a component to your success in CTV recently.
Just could you give us maybe some examples
Rajeev Goel, Co-Founder and CEO, PubMatic: or
Tim Nollen, Analyst, Macquarie: a bit more color around what you're doing with the curation and how you're doing it differently from others? Thanks.
Rajeev Goel, Co-Founder and CEO, PubMatic: Sure. Yes. We've been talking for several years now about sell side targeting. And as you know, our Connect platform is roughly 5 years old, 5 years old now. And just a little bit of context, right, as 3rd party cookies decrease in scale and privacy regulation ramps up, 1st party publisher data or 1st party data in general is becoming increasingly important.
And that means targeting and curation will move to the sell side. And we believe that we have a leading platform in the industry for that. And just to kind of level set on the definition, we view curation as inventory packaging and selection. So it's often aggregating the right inventory together based on a buyer's custom needs, packaging that up and then making it very easy to buy that inventory. And of course, historically, that's been done on the demand side.
But now because of the reasons I mentioned, it's moving more and more to the sell side. And the reason I think we are doing so well is, we have a pretty rich set of features, but there's always more to innovate and to build. We have very significant omni channel inventory scale behind it, global as well. And so we see that it's a significant contributor to our emerging revenue streams. And so one of the, Tim, the way that it works is, we might add political inventory, sorry, political data through our Connect platform onto our inventory.
So this is a pretty common practice, you know, in Q3 and October in our business. So we would add political data, and then we would package up inventory across verticals and geos. So a particular buyer might want, you know, Pennsylvania residents in certain ZIP codes, that have a that meet a certain audience profile, and they're looking for CTV inventory or they're looking for online video with a 80% viewable completion rate. So we can package that inventory up and make that available for a buyer to buy. And so that's a very, I think, sticky opportunity.
Another similar one is using commerce media datasets. So we've talked previously about Instacart (NASDAQ:CART), for instance, you know, layering Instacart data onto our platform and then packaging that up. And I think that's a really nice match with CTV because often in CTV and in commerce media, we have a logged in user. And so we're able to match that user. And so that's, I think, a really great opportunity because it brings unique ad spend to our platform and really highlights the strength of the POMATIC platform.
And that brings more streamers into our portfolio. It also brings more buyers and it brings more commerce and other data participants.
Tim Nollen, Analyst, Macquarie: Great. Thanks for the explanation there. Can I kind of tag on one more unrelated question? Do you think the really big rise in inventory of CTV ads over the last year or 2 contributes to more demand for curation services?
Rajeev Goel, Co-Founder and CEO, PubMatic: Yes, I think it does. I mean, I think if we think about the growth in CTV inventory, what it's causing is sellers to evolve their playbook, in terms of how they sell that inventory. So whereas, let's say, a couple of years ago, where maybe there was a lot less supply and there was a more demand focus in the market. So there's an imbalance, more demand and supply. And sellers could choose to say, okay, hey, I'm going to just sell on a one to one basis, right?
So my sales force is going to go out and they're going to sell the value proposition of, you know, whatever the streamers brand is. As you get to more and more supply and you have obviously the entrance of, you know, purely digital players with no legacy businesses, you know, thinking of folks here like Amazon (NASDAQ:AMZN) and Netflix (NASDAQ:NFLX), then that causes, I think, the typical seller to have to rethink their playbook. Right? So they might get the most premium CPM through that one to one deal where they're selling on the strength of their brand or the show. But then they need to fill the rest of their inventory.
And so they're going to look to sell using curation. They're going to look to sell via our CTV marketplace. They're going to build that full book of demand at different price points. And we think we have a significant role to play in doing that given the scale of the inventory on our platform from streamers, our Connect capabilities, our Commerce and Convert capabilities and then supply path optimization.
Tim Nollen, Analyst, Macquarie: Got it. Thanks a lot.
Stacy Clements, Investor Relations, The Blueshirt Group, The Blueshirt Group: Our next question comes from Brianna Diaz at JMP. Please go ahead, Brianna.
Brianna Diaz, Analyst, JMP: Hi. Thank you so much for taking my question. Just one for me. With budgets increasingly moving into video, can you talk through the impacts of monetization and take rates for 2025 and longer term? Thanks so much.
Steve Pantelik, CFO, PubMatic: Sure. I'll take the first pass. From our perspective, the trends in omnichannel video, CTV plus online video are a very robust scenario we've been investing in for a number of years. And so at the beginning of this year, I'd said that my expectations for omni channel video was for it to grow in the double digits. And that's exactly what we're on track to do.
And I do expect that to continue in 2025 and beyond. And it's because it provides what advertisers want, the right context, the right content, the right targeting. And so there's always going to be dynamics that shift in terms of supply and demand. And we are in a very advantaged position because we focus on the cost side, driving the unit costs down very, very much. And then we're able to, as we invest and grow our business into video, get that marginal profitability because basically the cost to process a video impression and a display impression is roughly the same.
And so from our perspective, wherever the pricing might go with video, we're going to be well advantaged because of the marginal profitability that delivers. And so from as we look into the future, we fully expect our mix to grow in video. We hit an all time high this past quarter at 36%. And as I had commented, that drove our gross profit, improved our average CPM. So there's a lot of things that are going positively for video, which will be the case for the foreseeable future.
Stacy Clements, Investor Relations, The Blueshirt Group, The Blueshirt Group: Great. Thank you. Thanks, Steve. At this time, I'm going to turn the call back over to Rajiv for closing remarks.
Rajeev Goel, Co-Founder and CEO, PubMatic: Thank you, Stacy, and thank you all for joining us today. Our strong results in the quarter highlight our progress in the secular growth areas of our business, omni channel video, CTV, mobile app, SPO and our emerging revenue streams, all contributing to an accelerated year over year growth rate of 17% when excluding political and the 1 DSP buyer. We're launching new products and serving a critical mass of publishers and streamers while unlocking incremental value for our customers and us. We are partnering with some of the largest companies on the Internet as they choose to build their advertising businesses on Pimetic. We have an exciting opportunity in front of us.
We look forward to seeing many of you at upcoming conferences. Thanks everyone for joining us today and have a great afternoon.
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