# PubMatic Reports Strong Growth Driven by Generative AI and New Partnerships

PubMatic has expanded its end customer base dramatically, more than doubling its total addressable market to exceed $120 billion since its IPO four years ago. This growth can be attributed to the early adoption of generative AI across its operations, which has fostered innovation, improved productivity, and enhanced operational efficiency.

## Focused Innovation and Market Expansion

The integration of generative AI has allowed PubMatic to create compelling products in three major areas: optimizing internal functions to improve profitability, refining customer-facing products and features to promote usage and revenue growth, and developing entirely new capabilities. Let’s delve into how these strategies benefit different customer segments, beginning with publishers.

## Publisher Segment Growth

In 2024, Connected TV (CTV) and streaming emerged as PubMatic’s fastest-growing publisher segment, surpassing growth expectations in the latter half of the year. The company successfully partnered with top-tier broadcasters and streaming giants like Roku, DISH Media, Disney+ Hotstar, and Xumo. The influx of political ad dollars propelled omnichannel video revenue to a record high, exceeding 40% in Q4, with half of that attributed to CTV.

PubMatic has seen its CTV market share rapidly increase, thanks in part to a shift from insertion order-based buying to programmatic. Currently, the company collaborates with 80% of the top 30 global streamers, rising from 70% just a quarter ago. These robust product capabilities and data analytics foster strong customer engagement, with streamers increasingly using PubMatic’s platform for their direct sold programmatic deals. The launch of the CTV marketplace in the second half of 2024 aggregates inventory across the platform, offering targeted options for ad buyers, such as Gen Z demographics for Hispanic audiences.

Live sports are a key growth driver for CTV, underscored by a partnership with leading TV manufacturer and streaming provider TCL. Their collaboration allows advertisers to utilize TCL’s extensive inventory, including their TCL TV+ app—reaching over 24 million viewers for sports content. This integration facilitates better targeting and engagement, ultimately boosting TCL’s digital ad business.

## Mobile App Market Performance

For the full year, the mobile app segment of PubMatic saw a 16% annual growth, fueled by its OpenWrap SDK, which integrates seamlessly into mobile applications and connects them to programmatic open Internet ad demand. Recent partnerships, including expansion into social media with platform X, have led to over 900 mobile app publishers working on PubMatic’s platform. Given this expansive opportunity and its leading SDK, the growth rate in this channel is expected to remain in the double digits.

With 53% of all transactions on its platform utilizing supply path optimization, PubMatic has crossed a significant milestone in 2024. This figure has increased from a third of total transactions just two years prior. Partnerships with media buyers such as IPG Mediabrands have amplified the advantages of using PubMatic’s technology to enhance advertiser return on investment, significantly improving CPMs and win rates for clients.

## Innovations Driving Efficiency

Utilizing PubMatic’s Activate platform has led to optimized workflows for clients, assisting them in meeting performance objectives. Notably, Activate delivers an average CPM decrease of 13%, resulting in cost savings for media buyers and increased funds for publishers. As it grows, Activate offers substantial long-term potential, appealing to all six global agency holding companies that are now directing ad budgets towards it.

2024 has been a transformative year for the Activate platform, which saw user growth nearly sixfold compared to the previous year. Retail and commerce media have gained importance within the advertising ecosystem, providing brands with direct access to high-intent consumers while harnessing transaction insights across the open Internet. Notable commerce media networks, such as Instacart, Dollar General, and Western Union, have made their data and audiences available on PubMatic to enhance their off-site media businesses securely.

## Enhancements through Connect and Data Strategy

PubMatic’s commerce media platform, Convert, empowers clients to manage their media across diverse channels and formats, including CTV and mobile apps. An example is Intuit, which has adopted PubMatic to power its SMB MediaLabs, thereby equipping advertisers with 36 million identifiers while safeguarding underlying customer data. This integration allows advertisers to execute more effective business-to-business campaigns across the open Internet.

The success of PubMatic’s off-site commerce media segment originates from substantial investments in Connect, which has evolved into a leading platform for data providers to harness first-party data and enhance inventory outcomes. This approach not only promotes efficiency, scale, and transparency but also empowers data providers with increased control over their data, enabling them to thrive in the open Internet.

Furthermore, Connect’s development addresses the diminishing reliance on third-party cookies and bridges the performance gap between walled gardens and open Internet environments. As curation capabilities expand, PubMatic anticipates increased purchasing activity in the open Internet from buyers seeking premium and brand-safe inventory. This strategic growth contributes to revenue diversification, creating additional income streams through data fees while reinforcing the value of established partnerships.

PubMatic Reports Robust Q4 Growth Amid Strategic Shift in Digital Advertising

In a recent update, PubMatic announced a significant shift in its advertising strategy, moving from third-party cookies towards data-based impressions that have proven to be more effective, resulting in increased value for ad impressions. The company now offers 190 datasets for buyers, reflecting a scaling of its Connect platform, which supports higher return on investment (ROI) and nurtures growth across its ecosystem. The leadership team expressed pride in the innovations surrounding revenue-generating products like Activate, Convert, and Connect, while also highlighting the impactful integration of generative AI across engineering efforts.

Throughout 2024, PubMatic enhanced engineering productivity by over 15% by leveraging generative AI within software development, testing, and release processes. Recently, AI technology has been applied to customer-facing products, further driving usage and revenue. Notably, the company introduced a new tool, PubMatic Assistant, which allows publishers to request various reports or data using simple plain language, thereby streamlining analytics and revealing new growth opportunities.

This technological advancement is expected to significantly contribute to future strategies. PubMatic plans to introduce new capabilities that will automate processes, enhance monetization and ad performance, and provide a solid growth trajectory. As the conversation unfolds, CEO Rajeev Goel noted three essential points. Firstly, the underlying business remains robust, supported by a 16% year-over-year revenue increase in Q4, not factoring in the DSP impact and political ad revenue, exceeding internal expectations.

Moreover, connected TV (CTV) revenue continues to gain momentum, constituting 20% of the total revenue in Q4. Focused investments in areas such as live sports, curated content, and commerce media boost revenue diversification and align with secular growth trends. The company anticipates that the underlying business will achieve over 15% growth year-over-year in 2025.

Secondly, ongoing multiyear investments are yielding profitable growth while adding value for customers. PubMatic, as a leader in sell-side technology, strives to innovate continuously and fortify its competitive edge. Thirdly, there is a noted transformation in the digital supply chain, placing increased importance on first-party data management. Future strategies will center on data curation, ad performance optimization, and operational efficiency.

With a strong foundation and as a trusted partner to leading global publishers, PubMatic’s strategic investments position the company favorably for upcoming opportunities. Following this overview, CFO Steve Pantelick will provide further insights into financial outcomes and operational priorities.

Steve Pantelick — Chief Financial Officer

Thank you, Rajeev, and welcome, everyone. The year 2024 marks a pivotal change in PubMatic’s growth trajectory due to strategic focus and long-term investments. Revenue from CTV, mobile applications, and emerging avenues all contributed to our record growth, even allowing us to mitigate revenue impacts from a bidding change made by a top DSP buyer midyear.

To summarize our key accomplishments in 2024: total revenues increased by 9%, more than double the 2023 rate. This growth was driven by rising monetized impressions and CPMs. After accounting for the DSP impact and political advertising boost, annual revenue grew by 11% year-on-year.

Notably, CTV revenue more than doubled in 2024, making up 20% of total revenue by Q4. Mobile applications also showed a 16% increase, comprising another 20% of revenue. Emerging revenue streams doubled, while supply path optimization (SPO) grew by 8 percentage points year over year, representing 53% of platform activity.

Our margins expanded significantly, with adjusted EBITDA increasing by 23% year-on-year. The gross margin rose by 250 basis points, while the adjusted EBITDA margin improved by 350 basis points. This growth was propelled by our growing engagement in high-impact channels, further enhanced by infrastructure optimization and increased engineering efficiency through generative AI.

Additionally, we prudently managed working capital to finance our growth initiatives and execute our share repurchase program, resulting in $73 million in operating cash flow and $35 million in free cash flow. In 2024, we repurchased over 4 million shares, translating to an 8% reduction in fully diluted shares outstanding and finishing with $141 million in cash and marketable securities, with no debt outstanding.

These achievements underline the promising opportunities ahead. They validate our strategic investments in critical growth areas and show our ability to deliver robust profits and cash flow to facilitate expansion while reducing the number of fully diluted shares. As we review fourth-quarter results, we note total revenues fell short of expectations; however, it was a breakthrough quarter for CTV. Political advertising supported strong growth, offsetting the effects of weak holiday spending from a leading DSP that adjusted their bidding strategy.

While historical trends predict a double-digit increase in holiday advertising compared to Q3, the DSP’s growth was in the single digits, impacting display ad formats. Excluding the revenues from this DSP and the political ad benefits, our fundamental business showed 16% growth, contributing nearly two-thirds of total revenues. This revenue increase highlights a trend toward high-value, high-engagement ad formats and channels, with omnichannel video reaching an all-time high of 43% of total revenue in the quarter.

Emerging revenue streams continued their rapid ascent in Q4, doubling year-over-year to comprise 6% of overall revenues. A notable player in this category was Connect, our curation and data service, which grew by 140% year over year. While display formats faced challenges from the low holiday spending of the prominent DSP, revenues overall increased by over 20% year over year when excluding this buyer.

Throughout 2024, we actively managed our cost of goods sold, focusing on infrastructure efficiency and leveraging prior investments. Accordingly, we kept quarterly and full-year cost increases nominal, at 3% and 2% respectively, while increasing gross impression capacity on our platform by 20% and lowering revenue-related costs by 18% per million impressions.

Company Reports Financial Performance for Q4 and Full Year 2023

In the fourth quarter, our expenses totaled $45.8 million, contributing to a full-year total of $186.3 million. Throughout the year, we strategically invested in high-growth sectors, which provided the strongest growth rates for our organization. On an annual basis, operating expenses increased at half the rate seen in 2023, as we capitalized on earlier investments and enhanced productivity from our new team members in 2024. Our Q4 GAAP net income reached $13.9 million, or $0.26 per diluted share, while the full-year net income stood at $12.5 million, or $0.23 per diluted share.

Our Q4 adjusted EBITDA surpassed expectations at $37.6 million, translating to a 44% margin. For the full year, adjusted EBITDA amounted to $92.3 million, representing a 32% margin. Cash flow remains a primary focus for our long-term strategy. Since our IPO in December 2020, we have generated over $330 million in net cash from operating activities and $175 million in free cash flow. In 2024 specifically, we generated $73.4 million in net cash from operating activities and $34.9 million in free cash flow. It’s important to note that beginning in Q3, we experienced an increase in Days Sales Outstanding (DSOs) due to a change in our Demand-Side Platform (DSP). We expect this normalization to occur by mid-2025.

Focusing on cash and capital allocation, we maintain a robust balance sheet with positive cash flow, which is pivotal for our long-term strategy. As of the end of the quarter, we held $140.6 million in cash and marketable securities with no outstanding debt. Since initiating our stock repurchase program in February 2023, we have repurchased 8.3 million Class A common shares for $134.6 million. We still have $40.4 million remaining in our repurchase authorization until December 31, 2025.

Looking ahead to 2025, we are confident that our growth strategies remain effective and capable of driving performance. In the first half of 2025, we will transition through lower year-over-year spending levels due to strategies implemented by our DSP buyer, with an anticipated recovery at the conclusion of Q2.

This adjustment will mainly impact the display segment of our business while accelerating revenue growth in the rapidly expanding sectors of Connected TV (CTV), mobile applications, and newer revenue streams. Despite the temporary headwinds from DSP, our overall revenue continues to grow. In Q3 and Q4, our core business, excluding the DSP buyer and political contributions, exhibited growth rates of 17% and 16%, respectively. For this year, we are aiming for a growth target of over 15% in this segment.

To ensure sustained growth and profitability, we are implementing a dual-operational strategy. First, we plan to leverage our investments in sales and technology while selectively hiring specialists in the fastest-growing areas. In 2024, we achieved significant progress in high-engagement channels and aim to sustain this momentum. Secondly, we will increase our use of Generative AI to boost efficiency and growth, including investments in customer-facing AI products, as Rajeev has previously detailed.

These strategic investments should position us well for substantial growth this year and beyond, as we aim to enhance revenue from our existing customer base while also targeting new clients and markets. Regarding our financial outlook, positive growth trends of over 15% within our core business have persisted into the current quarter. However, we observe ongoing softness with the large DSP that emerged late in Q4.

In light of this, we maintain a cautious perspective on this buyer, projecting that its current run rate will persist with limited seasonal increases in 2025. Consequently, we forecast Q1 revenues between $61 million and $63 million, accounting for the DSP-related challenges while still expecting double-digit growth in our underlying business. Given our revenue expectations and a largely fixed cost structure, we estimate our Q1 adjusted EBITDA to be between $5 million and $7 million, acknowledging a negative foreign exchange impact primarily due to euro and pound sterling expenses against a declining dollar.

For the remainder of 2025, we predict continued alignment with the latest run rates for the DSP, while our core business is expected to grow over 15%. In year-over-year comparisons, this suggests that total revenue for the first half will show slight declines in low single-digit percentages. However, in the second half, we anticipate a return to growth in the high single-digit percentages, accounting for the tough comparisons from political advertising, which contributed about 6% to our total revenue in 2024.

Regarding expenses, we are on track to enhance operational efficiency, productivity, and targeted investments in our growth sectors. We expect our cost of revenue to rise gradually in low single-digit percentages quarter over quarter, similar to trends from 2024. Moreover, we anticipate that our cost advantage and the shift towards high-value formats will help us increase the full-year gross margin rate. Starting in Q2, we plan for sequential increases in operating expenses in the low single-digit percentage range.

When it comes to adjusted EBITDA, the transition through the DSP’s influence will likely result in slightly lower margins in the first half, with a recovery to typical margin levels in the latter half. Overall, we predict our adjusted EBITDA margin will be in the high 20% range for the full year, factoring in a multi-million dollar foreign exchange impact. Full-year capital expenditures are projected to be similar to the approximate $18 million level in 2024, with most occurring in Q3. Free cash flow is expected to be lower in the first half, but we anticipate it will revert to historical levels post mid-year when DSP spending stabilizes.

In conclusion, while 2025 presents challenging comparisons that may obscure our healthy growth, the current impact from one significant DSP buyer is limited to a specific area of our operations, mainly desktop display. We successfully navigated past this challenge in 2024, and we are optimistic about doing the same in 2025.

We will overcome this transitional phase in just a few months, resulting in a larger share of our revenue derived from key secular growth drivers. We are confident in our ability to execute our strategies effectively and enhance our growth trajectory. Additionally, we boast a strong financial profile and a resilient model that fosters healthy margins, improved leverage, and robust cash flow, which will drive our business priorities. I’ll now hand over the call to Stacie for the Q&A session.

Stacie Clements — Investor Relations

Thank you, Steve. [Operator instructions] Our first question comes from James Heaney at Jefferies. Please go ahead, James.

James Heaney — Analyst

Thank you for taking my question. Steve, could you elaborate on the month-to-month trends observed throughout the quarter and when you began to notice some weakness? Additionally, could you share your insights on overall Cost-Per-Thousand Impressions (CPM) trends?

Steve Pantelick — Chief Financial Officer

Of course. If I misinterpret your question, please feel free to clarify. In terms of sequential progress during the fourth quarter,…

PubMatic Reports Positive Trends Amid Challenges in DSP Relationships

PubMatic has indicated that its CTV, mobile, and overall performance align with expectations, noting a brief dip in the latter part of Q4 resulting from a single demand-side platform (DSP). Nonetheless, the company’s broader expectations were met for the quarter.

Softness Linked to Specific DSP Challenges

The noted softness was primarily tied to one DSP, particularly in display advertising formats. Despite this, the company reported favorable results in CPMs throughout 2024. Full-year CPMs reflected a positive trend, and Q4 results were similarly encouraging.

Additionally, monetized impressions saw positive growth, particularly for connected TV (CTV), which doubled in volume. This further supports the claims made by executive leadership regarding growth in key areas. While challenges arose with the single DSP, management believes they can effectively navigate the issues based on recent trends.

Stacie Clements — Investor Relations

Thank you, Steve. Our next question comes from Rob Coolbrith at Evercore. Please go ahead, Rob.

Inquiries on DSP Relationship and Display Impact

Robert Coolbrith — Analyst

Thank you. I wanted to delve deeper into the dynamics with the large DSP partner. Can you clarify why the issue seems limited to display advertising and specifically why it arose in the latter part of the quarter? Additionally, do you believe there are steps needed to enhance that relationship, especially regarding its bid-shading algorithms? Or could this merely be a technical bidding issue without relationship impairment? Thank you.

Steve Pantelick — Chief Financial Officer

Rob, the overall concern stems from a structural change in the DSP’s bidding strategy. They transitioned from a hybrid of first and second-price bidding to exclusively first-price bidding. Following this adjustment, results have stabilized. We anticipated moderate seasonal variations in Q4, but the decline for this DSP was notable compared to others.

Historically, this DSP has focused on display buying, which explains the impact on that format. That said, our longstanding relationship provides stability, and we expect to transition through this period in the coming months by developing additional opportunities with buyers. Thus, we view this mainly as a year-over-year challenge that we are on track to overcome.

On a wider company level, our primary objectives for 2024 focused on enhancing our growth in CTV, mobile app, and emerging revenues—all of which have shown success. Notably, we are reducing our dependency on display advertising, which now accounts for only 20% of our total revenue, down from 35% a few years ago.

Exploring Data Opportunities in the Industry

Robert Coolbrith — Analyst

Could you elaborate on the data opportunity? Are there industry shifts affecting addressability that could enhance this? How do you size and assess that internal opportunity? Thank you.

Rajeev Goel — Co-Founder and Chief Executive Officer

Absolutely, Rob. There is a notable trend in the industry towards sell-side targeting, which means applying data on the supply side of the ecosystem rather than simply matching it through DSPs. Several factors are driving this shift.

Firstly, the decline of cookies plays a significant role. DSPs traditionally relied on cookie-based datasets affiliated with publishers, and these are dwindling. Secondly, the marketing landscape is transitioning to various first-party datasets, including logged-in users in CTV environments. These datasets are typically more robust on the sell side. Finally, sell-side targeting improves efficiency, allowing buyers to purchase only the desired impressions rather than treating all impressions uniformly.

This transformation gives us a competitive edge, as we have invested considerable resources over the last five years to address the cookie risk. Our revenue streams are diversifying away from cookie-dependent advertising to areas like CTV and mobile apps. Currently, over 90% of impressions now utilize alternative identifiers, such as LiveRamp IDs or Trade Desk IDs.

Moreover, we’ve significantly enhanced our Connect capabilities, integrating over 190 data partners and attracting numerous customers who use our platform to manage transactions efficiently. The data opportunity is lucrative for us not just through direct fees but also from all transactions conducting through our supply-side platform (SSP), ultimately driving additional revenue for our publishers.

CTV Growth and Future Outlook

Robert Coolbrith — Analyst

Thank you for the information. Refocusing on connected TV, where do you see promising growth opportunities? Are there specific categories of media streamers that are especially appealing to PubMatic? What is your outlook for CTV growth over the coming years?

Rajeev Goel — Co-Founder and Chief Executive Officer

We are witnessing a robust performance in CTV, evident by a 20% revenue increase and year-over-year growth more than doubling. Our focus is on capitalizing on the shift to programmatic CTV purchasing, which is moving away from traditional insertion order-based buying. This trend is gaining momentum, positioning us favorably for continued growth in the CTV market.

PubMatic Sees Growth in Programmatic Advertising with New Technologies

PubMatic has concentrated on creating a leading platform for managing various programmatic transactions, including Private Marketplace (PMP), Programmatic Guaranteed (PG), and open auctions. The company’s advanced technology, user interface, and transaction management capabilities have attracted more publishers, streamers, and broadcasters for their direct-sold deals.

Furthermore, PubMatic is not complacent; it is enhancing its offerings with generative AI-based solutions. Recently, they announced that they are now collaborating directly with 80% of the top 30 streamers, marking an increase from 70% just a quarter ago. This list of high-profile clients includes Roku, DISH Media, Disney+ Hotstar, Xumo, and TCL.

As the business landscape evolves, PubMatic is seeing success with a range of large broadcasters and mid-market streamers. This growth includes both digital-only platforms and those transitioning from traditional TV. The company has differentiated itself by incorporating curated datasets from various providers, such as Instacart, Intuit, and Comscore. Buyers and sellers are increasingly recognizing PubMatic as a preferred platform for transactions utilizing these valuable datasets.

Looking ahead, as the company approaches significant changes in its Demand-Side Platform (DSP) by Q2 of 2024, PubMatic anticipates a greater portion of its business to align with secular growth drivers. Connected TV (CTV) stands out as the most significant of these areas, with potential growth fueled by live sports, data curation, supply path optimization, and the Activate platform.

Zach Cummins — Analyst

Thank you for addressing my questions, and best of luck for the remainder of the quarter.

Rajeev Goel — Co-Founder and Chief Executive Officer

Thank you.

Steve Pantelick — Chief Financial Officer

Thanks.

Stacie Clements — Investor Relations

Our next question comes from Andrew Boone at JMP. Please go ahead, Andrew.

Andrew Boone — Analyst

Hi, and thank you for taking my question. I would like to explore the recent six-fold growth in the Activate platform. Could you help clarify this? Rajeev, could you also discuss the strategic aspect of adding more demand to the platform overall?

Additionally, Steve, I found the insights on generative AI cost savings this quarter intriguing. Could you provide some context on how we might expect that to affect operational expenses moving forward?

Rajeev Goel — Co-Founder and Chief Executive Officer

Absolutely, Andrew. To start, we are indeed witnessing remarkable growth with Activate. Although it originates from a smaller base, we have achieved a six-fold increase on a year-over-year basis, which is highly encouraging.

All major holdings companies are now purchasing via this platform, which signals a strong growth trend. Activate aims to simplify the digital advertising supply chain to enhance efficiency and transparency. This overarching theme contributes significantly to our success. The Supply Path Optimization (SPO) approach fostered by Activate enhances both performance and efficiency, reinforcing what agencies have reported about growing outcomes-based business models, such as those highlighted by GroupM.

Activate is designed to make end-to-end transactions more efficient, playing an essential role in driving performance on the open internet. The platform’s ad format and ad server agnosticism, as well as its compatibility across consumer devices, allows for broad accessibility. Every day, around 800 billion ad impressions on our platform qualify for purchase through Activate, which satisfies buyer expectations regarding simplicity and scale. In terms of your follow-up question, every dollar spent by buyers in Activate flows directly into our Supply-Side Platform (SSP), translating to unique incremental spend for publishers integrated with PubMatic.

For instance, last quarter, we announced that Dentsu’s Mercury for Media, their new buying system, utilizes Activate and Connect technologies from PubMatic. A short time later, we noted the increase in our penetration from 70% to 80% among the top 30 streamers globally. Such developments indicate how platforms like ours encourage streamers to ensure their inventory is available within PubMatic, thereby incentivizing continued revenue growth.

Steve Pantelick — Chief Financial Officer

I’ll add to that. In terms of ongoing productivity improvements, we believe this trend will continue. As a reminder, machine learning is integral to our company’s philosophy. We have been developing and utilizing various AI tools for at least two years, reflecting in the engineering advancements we’ve made.

Recently, in the fourth quarter, we channeled some of our AI innovations into revenue generation, including a new generative AI product aimed at elevating political spend. We view this as an ongoing opportunity to improve efficiency and drive revenue. For context, even if we add 5% incremental headcount in a given year, AI-driven initiatives may negate the need for that increase. Looking ahead, we anticipate overall productivity improvements between 5% to 15% annually as a result of these advances.

Andrew Boone — Analyst

Thank you.

Stacie Clements — Investor Relations

Our next question comes from Jason Helfstein of Oppenheimer. Please proceed, Jason.

Jason Helfstein — Analyst

Thank you. I have two questions. First, regarding the first-bid and second-bid DSP issue, do we currently face any risks with other DSPs, or have they all transitioned to a first-bid model? Secondly, could you elaborate on investments directed at buy-side products, including R&D and sales, and how these may evolve in the next 12 to 18 months?

Steve Pantelick — Chief Financial Officer

I can address the first question. Yes, the recent shift to solely first-bid auctions marks the final transition, as many other DSPs had already made this change last year. Now, let’s move on to the next question…

# Company Leaders Discuss Strategic Growth in SPO and CTV Market

Rajeev Goel — Co-Founder and Chief Executive Officer

Thanks, Steve. In terms of investment, we plan to aggressively market our SPO, Activate, Curation, and commerce media products. We’re making significant investments in our sales team for 2024 to facilitate this approach.

In 2025, we will continue to expand our sales team, focusing on holding companies and a growing roster of brands eager to engage in SPO. Additionally, mid-market agencies are increasing their share of overall spending in the ecosystem, making them a key target for our efforts. Earlier, Steve mentioned the potential of Generative AI (Gen AI). We are actively exploring productivity improvements, not just for customer-facing solutions but also to enhance the efficiency of our own team. For example, our customer success team will use Gen AI solutions to automate responses to customer inquiries, streamlining operations.

This strategy will allow us to shift our focus increasingly toward the buy side of the ecosystem.

Stacie Clements — Investor Relations

Next, we have a question from Matt Swanson at RBC. Please proceed, Matt.

Matt Swanson — Analyst

Thank you. I’d like to discuss the evolving CTV ecosystem. Rajeev, we’ve often mentioned how this space is moving towards resembling the open Internet, with increased scale in auction bidding. Is this still the strategic direction you’re pursuing? You’ve seen success in various areas and I’m curious about your views on the evolution of the CTV ecosystem.

Rajeev Goel — Co-Founder and Chief Executive Officer

Absolutely. We are transitioning from primarily insertion order-based buying to exploring early transaction types in programmatic advertising, such as programmatic guaranteed and private marketplace deals. However, we’re also witnessing more opportunities around auction packages that involve multiple publishers in a single deal.

We recently established a CTV marketplace where buyers can access significant inventory across various publishers, targeted at specific demographics like Hispanic audiences or Gen Z. As this marketplace matures, it will lead to more open market transactions. A key aspect of this opportunity is managing yield—ensuring publishers fulfill programmatic guaranteed commitments while maximizing revenue from additional demand in the CTV marketplace or open auctions. Managing these competing demands presents both significant technological challenges and opportunities, and we are well-equipped to deliver value to our customers in this area.

Matt Swanson — Analyst

That’s insightful. Steve, I know you take pride in your adjusted EBITDA performance. Given the current quarter’s revenue challenges, your ability to surpass adjusted EBITDA estimates suggests efficient operations. Are there specific cost-containment strategies you’ve implemented mid-quarter?

Steve Pantelick — Chief Financial Officer

Thanks, Matt. I’m proud of the team’s achievements. Our ability to maintain adjusted EBITDA despite revenue shortfalls is indeed a testament to our long-term focus on operational efficiency. We have a strong track record of delivering solid EBITDA and succeeded in the fourth quarter by understanding our operational levers. A decade ago, we opted to own and manage our own equipment, which has yielded benefits in gross margin and long-term leverage.

In the current fiscal year, we’ve seen minimal year-over-year increases in the cost of revenue, while impressions rose by 20%. This is the result of diligent efforts and a business philosophy centered on ensuring we improve both top and bottom lines. I fully expect this focus will continue.

Matt Swanson — Analyst

Thank you.

Stacie Clements — Investor Relations

Thank you, Steve. Our next question will come from Ken Wu at Wolfe. Please go ahead, Ken.

Ken Wu — Wolfe Research — Analyst

Thanks for the opportunity. Should we anticipate that headline growth in the second half of 2025 will align more closely with the 50% growth rate of your core business as you move past the impact of DSP buyers?

Steve Pantelick — Chief Financial Officer

Definitely, Ken. As I mentioned earlier, our underlying business is well-positioned to achieve growth above 50% this year. In this quarter, we are already seeing growth of around 15%.

Moving into the second half, it’s crucial to note that we will be comparing our performance to a significant political spend from the latter half of 2024, which contributed to our growth, especially through CTV platforms. We are well-prepared for this and have developed Gen AI products to enhance our capacity to capitalize on those opportunities. Overall, I expect reported growth for the second half of 2025 compared to the second half of 2024 to fall in the high single digits, with additional growth possible depending on market conditions.

Ken Wu — Wolfe Research — Analyst

Thanks for the clarification. For my follow-up, how should we assess the potential impact of new partnerships on revenue growth in 2025?

Steve Pantelick — Chief Financial Officer

We are cultivating numerous new partnerships, rolling them out on a monthly and quarterly basis. I expect these partnerships will contribute positively to revenue in the second half, particularly within the CTV segment highlighted by Rajeev and me earlier.

Ken Wu — Wolfe Research — Analyst

Thanks, everyone.

Rajeev Goel — Co-Founder and Chief Executive Officer

Thanks, Ken.

Stacie Clements — Investor Relations

Next, we will hear from Mauricio Munoz at Raymond James. Please go ahead, Mauricio.

Strong Growth in CTV Driven by Political Advertising Trends

James Munoz — Analyst

Thank you for taking my questions. I’d like to revisit your fourth-quarter success in CTV. What percentage of that performance can be linked to the U.S. political season? Additionally, how should we view CTV’s contributions moving forward? I have a follow-up after this.

Steve Pantelick — Chief Financial Officer

Absolutely. Political advertising played a significant role in our CTV success. However, if we exclude the political aspect, we still experienced a year-over-year revenue increase, doubling our performance. The core business shows strong momentum, and the political component quickly boosted our year-over-year growth rate.

For 2024, political advertising made up around 6% of our revenue, with it accounting for just under a third of our total CTV revenue. This indicates both its importance and the potential opportunities we can exploit in the future. Moving forward, I expect us to maintain growth in our CTV business.

I anticipate a continued growth trajectory in the high teens for our unadjusted revenue base without the political influence as we look ahead to 2025 and beyond.

Rajeev Goel — Co-Founder and Chief Executive Officer

To build on that, we see several noteworthy trends emerging. First, every publisher is increasingly adopting multiple Supply-Side Platforms (SSPs) in CTV. It won’t reach the multiple levels seen in display advertising, but publishers are certainly adopting more than one, which invites more bids for their inventory and thus drives higher yields.

This growing competitive dynamic is crucial across the open Internet advertising landscape. With multiple bids on inventory, publishers can generate more revenue. Additionally, our relationships through Supply Path Optimization (SPO) and our Curation platform allow buyers to leverage specific data for bidding on our platform.

A case in point is Roku, which has transitioned from a closed system to an open environment in CTV, demonstrating the growth potential available to us.

Mauricio Munoz — Raymond James — Analyst

That clarifies a lot, thank you. Now, I’d like to move to the competitive landscape. What are your insights on the competition, especially with the increasing overlap between Demand-Side Platforms (DSPs) and SSPs?

Rajeev Goel — Co-Founder and Chief Executive Officer

Sure, I’d be happy to elaborate on that. This crossover between DSPs and SSPs isn’t new. For instance, Google has long operated on both sides of the advertising market. Companies like Xandr and Yahoo! have had similar operational models, with varying degrees of involvement over time.

Our main focus is enhancing the efficiency, transparency, and performance of the digital advertising supply chain. We’re committed to giving our end customers greater control to drive their business effectively—building from our foundational infrastructure and leveraging our technology, including emerging Gen AI applications. This approach facilitates end-to-end visibility and control, meeting the demands from both buyers and publishers.

Meanwhile, the industry is consolidating. We’re observing an increase in mergers and acquisitions. Given our robust financial profile, extensive relationships, and technological integrations with over 1,900 publishers, we are well-positioned to engage in this consolidation.

Stacie Clements — Investor Relations

Thank you.

Mauricio Munoz — Raymond James — Analyst

Great, thank you.

Stacie Clements — Investor Relations

Next, we have Eric Martinuzzi from Lake Street. Eric, go ahead.

Eric Martinuzzi — Analyst

Thanks. You provided figures for Q3 and Q4, excluding the significant DSP and political spending, which were 17% and 16%, respectively. Could you remind us of those figures for Q1 and Q2 of ’24?

Steve Pantelick — Chief Financial Officer

The political contributions predominantly emerged in the second half of the year. The DSP element began impacting us in the latter half as well. Therefore, focusing on Q1 and Q2 is only relevant for that timeframe. Currently, our first quarter is trending over 15% for about two-thirds of our revenue.

To clarify, the noise currently affecting our numbers stems primarily from that specific DSP. Starting in the third quarter, we will present data on a comparable basis.

Rajeev Goel — Co-Founder and Chief Executive Officer

Additionally, just to provide some context, the affected DSP primarily engages in display buying. This situation allows us to pivot away from the more cyclically-driven display sector and invest more resources in secular growth segments like CTV and mobile app advertising. Observations of strong growth in these areas confirm that this transition will benefit us substantially moving forward.

Eric Martinuzzi — Analyst

Understood, thanks.

Stacie Clements — Investor Relations

There are no further questions at this time. I’ll turn the call back over to Rajeev for closing remarks.

Rajeev Goel — Co-Founder and Chief Executive Officer

Thank you, Stacie, and thank you, everyone, for joining the call today. 2024 was a pivotal year for us, marked by over double the revenue growth rate compared to 2023 and improved margins, helping us return to a Rule of 40 company. Looking ahead, we anticipate 2025 to be equally promising, as we reduce our reliance on the cyclical display market, reallocating resources toward key growth segments: CTV, mobile apps, commerce media, and Curation. We’re aiming for over 15% growth in our core business, unlocking significant market opportunities.

We look forward to connecting with many of you at upcoming conferences, including the Citizens JMP Technology Conference and the KeyBanc Emerging Technology Summit. Thank you, and have a great afternoon.

Call participants:

Stacie Clements — Investor Relations

Rajeev Goel — Co-Founder and Chief Executive Officer

Steve Pantelick — Chief Financial Officer

James Heaney — Analyst

Robert Coolbrith — Analyst

Rob Coolbrith — Analyst

Zach Cummins — Analyst

Andrew Boone — Analyst

Jason Helfstein — Analyst

Matt Swanson — Analyst

Ken Wu — Wolfe Research — Analyst

Mauricio Munoz — Raymond James — Analyst

Eric Martinuzzi — Analyst

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