PubMatic at Rosenblatt Summit: Navigating AI and DSP Challenges

On Tuesday, 19 August 2025, PubMatic (NASDAQ:PUBM) participated in the Rosenblatt 5th Annual Technology Summit: The Age of AI. The company’s leadership discussed its strategic positioning amidst industry challenges and opportunities. While PubMatic highlighted its robust infrastructure and growth in emerging areas, it also acknowledged headwinds from a major DSP partner’s inventory evaluation reset, impacting its Q3 guidance.

Key Takeaways

• PubMatic’s Q3 guidance was lowered due to a DSP partner’s inventory reset, despite strong Q2 results.
• The company is focusing on diversification away from legacy DSPs and exploring AI-driven advertising opportunities.
• PubMatic’s owned infrastructure supports strong gross margins and profitability, with growth expected in CTV and commerce media.
• Google antitrust remedies could potentially shift market share, benefiting PubMatic financially.
• PubMatic is targeting mid-market advertisers and enhancing supply path optimization (SPO) strategies.

Financial Results

• Q2 2024 Performance: PubMatic reported a 6% increase in sales, exceeding expectations, marking its 37th consecutive quarter of adjusted EBITDA profitability.
• Q3 2024 Guidance: Revenue is projected to be between $61 million and $66 million, reflecting an 8% to 15% decline due to DSP challenges.
• High-Value Video and CTV Growth: High-value video accounts for over 40% of business, and CTV continues to grow over 50% for the sixth consecutive quarter.
• Efficiency Gains: Impression processing rose by 130-140% over three years, with GAAP cost of revenue increasing by less than 50%.

Operational Updates

• DSP Impact: A major DSP buyer’s shift to a new platform has necessitated traffic optimization and diversification strategies.
• Diversification Strategy: PubMatic is accelerating ad spend diversification away from legacy DSPs, with mid-tier DSPs and performance marketers growing over 20% year-over-year.
• Amazon Partnership: Revenues from Amazon grew at a double-digit rate in June and July.
• SPO Initiatives: SPO now represents 55% of business, with efforts to engage mid-tier agencies and advertisers directly.

Future Outlook

• Growth Prospects: PubMatic expects growth from CTV, commerce media, and SPO, focusing on mid-market advertisers.
• AI and Innovation: The company is integrating AI into its product portfolio to drive long-term gains and capitalize on sell-side targeting trends.

Google Antitrust

• Market Share Opportunities: Remedies from Google antitrust actions could increase PubMatic’s market share, with each percentage point shift potentially adding $50-$75 million in revenue.
• DOJ Remedies: Proposed remedies include divestment of core Google assets and unbiased bidding practices across SSPs.
• Civil Action: PubMatic is considering litigation against Google for anti-competitive practices that may have harmed SSPs.

Q&A Highlights

• DSP Headwinds: The leadership addressed challenges from the DSP reset and ongoing optimization efforts to mitigate short-term impacts.

In conclusion, PubMatic’s comprehensive strategy amidst current challenges positions it for potential growth. For more details, please refer to the full transcript below.

Full transcript - Rosenblatt 5th Annual Technology Summit: The Age of AI:

Barton: Okay, everybody. Thanks for joining us here for, a fireside chat with PubMatic. So we have Rajeev Gul, chief executive officer and cofounder, and Steve Pantalek, chief financial officer. And, you know, PubMatic is, I think, sitting in a very interesting place right now, in the industry, exposed to so many of the secular trends that are important in terms of growth of CTV, growth of programmatic, and a leadership position in SSP, and a lot of thoughts around, you know, what’s happening with Google and antitrust. But, you know, to to start off with, Rajeev and Steve, if you could just give us your sense of what is the investment case for PubMatic.

Why should investors be interested right here, right now in your company?

Rajeev Gul, chief executive officer and cofounder, PubMatic: Yeah. Great. Thank you, Barton, and great, great to be here, with the group. So, look, we’re a global leading platform for digital advertising focused on connecting four key, commercial stakeholders, content creators, so publishers, ad buyers, that’s advertisers and agencies, data owners, and then commerce media participants. And we’re doing that on our owned and operated infrastructure so that they can grow their ad businesses.

And as you’ve highlighted, you know, we started narrowly as an SSP sell side platform just focused on the needs of publishers many years ago. And and after doing that for a number of years in the last, five or so years, we’ve really brought in the platform to facilitate transactions between all of these key stakeholders. We have a number of unique, capabilities. I’m sure we’ll get into that, later in the call. But we’ve seen, and are continuing to see great growth in key secular areas of the business like CTV, commerce media, sell side targeting, supply path optimization.

So I think, really, all the areas where digital advertising ecosystem is shifting towards performance, and as as a result, you know, targeting and activation is moving to the sell side of the ecosystem away from DSPs. Now we also have a strong financial profile. The second quarter was our thirty seventh consecutive quarter of adjusted EBITDA profitability, and we generate a healthy free cash flow. And I think that’s really important in this industry because it means we have an ability to invest in ongoing innovation, which, you know, given the pace of change in digital advertising is really key to to long term growth. And then two potentially significant catalysts in the near term I wanted to call out, and I know we’ll get into it a little bit later.

Number one is, both of them are related to Google. The first is, remedies. So we do expect to see, some movement towards remedies, particularly behavioral remedies, versus structural in 2026, and so we think that’s, on the horizon. And then second, is civil action. So we saw a, private SSP, file a civil action lawsuit against Google maybe three or four weeks ago, and we have not ruled everything out.

I think all the all the options are on the table. And so I think that can be a a significant catalyst for investors as well.

Barton: Okay. So, you know, I think that’s a great, table setting and, maybe to kind of continue down this kind of, just understanding your position. So PubMatic, you know, you’re credited with being the second largest non Google SSP with about 4% share, after Magnet with about 6%, and Google with 60%, which was deemed to be achieved through monopoly practices. So competing against a monopolist, competing against Magnite, what is it that Pub and others, what is it that PubMatic has done well to achieve this kind of share position?

Rajeev Gul, chief executive officer and cofounder, PubMatic: Yeah. I think, there’s a couple of factors. First, it’s about the performance that our platform offers and the value that our clients get from using PubMatic. So that’s why we’ve been we’ve been able to scale and grow the way that we have for for nearly two decades. And second, we really continue to innovate and build for the future of digital advertising.

So as I mentioned, you know, at the outset, we’ve transformed our business from an SSP or publisher, only platform to an end to end platform where we are serving the needs of the four major stakeholders in the ecosystem. And so our our, business and our focus has been on not standing still, but really how do we leverage our own and operate an infrastructure, invest, be agile in our approach, and, you know, recognize, you know, where, where the the growth and opportunities are coming from. And so an example of this is how we built solutions around data targeting and curation. So we saw early on that the ecosystem was shifting towards performance. We recognize the importance for publishers and data owners to maintain control of their data and also the opportunity to meet privacy regulation requirements.

And so we’ve seen this structural shift where now agencies are working on our platform to set up campaigns, do the targeting, look at the scale data that exists on the sell side ecosystem in contrast to the to the demand side or the buy side of the ecosystem. And so I think that innovative DNA and focus is really one of the main things that’s propelled us to the to the position we’re in.

Barton: Okay. And, you know, that’s an interesting thought, the, you know, the idea of the the dynamic between the SSP sell side and the the demand side. And, you know, we wanna talk about that a bit more, but I wanna step back and and just kind of level set. So, you know, I think under underlying a lot of the focus on you and I think your group broadly is just this idea that there is a a secular change of ad dollars flowing from just traditional television in one respect to connected television towards programmatic away from nonprogrammatic. How would you know, do you see that?

Is that a secular tailwind for you? And what would be your thoughts about, you know, the growth, and the impact of that on your business, right now?

Rajeev Gul, chief executive officer and cofounder, PubMatic: Yeah. We absolutely see that, and I would say we believe that that would be the case years ago when we really focused our business on our platform towards where we expected the growth to happen, which would be in in programmatic advertising. And I’ll I’ll give a a couple of examples of that. But, ultimately, it’s about, you know, advertisers looking for performance, transparency, and control. So first of all, we can talk about CTV.

You know, we built that business from $0 a few years ago to now approximately 20% of our revenue. We built that organically. Right? And so we’re working with 26 of the top 30 streamers globally. So these are companies like NBC, Roku, Paramount, LG, Samsung, and and so on.

That growth rate continues to be quite high, and we share that in q two. It was over 50% year over year, and we continue to see growth here as budgets move from, you know, linear TV to streaming TV. But where the growth opportunities are in the future is also shifting. So the first leg of that growth over the last couple of years was in the head of the market, you know, a big advertiser, like a CPG advertiser, automotive, or financial service, you know, moving to where the eyeballs are, right, meaning, from linear to to streaming. But now we see a lot of growth with small medium businesses.

So we’ve highlighted growth from partners like Mountain, which is a CTV performance ad platform for, for SMBs. Similarly, TV Scientific, China based DSPs. So we’re seeing a lot of a lot of growth in that mid market orientation, mid market performance by particularly around CTV. But commerce media is another area. So, we just announced PayPal as a customer, adding to other, you know, marquee customers like Intuit, Instacart, Klarna, where we have, you know, very unique datasets and inventory sets, that are available on our platform.

And that commerce media growth is, you know, almost entirely in programmatic, advertising. So, I think that’s where we see a lot of the growth opportunity. The final one I’d I’d highlight is supply path optimization or SPO. And SPO is a process by which buyers consolidate their ad spend onto a subset of SSPs rather than spending on, you know, ten, twenty different SSPs. They’re consolidating spend onto one or two.

SPO is now 55% of our business, up from 35% just a few years ago. And as we build deeper relationships with buyers and they consolidate their ad spend, we’re also able to, get greater visibility into revenue and stickiness, into revenue and deliver, you know, on that value proposition of of programmatic, which is more performance, more transparency, and and more control.

Barton: Okay. So, you know, so we’ve talked about the the things that you know, many of these kind of broad kind of tailwinds for you. Now I wanna talk for a minute about some of the, you know, some of the winds blowing in the other direction, at least from an investor perspective and get your perspective on it. So, you know, one is all this talk about the large language models impacting search and click through rates out to publisher websites. What are you seeing?

What do you expect? What’s your exposure, would you say?

Rajeev Gul, chief executive officer and cofounder, PubMatic: Yeah. So we really are not seeing that be a a headwind for us, and I’ll kinda, take you through why, why that’s the case, and it’s not something we’re particularly worried about. So, about 40 ish percent of our business is mobile app and CTV, which is unaffected by search. The remaining portion of the business is browser based. Now industry data shows that roughly 15% of a publisher’s traffic is search referral traffic, the rest of the traffic coming from either direct navigation or social sharing.

Now given that we work with the head of the market, so top publishers rather than the long tail, I would expect that that, search share is even lower. Right? So people go to ESPN or Wall Street Journal either by typing it in or it’s a bookmark as opposed to, you know, navigating there primarily via search. And so if you, you know, multiply that out less than 15% on 60% of the business, and that 60%, again, that’s browser based shrinking as a portion of the, total as mobile app and CTV are are growing much faster. We’re talking about a single digit, headwind, to our business.

And, you know, when I think about a lot of our publishers, they’ve already been affected, in that search queries have been delivering less traffic to them over time. If you think about doing a weather search or search on sports scores, you know, for five, seven, eight years now, those search results have not taken you to a publisher website. You just get the answer, you know, directly in the in the search result. So that, I would say, is all on the defensive side, but I think there’s also actually a lot of offensive opportunity. Right?

All of the AI search, platforms, they’re gonna have, you know, ad driven business models. Right? They they just have to, given the kind of the cost economics, in their in their business. And then second, you know, I see a lot of opportunity for, let’s say, an AI, bot that might be in a commerce website or that’s embedded in a game. These are gonna be, you know, new canvases for ad opportunities, where consumers are spending more time.

So we think there’s actually a lot of upside opportunity in the medium to long term around, you know, building advertising products that that go into these AI environments and deliver incremental yield, but also monetize, from an advertiser’s perspective, monetize where attention is going.

Barton: Okay. Now I wanna pause for a minute. So, you know, for for everyone listening, there is an opportunity to put questions into the conversation. If you access your chat functionality, I’ll see the questions on my screen, and I can work them in to the to the discussion. So, you know, moving ahead, I wanna talk for a minute about the second quarter earnings report.

So your earnings report post close on August 11. Your results were better than guided, the headline results. Your sales was were up 6% actual or 19% core. And but there was this third quarter guidance that brought out an issue with a reset at a major DSP partner where after 19% core growth, were looking at down 8% to 15% in the third quarter. Maybe a portion of that was political headwinds, seven percentage points, but still the big growth core was being impacted by a DSP partner that was resetting.

And I was wondering if you could talk about what’s happening with that partner and any thoughts about how long this continues to be a headwind? And why are you guys seeing this, and why haven’t we heard about this from the other, you know, major publicly traded SSPF or Magnite?

Rajeev Gul, chief executive officer and cofounder, PubMatic: Sure. Yes. Let me talk about the DSP impact, and then, I can turn it over to Steve to get into some of the the factors around our guidance. So, you know, beginning in July, as you said, you know, we called out that we saw a headwind emerge from a top DSP buyer, which recently shifted a significant number of its clients to a new platform, and that platform evaluates inventory differently than its old platform. And so one of the features of an SSP is that we are doing what’s called traffic shaping, which is we process about 900,000,000,000 daily ad impressions.

We do not send all of those ad impressions to every DSP because most DSPs can’t handle that volume, from us and and other SSPs. And so we send a send a subset of that inventory, to each DSP, and so we have to determine using machine learning algorithms which inventory is that DSP likely to bid on and and which inventory to send. And so the parameters of how they evaluate inventory have changed, and so we’re working to optimize, the inventory that we send this DSP. And we’re working, of course, very hard on this, and we think it will take some time to play out. I would say some of the SPO partners, that we work with advertisers and agencies, were also surprised by the shift.

So they did not realize until after the changes were made that their SPO strategies were no longer implemented in the DSP, and so they had to go back in and, you know, work through that process to reimplement their, their SPO, strategies. And so that that is also taking some time. So we saw a notable drop in activity from this DSP in July, which is, stabilized in August. And I think it’s gonna take us, some time given the scale and complexity of our platform to, you know, to really to, optimize the traffic that that we send to, to this DSP. So while while we are doing this, I think a top priority for us is to also accelerate the diversification of ad spend on our platform away from legacy DSPs.

So we’ve been making progress, but we plan to accelerate our strategy. And I think that strategy will also play out over time, but ultimately lead to significant benefits. So in q two, we expanded the share of spending from DSPs outside of the top five with performance marketers and mid tier DSPs growing 20% plus year over year. So some of the names that we talked about earlier, Mountain, TV Scientific, some China based DSPs. Another great example is Amazon, which is a significant relationship for us both as an inventory provider as well as a DSP, buyer.

So we’ve been, scaling very nicely with them. And, in June and July, for instance, our Amazon revenues grew very healthy, double digits. So our focus is really on, expanding that cohort where we think ad budgets are growing faster and where we can not only grow our business but also, diversify as it’s clear that the concentration of our legacy DSP relationships is a significant factor constrain constraining our growth, and we intend to address that head on. Let me turn it over to Steve now to talk about some of the factors and guidance.

Steve Pantalek, chief financial officer, PubMatic: Sure. Now with respect to our outlook, you know, we, shared a range 61 to 66,000,000, in terms of q three. And, you know, the way that we, you know, form the lower end of the ranges, take a look at the latest data we had, you know, from July. And as Rajiv pointed out, the, the spend trends from, the DSP that, we saw in July stabilized. So the low end of the range assumes that stabilization is about where it is today, meaning it’s, flattish through the end of the quarter.

And, you know, we also saw a little bit of softness, in terms of a couple consumer discretionary, verticals. So, you know, we were, being, prudent in terms of coming up with a range, you know, probably broader than we would normally. And I think, you know, the way to think about how we’re working through it is couple things. One, you know, Rajeev, commented on all the things we’re doing, to influence, the the trajectory on the, the DSP affected. We also, as a reminder to those who are not familiar with PubMatic, we have a very diverse set of ad verticals, you know, over 20 plus ad verticals.

And, you know, they’re pretty well proportioned, you know, across, you know, those ad verticals. And we saw, you know, a strength in a a number of those, in second quarter and in July. You know, there was some of that softness, but I think, for the consumers discretionary, but it absolutely wasn’t, you know, I’ll call sort of a notable decline. So it’s something that we’re paying attention to. So to the extent to which we are able to, continue to make, you know, efforts, progress against the DSP impact, we would be approaching, you know, the upper end of the range.

And if there is no, you know, I’d call, continuing, macro effect, that’s materially, negative, you know, then I think we’re gonna, you know, be at the upper end. So we got puts and takes. You know, from my perspective, you know, when you step back, you know, we built a business over the long run, to focus on the secular growth areas, and those are doing quite well. You know? Rajiv shared some of that data, but, it’s really worth underscoring.

You know, today, over 40% of our business is high value video. You know, the the foundation of that is CTV, which growing, over 50%, and that was this past quarter was the sixth, straight quarter which we did that. You know, our emerging revenue is doubling. So we feel as a business, you know, we’re putting our wood behind the greatest opportunities. And, you know, where we can double downing on, you know, making those grow even faster.

And so we’re going through, you know, an optimization effort in terms of making sure we have all of our resources in the right area, and to, you know, execute against the game plan that Rajeev described. You know, diversifying our DSPs, putting more, effort and focus on the fastest growing areas, and then ultimately, you know, continue to innovate. We’ve been very successful in, you know, incorporating AI initiatives a couple years ago in the back end in terms of engineering, and that now has come into the, the the, the front, into the product portfolio, which we think will have, you know, long term gains for us as a business. So we think as a business, we’re quite healthy, and we’re gonna work through, we’re confident we’re gonna work through this DSP impact.

Barton: Okay. So, you know, I appreciate that that elaboration. Now one thing that was a little bit just, I guess, unfortunate just from a timing perspective is that this second DSP issue hit right as you were working through an issue from an another DSP. This was the second quarter was the last quarter of a headwind from one DSP switching from a, I think, a second auction to a first auction capability that was, you know, 40,000,000 ish or so, I think, had went to your revenues when you back out some of the things that you’ve disclosed. But, is that now you know, we’ve expected that to be behind you by the second quarter.

Is that fully behind you? There’s no more impact from that to come?

Steve Pantalek, chief financial officer, PubMatic: Yeah. From, our perspective, you know, when that change occurred mid twenty twenty four, you know, there was a a a drop, and we anticipated based upon all of our efforts that we’d be able to stabilize that, which we did. And, we actually were able to grow spend, from that DSP, in July, so right after the, full year anniversary. So we feel that that’s, you know, unfolded the way that we’d anticipated, reflecting the various, you know, efforts that we’d deployed. So in our perspective, you know, that change is behind us.

Now it’s incumbent upon us to continue to drive that business. So we’ve been working with that DSP in a lot of, new areas, and we, you know, are hopeful and anticipate, you know, continued growth out of that DSP, you know, in the quarters to come.

Barton: Okay. So now now you’re you know, as we started off, I mean, you guys are a leading a leader in your field. I mean, you’ve been, you know, one of the strongest players, and yet you’ve had these two situations with one DSP last year and another DSP starting in July that, you know, we haven’t heard the other publicly traded comparable, which is, you know, Magnite, say they’ve been impacted by these issues, although I think they’re industry wide. Why would there be a difference in the impact to, you know, one leading player that’s a little bit bigger than you guys, not that much bigger, and you guys? Why would there be that difference there, do you think?

Rajeev Gul, chief executive officer and cofounder, PubMatic: Yeah. I can I can, take that? So, yeah, our our understanding, clear understanding is that these impacts are industry wide. So I don’t think we’re the only ones that are absorbing this impact. Although to your point, of course, Spartan, you know, they they, the other public SSP did did not call them out.

So I I think perhaps we have a higher concentration, with, you know, these these two DSPs, or it could be a function of concentration in a particular ad format, like display in mobile, where we saw the effect. You know, we know that multiple market participants, were surprised by this latest one in July, you know, given advertisers and agencies had their SPO, you know, settings in the DSP removed and had to reimplement them. And, you know, we were on the front lines of educating them about this. So I think it is a industry wide, impact as as you mentioned. So I think all of this highlights for us the importance of what we talked about earlier, which is that it’s critical for us to diversify our spend away from, you know, the the handful of top legacy DSPs.

And I think the good news there is that independent of our own desire to do that, when we step back and look at the market over the last couple of years, what we are seeing is that the mid market of advertisers is growing at a significantly faster rate than the let’s call it the fortune two fifty advertisers. Mhmm. But I think there’s a couple of reasons for that. You know, record new business formation during the pandemic, a lot of online businesses. You have AI, you know, streamlining workflows and making it a lot easier for small advertisers to get into into advertising.

You have with the shift of of TV consumption from linear to streaming, you know, entirely new and robust Canvas for for advertisers. So all of these things are, you know, making it such that the mid market of advertisers is growing at a at a much faster rate than the head, and the platforms that the mid market uses are very different than the the legacy, top DSPs. And so as we called out, you know, 20% plus growth in the mid tier of DSPs on our platform in q two, thirty percent in July, and that is not only adding incremental revenue growth to our platform, but also the diversification, that we think is gonna be, critically important for us.

Barton: Okay. And I think you’ve, you flagged that one DSP, I guess you could call them a DSP, which is MNTN, has been on a particular growth trajectory with you, and they’re very focused on that category.

Rajeev Gul, chief executive officer and cofounder, PubMatic: Yeah. Exactly. So, you know, Mountain, is an ad platform for mid market, SMB performance CTV buyers. And so we, you know, called out a strong relationship that we built with them in our earnings call, and, you know, obviously, they’re, growing very nicely. You know, new newly public companies, so you can you can see their numbers.

But they’re just, one example of several alongside TV Scientific and others that are in that mid market CTV bucket, where we see, really strong growth.

Barton: Yeah. Now you guys you’ve flagged a little bit earlier supply path optimization, which I think has been an effort for you for a a number of quarters now and is now a majority of your sales mix. And then you’ve got a newer effort within that. Could you talk a little bit about what’s been driving the growth there? Also answer this question.

I guess the idea is that if there’s more of the optimization that’s really done on the sell side, that would seem to argue for SSPs having a faster growth potential than DSPs, but we’re not necessarily seeing that in the public company reports at this time. So is there something that that you a shoe you have to fall that would, drive a difference in the growth rates there, if you can explain that?

Rajeev Gul, chief executive officer and cofounder, PubMatic: Sure. Yeah. Let’s start with, what is SPO, and then we can get into, what we might see in terms of growth. So supply path optimization is a a process we pioneered maybe five, six years ago where, prior to SPO, you know, advertiser agency would make a decision on what DSP they wanna use, and then that DSP would bid across dozens of different SSPs or exchanges. And the buyer didn’t really look past the DSP decision in that programmatic value chain.

With SPO, what we’ve done is we’ve gone to the buyers and make the case to say, hey. Just as you do work to choose and consolidate your spend down to a couple of DSPs, typically, you ought to do the same on the SSP front as well. Don’t leave it to the DSP to, you know, just spread your your ad budget indiscriminately. You ought to consolidate your ad budget, consolidate it onto our SSP. And the reason to do that is typically around a value proposition of greater ROI and return on ad spend.

And that can be from data. It can be from workflow, some sort of technology integration. It can also be from commercial incentives. So a package of different things that is tailored based on the needs of that advertiser or agency that give it, more more performance, or more, you know, return on ad spend, more control over their ad budget, and more transparency. And so we’ve grown SPO now, from, you know, zero five, six years ago to now 55% of our business, and we see that continuing to to grow in share.

It’s up from about 35 just a couple of years ago. We’re now going after mid tier agencies and working directly with advertisers, with our SPO initiatives. And a further extension of that is our Activate product, which is, buyers doing the buying and transacting directly within our SSP platform, where instead of using a DSP and an SSP, they’re using a single technology platform inside of PubMatic to be able to buy inventory directly, that has a number of different performance and efficiency, advantages. AI is another reason why we’re able to grow SPO. So we’ve launched industry leading technology solutions, for buyers that allow the buyer to use a simple text prompt to do audience targeting, to set up a new private marketplace deal, to optimize that deal.

So to do all the things that, you know, they would normally do after learning a new user interface, Now they can use AI to to, engage without the the high overhead. So I think, you know, what we see there is a tremendous opportunity to grow. I do think, Barton, we’re at the early stages of a trend around sell side targeting, which is I think we touched on it a little bit earlier, but with privacy regulations, with the need for greater performance or efficiency, in the buy, with the need for greater transparency, with data, being sustainable on the sell side of the ecosystem. That’s where the consumer gives consent to the publisher as opposed to in the DSP. We are seeing, you know, we are seeing buyers move their targeting to the sell side of the ecosystem, and so we expect to be a major beneficiary of that.

In terms of when that shows up in terms of growth rates relative to the DSPs, I mean, I think one way to look at what’s happening in the last, year or so is that DSPs are driving their revenue growth through increased take rates. Right? You know, some of this migration to new platforms is being driven by, take rate increases. I’ve seen some analysts estimate that, some DSPs, revenue growth is being fueled. Greater proportion of it is, take rate increase as opposed to ad spend increase.

So I think we’re gonna see, growth rates on the sell side, start to look better than than they are on the demand side in the not too distant future.

Barton: Okay. Cool. Now I wanted to really touch on two things here. So I know you talked about Google antitrust at the beginning, and I do wanna leave some good time for that. I wanted to spend just one minute talking about your your in house kind of approach to infrastructure and what that means to your margin opportunity, you know, both in a growth revenue environment and also as you work through kind of a setback with the DSP like you’re having to to deal with right now.

So, you know, maybe we can start with that and then move on to Google antitrust.

Steve Pantalek, chief financial officer, PubMatic: Sure. I mean, let me take that. You know, from our perspective, you know, the, owned and operated infrastructure, you know, our private cloud, as you described it, has been very valuable to us as a business. It’s something that we’ve honed over a decade in terms of managing our own private cloud, and it’s, you know, resulted in, you know, improved performance for our partners as well as great economics for us as a business. And the the the basic approach is to, you know, make sure that we, you know, hone the cost down through efficiencies, optimizations, and then continue to process more and more impressions, have an opportunity to, generate incremental revenue.

And, just as a frame of reference, for, investors, you know, over the last three years alone, just today versus three years ago, we’ve, increased the number of impressions that we’ve processed by about a 130, 140%. Same time frame, our gap cost of revenue has increased less than 50%. And so you can see from that, metric, that single metric, that we’re getting a lot of leverage in terms of, you know, what is the goal of what we’re trying to accomplish. And so when we step back, you know, whenever we’ve met or beat our revenue expectations, the marginal profitability in that kind of leveraged environment is quite significant. You know?

Sometimes it’s, you know, over 90%, a 100%. Now in an environment where we’re, working through right now, it does work against us in the short term, but it, you know, it certainly doesn’t, you know, influence sort of the the logic and the long term compelling advantage that gives us. Because, you know, as a business, historically, we’ve, been able to generate 70% plus gross margins, you know, in fourth quarters, a 40%, and in several years, you know, approaching 40% or higher, margins. And so we feel that, you know, having our own private cloud is absolutely, an essential ingredient, and it’s gonna continue to be a tailwind of, you know, profitability going forward.

Barton: Okay. Alright. So, let’s now talk about Google antitrust. So, you’ve set it up at a level that is interesting. Right?

So you’ve talked about 50 to 75,000,000 of revenue potential for each percentage point share shift. The contribution on that is, like, 80%. So let’s say we take 80% at the midpoint. That’s about $50,000,000 of EBITDA for each percentage point share shift. For a company that did, I think you reported a little over 90,000,000 of EBITDA last year.

So share shift could be very impactful to your, you know, to your cash flow, but that has to happen. So what, in your minds, are the remedies that need to come out that could actually shift share so that this is, you know, something that really drives a change in the market versus all talk and no substance?

Rajeev Gul, chief executive officer and cofounder, PubMatic: Yeah. So the the DOJ has proposed a number of behavioral remedies and structural remedies. Easy way to think about it is, you know, structural is divestment of core assets, DFP and ad x, prime among them, for Google. And then behavioral is prior to that happening, you know, making a change in behavior, that should hopefully cure a lot of that, but where the structural remedy would ensure, you know, that, there can be no ongoing harm. So I think one of the key, and I think imminently executable, behavioral remedies is for Google’s demand side, which is d v three sixty and AdWords.

These are kinda two different, parts of Google’s demand business, to bid in a, non biased fashion across SSPs and exchanges. So today, you know, what the court found is that Google demand biases, ad x and DFP and pushes in, you know, disproportionate share of spend over to the to the Google ad tech stack. And so one of the behavioral remedies that that the DOJ has proposed is that, you know, Google no longer do that, and they, you know, bid fairly without discrimination, across market participants. You know, if we think about the market share, right, so we’re 4% in, basically, the 40% of the market that Google doesn’t own. So that’s about 10% share of the market.

So if we were to apply that 10% to the aggregate, you know, that would take our share from 4% to 10%. So, you know, there’s reason to believe that we wouldn’t, you know, get that full, allocation within Google while it’s only behavioral, but I think we can make a a significant movement towards, towards that without having to go through all of the the structural remedies, which, of course, could could take quite some time. So that’s, you know, one piece, and then the other piece, as I mentioned, is the is the civil action, component. So we think both of these have potential in the in the not too distant future.

Barton: Yeah. So I I wanna talk about a little bit more about the the idea of a remedy. So, you know, the judge will have a trial that starts on September 22 is the current scheduling to talk about remedies, and the decision on remedies could be relatively quickly after that. Now I think so many investors look at court proceedings and they say, oh, yeah. This could be appealed and and pushed back, you know, beyond an investable time horizon.

You seem to have confidence or hope at some level that there can be behavioral changes embraced by the judge that could begin to impact the market as early as next year. Why do you why do you think that? I mean, certainly Google’s kinda appeal. I mean, why do you think that there could be impacts as early as next year?

Rajeev Gul, chief executive officer and cofounder, PubMatic: Yeah. I mean, I think the behavioral remedies are relatively straightforward for the court to implement. And should Google appeal and be successful in that appeal, those behavioral remedies could be just as quickly rolled back. And so I think based on that, it stands to reason that, you know, given the the guilty verdict, the court, would be within its power to move forward with those behavioral remedies, even while the appeals process plays out.

Barton: Okay. So it would be within its power, but is there anything you’ve heard from the court that suggests to you that they would be inclined to implement behavioral remedies while an appeal is pending?

Rajeev Gul, chief executive officer and cofounder, PubMatic: I’m given I’m not a lawyer, and I wanna make sure I don’t, you know, say the wrong thing here, I, I won’t provide anything that I think the court has said that, that speaks to that specifically.

Barton: Okay. Alright. But, certainly, you know, your your legal counsel is behind your confidence that this is something you can talk about today as a responsibility.

Rajeev Gul, chief executive officer and cofounder, PubMatic: Okay? Correct.

Barton: And now you talked a little bit about civil litigation. So just so, you know, people kind of understand, you know, my my understanding of civil litigation is in a case like this, you start with it basically taken as a given by the court if a company has been found by the a suit brought by the DOJ to have committed an antitrust violation, that there is in fact an antitrust violation. So you start off know, halfway down the road in terms of, you know, being able to get something out of civil litigation. Is that generally how you see it?

Rajeev Gul, chief executive officer and cofounder, PubMatic: Yeah. That’s right. I mean, basically, the court has said, hey. You’re you, Google, were running an illegal monopoly here, and there’s a period of time over which, there was harm. And we were named alongside other SSPs as, you know, a specific company that was harmed by Google’s actions, you know, even laying out, government laid out specific algorithms and quantified the the harm.

So our understanding is that, really, the only question here is a question of fact as to the magnitude of damages. Mhmm. And that, you know, obviously, would need to be, heard by a court to to determine, you know, our view versus what might be Google’s view. But that is the question as opposed to was there any harm done or, you know, was was there an illegal monopoly being run here.

Barton: Yeah. And my understanding is that the damages would be essentially what you would have made but for the anticompetitive behavior. Is that your understanding?

Rajeev Gul, chief executive officer and cofounder, PubMatic: That is my understanding.

Barton: Yes. Yeah. And then there is also, you know, within this, a function to look over not just one year, but multiple years of damages and what the troubling kind of implication is that, you know, basically. Correct?

Rajeev Gul, chief executive officer and cofounder, PubMatic: Yeah. That is correct. So there’s a question as to the period of time. There’s a statute of limitations, but that statute only begins that time frame only begins once market participants are aware. And so I think there’s a question of, you know, when when was anybody aware, of all of these harms.

And so I think that’s a that’s a question in terms of, you know, what what is the the how far back, let’s say, does the does the harm period go? And then, yes, my understanding is that, I believe it’s the Clayton Act, there’s a tripling of damages Mhmm. As a punitive measure, you know, to discourage others from operating illegal monopolies.

Barton: Yeah. So, you know, so you’re saying right now it’s something that you look at, you consider seriously. What, you know, needs to happen for you to be able to make a final decision about whether this is something to pursue?

Rajeev Gul, chief executive officer and cofounder, PubMatic: Yeah. I mean, I think for us, it’s a matter of, evaluating, you know, the the the merits, the cost, the time frame, right, all of the things that go into, into taking such an effort forward, and then determining, you know, where where do we we see the the balance playing out in terms of the pros and cons, and then making a decision to to move forward.

Barton: Yeah. And then as part of that, I would imagine, you know, it’s typical in suits for there to be some discussion about a settlement potentially. There anything you can say about the potential for you to have those type of discussions? Anything you can say about that?

Rajeev Gul, chief executive officer and cofounder, PubMatic: Nothing to comment on at this point.

Barton: Okay. Alright. Well, that’s fair. So I think we’re down to our last minute. There’s one last second if anyone wants to put a question in, another one.

Otherwise, I think, we’re very close to the end. So, Rajeev, Steve, thank you guys very, very much. I really appreciate it.

Steve Pantalek, chief financial officer, PubMatic: Great. Thank you for, having us, Barton.

Rajeev Gul, chief executive officer and cofounder, PubMatic: Yeah. Thank you, Barton. Really appreciate it.

Barton: Alright. Thank you. Take care.

Rajeev Gul, chief executive officer and cofounder, PubMatic: Take care. Bye.

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