PubMatic at Oppenheimer Conference: Strategic Growth and Market Insights

On Wednesday, 13 August 2025, PubMatic (NASDAQ:PUBM) participated in the Oppenheimer 28th Annual Technology, Internet & Communications Conference. The event highlighted PubMatic’s strategic initiatives, focusing on growth in Connected TV (CTV) and mobile app revenue, while addressing challenges such as DSP concentration and market volatility. The company is optimistic about leveraging regulatory changes to enhance its market position.

Key Takeaways

• PubMatic’s CTV business accounts for 20% of revenues, growing over 50% year-over-year.
• The company is diversifying DSP relationships to mitigate reliance on major players.
• AI integration across the tech stack is a priority to unlock efficiencies.
• Financial strategies focus on reducing unit costs and maintaining profitability.
• PubMatic bought back 12 million class A common shares, with $100 million remaining in the program.

Financial Results

PubMatic’s financial performance reflects its strategic focus on growth and diversification:

• CTV and mobile app businesses each represent about 20% of revenues.
• Emerging revenue streams, including buy-side products, contributed 8% of Q2 revenue, doubling year-over-year.
• Revenue growth is expected to reaccelerate to mid-teens to 20% year-over-year post-DSP normalization.
• CapEx target for the year is approximately $15 million, half of the investment three years ago.

Operational Updates

Efforts to diversify DSP relationships and advance technological innovation were highlighted:

• Spending from DSPs outside the top five grew 20% year-over-year in Q2, accelerating to over 30% in July.
• Four major AI releases in the past year, with plans to enhance AI integration across operations.
• 55% of business conducted through supply path optimization (SPO).

Future Outlook

PubMatic is poised to capitalize on market opportunities and regulatory changes:

• Strategies include diversifying the DSP mix, accelerating buy-side investments, and scaling emerging revenue streams.
• CEO Rajeev Goyal sees potential benefits from regulatory changes affecting Google’s market dominance.
• Activate product expected to grow to over 15% of revenue.

Q&A Highlights

The Q&A session addressed several key issues:

• Google’s market dominance and its impact on pricing and competition.
• Challenges with a top DSP impacting PubMatic’s revenue, with efforts to optimize inventory.
• Benefits of the Activate product in enhancing transparency and control for ad buyers.

In conclusion, for a detailed understanding, readers are encouraged to refer to the full transcript.

Full transcript - Oppenheimer 28th Annual Technology, Internet & Communications Conference:

Jason Halstein, Head of Internet Research, Oppenheimer: Morning, everyone. Thanks for joining us for a fireside chat with PubMatic. I’m Jason Halstein, head of Internet Research for Oppenheimer. Very excited to have CEO, Rajeev Goyal, and CFO, Steve Pantalek. Again, the format is a fireside chat.

If anyone would like to submit a question, use the link just below the webcast or email me at jason.helstein@opco.com. So, gentlemen, thank you for joining. So for those not let’s just start off, like, overview question. For those not familiar with the company, what does PubMatic do, and why, is the company’s offerings unique, within a pretty competitive ad tech space?

Rajeev Goyal, CEO, PubMatic: Yeah. Hey, Jason. Thanks for, for hosting us. So we are a global platform for digital advertising, and we focus on connecting content creators. You know, there’s gonna be streamers, publishers, mobile apps, ad buyers, data owners, and commerce media participants all on our owned and operated infrastructure so that they can grow their ad businesses.

So we’re really enabling the primary stakeholders in the advertising ecosystem to grow their business. We started narrowly on the sell side as an SSP, about nineteen years ago, exclusively looking after the needs of publishers. And over the last, you know, five to seven years, we’ve broadened our platform significantly to fills facilitate transactions between all of these stakeholders with specific product capabilities and offerings that bring them to our platform. I think some of the capabilities that are unique, we’re a leading sell side platform, so we drive, you know, significant yield for publishers. We lead in what’s called supply path optimization.

So that’s where we work with buyers. So these are major agencies and advertisers to consolidate their ad spend onto PubMatic, and we’re extending that into direct buying in the SSP with our Activate products. We have a leading, offering for curation. So that’s shifting targeting from the buy side to the sell side of the ecosystem where there’s a lot more data given the way, you know, privacy regulations are moving. And then we have a fast growing commerce media business with great customers like PayPal and Instacart and and many others.

And we do all of this on top of owned and operated infrastructure, which I think is an important differentiator. That means we own tens of thousands of ad servers. We own the network infrastructure and and, of course, the the software that’s, you know, providing all of these capabilities, that I described earlier, all on on, private cloud infrastructure that that we own, and that provides a significant source of outperformance and also profitability, which we can get into later.

Jason Halstein, Head of Internet Research, Oppenheimer: Great. And, Steve, can you maybe just broadly break down today what percent of the business is coming from, like, the the legacy SSP, retail media, and then kinda your newer buy side product? Just and there’s other, but just broadly. Right?

Steve Pantalek, CFO, PubMatic: So, you know, just on the point of, you know, the diversification of our revenues, you know, since we went public, you know, we’ve dramatically built out our platform as Rajeev just described. You know, we have a fully scaled omnichannel platform. You know, over the last couple of years, we launched a CTV business, which is now about 20% of our revenues. We scaled the mobile app business, which is about 20% of revenues. And the part that you’re describing, we just, launched, sort of as a whole set of new revenue streams within the last two years.

And as of this past, quarter, second quarter, it represented 8% of revenue. So dramatic growth in, new areas.

Jason Halstein, Head of Internet Research, Oppenheimer: Great. And, Rajiv, maybe give us an update on the ad market. I mean, you you just reported results, but, you know, I think most folks got the sense that the quarter started out a little more cautious but finished strong. You know, what what are you seeing right now, like, you know, third quarter and kinda feeling toward the end of the year?

Rajeev Goyal, CEO, PubMatic: Sure. Yeah. I think in terms of the macro, our view is that it’s been relatively stable. I think q two had a little bit more ups and downs, but we’re, I guess, anticipating a relatively stable environment going forward. We do see a tremendous shift across the industry towards advertisers looking for performance, for transparency, and for control.

But I think the open Internet is becoming more and more about performance, and data is a big driver of that. So, you know, there’s many more logged in environments. If we think about CTV, if think about commerce media, we think about the mobile app environment, all, you know, significant growth drivers for us. And then AI is also changing workflows and reducing the lock in of legacy UIs. Right?

So traders that might have might have been accustomed to learning a particular platform, and that had created lock in Now, you know, through a simple, chat or text prompt, they can in our platform, for instance, they can set up deals. They can do targeting. They can optimize those deals. And so what we’re seeing in our business is really strong growth in CTV. We shared that it was up over 50% year over year.

The emerging revenue streams is, as Steve just called out, you know, doubling year over year. And so, you know, as we’ve looked to the second half of the year, some of the key strategies that we’re focused on are diversifying our DSP mix. We have some concentration there, which would I know we’ll get to. Accelerating our investment on the buy side, so getting deeper with advertisers and agencies, advancing our leadership in CTV, scaling our emerging revenue streams, and then integrating AI across our tech stack and operations. So we’ve made four major AI releases in the last year.

We continue to to to plan to accelerate that.

Jason Halstein, Head of Internet Research, Oppenheimer: Bunches topics in there, which we will unpack. But just first, just to kinda, like, level set, what do you think your, like, rough market share is right now within, like, the SSP community?

Rajeev Goyal, CEO, PubMatic: Yeah. So we think we have about a 4% share of the market. We estimate Google is the largest at roughly 60% share. I think when you consider scaled you know, think about scaled SSPs, if you consider them to be global and omnichannel, meaning, you know, having CTV inventory, mobile app, and web, you know, the things that, buyers are looking to buy, when they’re trying to reach a particular consumer, There’s really only three. Right?

Google, PubMatic, and one other public, SSP. Obviously, Google was found guilty of having a monopoly in the publisher ad server and exchange market, earlier this year, as well as illegally tying the two together. And so we think there are significant reforms on the horizon, that should benefit us.

Jason Halstein, Head of Internet Research, Oppenheimer: So maybe, like, let let’s kinda get into that. So, obviously, no one knows what’s gonna happen, you know, whether, you know, they have business remedies or potentially forced divestiture and Right. They choose to appeal a forced divestiture or choose to appeal a remedy. But just, you know, even before that, like, do you see clients moving away from Google right now just because they’re like, hey. There’s an organization that is gonna feel culturally interrupted, so I’m not gonna wait around until the remedy happens.

I wanna move my business now. So just talk about what you’re seeing there.

Rajeev Goyal, CEO, PubMatic: Yeah. I I think that’s exactly right. And what we saw, you know, well before the verdict is that, you know, buyers and publishers that may have been using, different parts of Google’s tech stack, they could see that it was not, you know, objective or unbiased. Right? So I would talk to an agency buyer that would say, you know, hey.

Somehow when we put money into into Google’s buy side stack, t v three sixty, you know, magically, 90% of it would flow into into ad x. Right? And no matter what we did, we couldn’t, you know, shift that. And so because of that, I think people have been moving away from Google, you know, over the last couple of years, and certainly we’ve been a a beneficiary of that. I think since the verdict, to your point, Jason, there’s a big question of, hey.

If Google is gonna have to, you know, spin this thing out or undergo, you know, some behavioral remedies, then Google’s own incentive to invest in this portfolio of solutions is likely to go down. Right? It’s it’s they’re not gonna, they’re unlikely to to maintain the the share that they have. And so if their investment is gonna go down, then I better, you know, get ahead of that, as a publisher or a buyer and move to independent solutions that are innovating and investing in the future as opposed to, you know, shrinking. And so I think that’s a a tailwind for us for sure.

Jason Halstein, Head of Internet Research, Oppenheimer: And and, I maybe to that point, specifically on the SSP, you know, how do you think about Google’s relative pricing versus yours? Like, I mean, I think most people assume, like, they price at a discount because they can afford to do that. I mean, how dramatic is the discount?

Rajeev Goyal, CEO, PubMatic: Yeah. So I think in the in the exchange market or SSP market, our understanding is their pricing is meaningfully higher than where the market is for SSPs. And that is a result of, you know, obviously, this tying and and the the illegal activity where market participants are forced into that platform. And so, you know, that’s how they would justify a a rate that’s that’s well above. And so when we look at, you know, what are the implications for us, you know, we we estimate each one point share of the market is worth 50 to $75,000,000 in revenue for us.

And because we’re already processing all of the inventory from publishers, we have a very high degree of overlap with Google. It’s a very, very profitable, very marginally profitable, set of revenue. We think about 80 ish percent margin. So I think that’s one aspect of upside for us. We could, you know, significantly grow our market share.

Again, as you said, nobody knows for sure what what will happen and and what the exact time line is, but it could be as as early as, first half of of next year. And then second, you know, we saw one SSP, already has, filed civil damages claim, against, against Google. And so that’s something that we’re also, we we haven’t eliminated any any options at this point.

Jason Halstein, Head of Internet Research, Oppenheimer: So so in the quarter, you did highlight well, I guess, let’s talk about it. It’s like you talk about diversification DSPs is is is something the company is focused on. You know, last year, you know, there were some interruption where, like, one of the large DSPs kind of, you know, made an adjustment to their auction buying behavior, kinda catching up to the industry, but still affected how they bid on on inventory from PubMatic. And then on this quarter, you you you highlighted, you know, DSP which was shifting the type of inventory they were looking to target. And as a result, you know, you’ve had to kind of, you know, kinda change the way you were making certain inventory available or just kinda showing that or showing different inventory.

So I guess the point is one is, like, how, you know, how do you diversify, you know, the DSP mix? I mean, like, by definition, like, there’s only so many of them. Right. And they just is there, like, a cost? Is there gonna be a margin headwind to kind of, like, making that adjustment for the most recent DSP if you have to, let’s say, kind of look at more inventory?

There’s more potentially maybe processing cost to that or something.

Rajeev Goyal, CEO, PubMatic: Yeah. Let me take the first part of that, and then I’ll turn it over to to Steve on the margins. So historically, our main source of demand has been DSPs. Right? And there is a degree of concentration, you know, just given how the industry is built, you know, which, Jason, you you noted.

And so we saw an issue with the top one last year and then more recently this this quarter. And so while we are resolving the the latest one, which is important, a top priority for us is also to accelerate the diversification of ad spend on our platform away from legacy DSPs. And we’ve been making great progress, but we plan to accelerate, our strategy here. So as a you know, just a couple of data points. In q two, we expanded the share of spending from DSPs outside of the top five with performance marketers, mid tier DSPs growing 20% year over year.

A couple of examples that I mentioned in the earnings call, Mountain, right, which is a performance CTV ad platform recently went public. TV Scientific performance CTV ad buyer, China based DSPs where we’re helping them, whether commerce or noncommerce with their non China business. In July, you know, excluding those top five DSPs, all other DSP spend accelerated to over 30% year over year. And when we step back, you know, when we look at the ad market, what we see is that the ad budgets outside of the fortune two fifty advertisers are growing faster than they are in the in the fortune two fifty. Right?

So the mid market of buyers, you know, and mid market can have many different definitions, but let’s just look at it outside of the the top two fifty. You know, that cohort of buyers is growing at a significantly faster rate. And so we think that there’s a lot of great opportunity to grow our business while also diversifying away, you know, from from the the kind of the legacy DSPs. And, again, I mentioned AI earlier, but we see that AI is starting to change the paradigm where people are not as locked in to a particular user interface because the learning curve is is a lot lower. So it’s clear that, you know, the concentration of our legacy DSP relationships is a significant factor constraining our growth, and we intend to address that head on.

Let me turn it over to Steve on the on the margin part.

Steve Pantalek, CFO, PubMatic: Sure. And, you know, with respect to that, the good news from our perspective is that it’s the cost is really de minimis to open up, access to a new DSP. It’s really identifying, you know, who are the right partners, you know, the performance marketers that Rajiv just described. You know, we’re already processing, and incurring the cost for, about 900,000,000,000 impressions per day. So what we do is we identify who the targets are, establish a commercial relationship, and, get that DSP buying on our platform.

And, through the first half of this year, we’ve actually increased the number of new DSPs on our platform by about 20%. So it’s really a function of, focus and then identifying the right partners to work with and then building out the business, you know, developing business plans with them, that meets their criteria, their goals, and then, you know, obviously, exposing them to all the the various inventory sources that we have.

Jason Halstein, Head of Internet Research, Oppenheimer: And so on on the the interruption of the most recent DSP where they’re effectively looking for, like, different kinds of inventory, I think, you know, I I guess, how you know, is this something you can correct or we just have to lap past it?

Rajeev Goyal, CEO, PubMatic: Yeah. I can, I can take that? So, you know, the the what happened with this latest DSP is that as they made changes in their platform, the type of inventory that they’re bidding on, has changed. Like, the parameters of how they evaluate and value inventory has changed, and so we are working to optimize the inventory we send this DSP accordingly. So Steve mentioned, you know, we process about 900,000,000,000 ad impressions.

We don’t send, each and every one of those impressions to every DSP. It’s just too much volume. And so we have to select, okay, which impressions are we gonna send? And so we are working very hard and very diligently, on software iterations on our platform. This is machine learning algorithms and and other, approaches that determine which impressions, which traffic to send to this DSP.

And so that work is ongoing. I am, you know, hopeful that we can, you know, reset that and and correct that and revise that. So I don’t think we’re in a situation where we necessarily need to be waiting, for a year, but that is, you know, ongoing work, the results are are still to be shown.

Jason Halstein, Head of Internet Research, Oppenheimer: Got it. And then just when we get past that, how do we think about, like, the normalized growth, like, when we get past that? You know?

Steve Pantalek, CFO, PubMatic: Yeah. I mean, from our perspective, you know, all the things that we’ve been investing over the last several years are really working quite well. You know, Rajiv hit all the headlines. You know, our CTV business, you know, is growing over 50%, has done for the last four plus quarters, emerging revenues doubling. And so, you know, when we get past this, you know, this DSP impact that Rajiv just described, you know, we absolutely see our our total revenue growth reaccelerating.

And, you know, we as a as a, you know, point that we called out earlier, we now have a a full end to end platform. So we’ve never had in our company’s life as many ways to grow as we have today. And so I fully expect that, you know, as the DSP impact normalizes, you know, we’ll get back to the mid teens to 20% year over year growth.

Jason Halstein, Head of Internet Research, Oppenheimer: Yeah. And then I will talk a bit about pricing. You know, has so these are, like, typically kinda take rate businesses. That being said, you know, when you have SPO, it makes it more stable and less volatile. But I guess on an overall basis, I guess, how do you think about, like, revenue as a percent of gross trend?

How, like, stable has that been, like, if you go back over, like, the past two years?

Steve Pantalek, CFO, PubMatic: Sure. You know, when we went public, we did comment that, you know, given sort of the scaling of the industry and the continuing evolution of mix, you know, new formats, video formats, CTV formats growing, you know, which typically have lower revenue share rates because of the high value of the CPM, you know, fifteen, twenty, thirty dollars. So we assumed at the time of going public that there’ll be a gradual decline in revenue share rates across our platform, you know, over time, and that’s exactly what we’ve seen. There hasn’t been any dramatic drop. It’s been completely, manageable from our perspective.

Point number two is, you know, we’ve always been very focused on driving down our unit costs. And so from our perspective, our goal has always been to look at what are the absolute dollars that we’re bringing down from revenue and then make sure the the cost against that, you know, are as low as possible. So we focus on the marginal profitability of that. And so we’re very comfortable with, you know, the evolution of the, the take rates over time. And from our perspective, we are also doing many things to take advantage of the innovation that we, have built over time, where now we have, incremental revenues that are sitting on our platform without incurring, significant incremental costs.

So what I mean by that is, we already process, you know, 900,000,000,000 impressions per day, so we incur those costs. And we’ve been, with the, increased functionality that we’ve created, whether in, data curation, whether in commerce or activate, we don’t incur significant incremental costs because we’ve already, spent the money to process. So those revenue streams as they grow add incremental absolute dollars to our platform. So we feel really good about the evolution of the business, the foundation of it, and now sort of non, you know, platform spend related investments and outcomes. So for example, we have a, enterprise grade, wrapper, software that, is a fee based.

That is a very important piece of software inside of publishers, and that’s growing very sticky, And that sits outside of the, bit stream. And we’re focused on developing more and more, revenue streams like that.

Jason Halstein, Head of Internet Research, Oppenheimer: Rajeev, kind of you mentioned we talked about data before in kind of your opening comments. I mean so let’s talk about how that ties into, know, what’s now referred to as supply path optimization or SPO. Like, what is it, and and and how are you able to, like, leverage your data to drive incremental revenue through it?

Rajeev Goyal, CEO, PubMatic: Sure. Yeah. So supply path optimization or SPO is a process, business engagement model that we created about seven or eight years ago. And, really, what we are focused on with SPO is making the case to a buyer as to why they should consolidate their ad spend on our platform. So when a advertiser or an agency when they, bid through a DSP, that DSP has choice in terms of the, you know, exchanges or SSPs that that it’s bidding on.

And we made the case to advertisers and agencies that, hey. You ought to consolidate your spend onto our platform so that you can increase the your return on ad investment. Right? And what we’ve been able to do is grow from, you know, 0% at that time to now about 55% of our business is through supply path optimization, and we were at about 35% just a few years ago. And it’s really important because of our ability to consolidate the market and build deeper and stickier buyer relationships, which is obviously a a driver of growth and and profitability.

And so with SPO, what we are doing is whether it’s data, so it could be targeting data, you know, viewability data, log level, transaction data. So data workflows, integrations, commercial incentives. We are helping the buyer, spend more intelligently and increase their return on ad spend when they buy through our platform. And that, by the way, increases the yield or CPMs for publishers. So it’s a great win win where the buyer’s getting more return on ad spend, so they move more of their spend there, and they they buy more, and then the publisher is getting more yield.

Now data is a key key part of this, Jason, as you as you mentioned. As I, talked about it earlier, open Internet is moving more and more towards performance advertising. Right? And with performance, data at scale is obviously a critical input into that performance equation. And so what we’ve seen is just an explosion in the number of, datasets on our platform.

We’ve launched a a business called Connect a number of years ago where first party data owners can bring their data onto our platform, and then they can u buyer can use that data to target within the SSP. So some examples of that. So Instacart data is available on our platform. So buyer can come in and say, hey. I wanna, you know, target households that, you know, buy premium cereal, and I wanna show a CTV ad across, you know, 50 different streamers on the PubMatic platform.

We have Nielsen data, Experian data, PayPal data. So we announced PayPal very recently, 430,000,000 consumers. You know, they have obviously all sorts of transaction data that, that segments are built on top of. So this data, I think, is really key to driving that stickiness, and growth in in SPO.

Jason Halstein, Head of Internet Research, Oppenheimer: And why I mean, a lot of that data is also available, like, through the DSP or the buy side, but why is it work better if they do it through you versus do it through the DSP?

Rajeev Goyal, CEO, PubMatic: Yeah. So there’s a couple of reasons why targeting is moving to the sell side of the ecosystem. So and and let me just go through a handful of those. So first of all, compared to ten years ago, we’re now in a world of consent. Right?

Meaning, in more and more locations right? I’m sitting in California. If somebody’s in Europe, somebody’s in Australia, there’s about 20 states now, in The US with, with, privacy regulations. Consumers increasingly have to consent to having their data used, in targeting. And consent sits at the intersection of the consumer and the publisher, and that’s exactly where our, you know, technology sits.

So we are, we have higher scale of consented users on our platform. Second, regulators are wary of data being spread across the bid stream. Meaning, if a publisher, has data from the consumer and they make that available in our SSP, regulators are more and more, tamping down on that data being sent to, you know, the 100 DSPs that that Steve mentioned on our platform in every individual, you know, ad, transaction. So regulators would prefer that that data is used and targeted on the on the sell side of the ecosystem. And then third, you know, we talked about, the volume of ad impressions that we have and how it’s not feasible for DSPs to take all of those ad impressions.

And so when a buyer does targeting within our SSP, they’re able to increase their reach. Right? Meaning, they can find more users and more ad impressions that have that data than they can in the in the DSP. And so we’ve published a number of case studies with, you know, pretty much all the major agencies and and major advertisers where when they target in the SSP as compared to in the DSP, they’re able to find more audiences and make that process more cost effective, meaning, you know, lower CPMs and and higher return on ad spent. So that we think is a secular tailwind that we’re only in the third or fourth inning of.

Sometimes it’s referred to curation. Sometimes it’s sell side targeting. But we we think we have a leading, product capability and platform in this area.

Jason Halstein, Head of Internet Research, Oppenheimer: Got it. So, basically, we’re like, SPO kinda may have started a little bit of as, like, volume discount, but then ultimately show the value of the unlock of the data. And then now we kinda bring it full circle with Connect as regulations get more and more stringent.

Rajeev Goyal, CEO, PubMatic: Yeah. I think. Sorry. Go ahead. No.

You go ahead. Finish off. Okay. Yeah. Sorry.

I mean, that’s exactly right, which is that we are continuing to broaden and value and deepen our value proposition for SPO. You know, and maybe in that context, it’s relevant for us to talk about our Activate product, which is on

Jason Halstein, Head of Internet Research, Oppenheimer: the next.

Rajeev Goyal, CEO, PubMatic: Yeah. Perfect. Alright. I’ll I’ll let you tee up the question then.

Jason Halstein, Head of Internet Research, Oppenheimer: Well, no. I was gonna say before we got to that, I wanted to hit on, like so the idea then that look. You you brought up multiple times. Like, it’s not practical to, like, send every impression to all the DSPs. Right?

It would just be like,

Rajeev Goyal, CEO, PubMatic: you know Too much cost for them.

Jason Halstein, Head of Internet Research, Oppenheimer: Too much volume overload and driving cost up to everybody and reducing latency. Maybe, you know, with kind of, like, the, you know, step function we’ve seen in in in in LLMs, as you deploy those LLMs, like, you know, like, I guess, how can you leverage LLMs to, let’s say, solve this most recent DSP issue, but just to to almost, like, you know, process more and kind of do you know, just do that faster. Yeah. So, we have been significant

Rajeev Goyal, CEO, PubMatic: innovators and users of machine learning, which is, let’s say, a different branch of AI than generative AI. And machine learning, is is, I would say, the relevant branch here because it deals with transactions as opposed to, you know, text and content or or images. And so with machine learning, what we are focused on is a number of things to improve the outcomes on our platform. So traffic shaping is one of them. Right?

Selecting which impressions we think a DSP is likely to to bid on or win. We use machine learning in setting price floors, so helping publishers determine, hey. How should they appropriately, price their inventory? We use machine learning, to match, you know, the appropriate buyer with the appropriate seller in terms of ad quality. So there’s a lot of uses, ongoing uses for us with machine learning.

And then with LLMs, you know, there’s no end to the to the opportunities. One great example is, last year, we shipped a creative classifier, using generative AI technology, for the very important political, you know, ad season. We were able to to drive significant political revenue. The way that classifier worked is we would look at an incoming ad creative and classify the ad and say, hey. Is this ad a negative ad or a positive ad?

Is it about a candidate, a tax question, or maybe something controversial like gun bill or an abortion bill. And many publishers, they don’t want controversial ads, but they’re okay with, you know, local policy issues. And so this using this creative classifier, we were able to open up a lot more inventory, to political buyers and, you know, bring in significant revenue as a result.

Jason Halstein, Head of Internet Research, Oppenheimer: Okay. So let’s jump to Activate. So Activate is kind of, I guess, your newest product for buyers. I guess, like, what percent of the revenue is this today, and, you know, why is this important? And I guess you could kind of tie into you’ve already had relationships with buyers through SPO.

Like, I guess, it’s like what percent have you been able to convert to activate and, like, I I assume that’s the sales pipeline.

Rajeev Goyal, CEO, PubMatic: Yeah. Let me let me talk about that, and and then, I can, bring Steven as well. So, you know, with Activate, the the challenge that we’re solving is, you know, we talked about performance on the open Internet, targeting, moving to the sell side of the ecosystem, and so, and then supply path optimization. So what we discovered is that, you know, as we went deeper into SPO, buyers started to say, hey. Why can’t I just buy directly in the SSP?

Right? You see all of the ad inventory. You have more data there. If I could just buy directly within the SSP rather than, you know, having to go through, an alternative, you know, buying platform that then integrates in where there’s discrepancies, there’s latency, there’s, you know, privacy and data concerns, there’s higher costs, there’s operational overhead. If I can just buy directly, I can increase my return on ad spend even further.

And so that led us to building Activate, which is what’s unique about it is rather than a an SSP and a DSP, so two kind of parallel platforms, there’s just a single technology stack. And so we don’t have to process inventory multiple times, as would normally happen. And so we’ve been able to bring Activate into many of our, advertiser and agency relationships. For instance, I decided a a case study with, Omnicom Germany on our earnings call. We’ve released, prior case studies with Mars, for instance, where they’ve seen significant increase, in return on on ad spend.

So I’ll turn it over to to Steve in terms of the the scale and growth of that. Sure.

Steve Pantalek, CFO, PubMatic: You know, we have MSAs with all the major holding companies. Many advertisers are using the the Activate platform. And, you know, from our perspective, it’s now a matter of usage and then ramp. You know, we had for example, when we launched Mars, you know, a global company, really see the advantages in terms of transparency control. And that that business in the second quarter doubled over the first quarter.

And total revenues are embedded in our new revenue streams that I referenced earlier, but we do expect Activate to become, you know, a very important part of the future of our business as is, you know, all the other key relationships that we have with DSPs. So think of it as sort of a important part of our portfolio. We believe it’s gonna be one of the fastest growing and, you know, a complement to everything else we do. But, I would anticipate that, you know, in the coming quarters and years, it’ll grow to, you know, over 15% of our revenue, over time.

Jason Halstein, Head of Internet Research, Oppenheimer: So I guess so then the technical question is someone’s looking at this and saying, the benefit of using a DSP is I can understand unduplicated reach across my spend, across multiple SSPs, and obviously, many, many more publishers. If I’m an advertiser and I use activate, how do I still see unduplicated reach between my spend that’s still going through my DSP?

Rajeev Goyal, CEO, PubMatic: Yeah. I mean, the the unduplicated reach, I think that’s a bit of a myth. Right? Because we think about an advertiser’s world, they’ve gotta use d v three sixty to buy YouTube. They’ve gotta use Amazon’s DSP for, you know, Prime Video, and then maybe they’re using, you know, a general purpose, DSP.

Right? And so they’re already very much in a world where there is no unduplicated reach. Right? And so, with Activate, we’re giving the buyer the opportunity to see all of the open Internet. So we neither hurt nor solve that problem today.

Jason Halstein, Head of Internet Research, Oppenheimer: Well, I guess I’m gonna, like, say, but then, like, win the simple math pitch be, hey. Look. The DSP is gonna charge you 15 to 20%. So even if, like, you you you you have a 10% waste factor in duplicate a reach, you’re still saving five to 10%.

Rajeev Goyal, CEO, PubMatic: I’m not sure I followed. So the the where does the savings come from in that in that

Jason Halstein, Head of Internet Research, Oppenheimer: In other words, so, like, when you use activate, you don’t have to pay your DSP. And let’s say the average DSP is charging 20%, and I don’t know what you’re charging for activate, whether you kinda build it in or it’s incremental. But, presumably, there would be just some take rate savings not using the DSP and using activate. And so even if there is going to be some amount of, like, waste through Yeah. Duplicate a reach, like, you can you can mathematically, there’s gonna be some savings.

Yeah.

Rajeev Goyal, CEO, PubMatic: Yeah. I mean, what we’ve been able to very, clearly prove is that we can increase the return on ad spend with this approach. So I think what you just said makes sense, Jason. Also, because there’s no traffic shaping, the buyer can see all of the open Internet inventory, which means they typically are able to find more users, more households at a lower price than if they just go through, you know, traditional DSP. So I think there’s a lot of, you know, puts and takes, but ultimately, what it adds up to is, you know, significant increase, in performance when buyers are buying directly in in the SSP.

Jason Halstein, Head of Internet Research, Oppenheimer: Gotcha. Okay. Let’s, we we probably have time for, like, two more questions. So, if we kind of, you know, with Steve, the question for you, where are you looking for, like, the most leverage in the model over the next two years? I mean, it fair to say that, like, activate requires a higher level of sales and marketing investment?

So then do you, like, offset that in other areas? Like, you know, margins, you know, this year obviously down because the revenue is weaker, but just just if you even if you kind of just look through that, like, where do you where do you see leverage in the model?

Steve Pantalek, CFO, PubMatic: A couple places. I mean, we absolutely are gonna continue to invest behind Activate. But, you know, our core strategy is always to find efficiencies and, you know, leverage those. So, as Rajiv described, you know, we’ve been, you know, utilizing AI now in the engineering organization for a couple years. We have now rolled that across all of our business functions.

So my expectation is we’re gonna continue to unlock efficiencies there, and use a portion of those savings to fund sort of our fastest growing areas. So I would expect leverage out of g and a, leverage out of technology and development, and certain components of sales and marketing. So my expectation is that, you know, we’re gonna be well positioned because, you know, as, you know, we’ve evolved the last couple years, everything we do now is AI’s, AI first strategy. So it’s like, how can we use it? How can we leverage it before we go out and, start to add incremental, resources?

Now

Jason Halstein, Head of Internet Research, Oppenheimer: Yeah.

Steve Pantalek, CFO, PubMatic: And the last thing I’ll comment on, there’s a couple other things that are gonna help us over time. I did reference them briefly, and that’s just our, margin mix. We’re moving towards higher margin, offerings, while they our costs, as as, you noted, are highly So, you know, as we move to higher margin, we’ll be able to continue to drive our, margin rates.

Jason Halstein, Head of Internet Research, Oppenheimer: And then just and then kind of final question. We have seen kind of a tick up in in CapEx and capitalized software, Again, funding the data centers. We’ve talked about how, like, certain, you know, like, video is, like, more data, consuming, etcetera, or data center consuming. But, like, are we nearing like, do you think we’re, like, are we nearing an end, like, an end of an investment cycle around, like, higher CapEx and higher capitalized software development?

Steve Pantalek, CFO, PubMatic: Yeah. I’d say, just to frame it out for, the, folks on the webinar. So over a number of years, we’ve made really significant progress on reducing our CapEx. You know, this this year, you know, our target is about 15,000,000, and that is about half of what we invested three years ago. So clearly moving in that direction.

Now I won’t say we’re sort of moving to a an era where we don’t do any CapEx at all because, you know, we own and operate on our own equipment, and so we really take the energy to get the most out of that equipment, you know, keep it in service five, six, seven years. So we will have periodic replacement needs. But overall, I would say our level investment will be lower going forward than it has historically, you know, for the reasons that, you know, we’ve cited. You know, the, software optimizations that we’re able to achieve, the AI, leverage, and, you know, that leverage is not only from a equipment perspective, but also you referenced sort of the, impact on technology development and capitalized software. I do anticipate that to not grow at the historical rates and, you know, potentially stay flat line in the near future.

Jason Halstein, Head of Internet Research, Oppenheimer: Okay. So maybe final question on buybacks. I think the stock at these levels is kind of, like, below the average buyback price over the last several quarters. I mean, just what should investors expect around, like, buybacks maybe, you know, through the end of the year or, you know, do we wait for the stock to get back to kind of just your thoughts on buybacks from here?

Steve Pantalek, CFO, PubMatic: You know, our capital’s approach has always been to, you know, what is gonna deliver the greatest value to shareholders. And first and foremost, it’s making sure that we have the resources to drive innovation, which we have been able to, you know, get that incremental resources to put there. And we’ve also been buying back shares. You know, I shared at the the last earnings call that, you know, we’ve, bought back about 12,000,000, class a common shares. And we’re always, taking a look at, you know, the, the balance between, investing in innovation and buying back shares.

So it’s gonna be the same equation going forward. We have roughly a 100,000,000 left in our authorized program through the 2026. So we’re gonna be judicious, but, you know, our priority is to keep innovating and growing the top line and then make an assessment on buybacks.

Jason Halstein, Head of Internet Research, Oppenheimer: Great. I think we’ll leave it there. Thank you both for joining us today. If anyone has any more questions, feel free to reach out to me, and we can connect you with the company. Thank you, and everyone have a great day.

Rajeev Goyal, CEO, PubMatic: Thank you, Jason.

Steve Pantalek, CFO, PubMatic: Jason.

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