Q3 2021 PubMatic Inc Earnings Call
Only one earnings call. My name is Megan and I will be your operator today before I hand, the call over to the pub matic team I'd like to go over a few housekeeping items. As a reminder, this webinar is being recorded after the Speakers' remarks, there will be a Q&A session. If you plan to ask a question. Please ensure you have set your zoom ne.
Aimed to display your full name and firm if you would like to ask a question. During this time. Please use the raise hand function located at the bottom of your screen.
Thank you for your attendance today I will now turn the call over to Stacie Clements with the Blue shirt group.
Thank you operator, good afternoon, everyone. Thank you for joining us on telematics earnings call for the third quarter ended September 30th 2021, joining me on the call over to <unk> co founder and CEO.
Phillips CFO today's prepared remarks have been recorded after what you hear and see we'll have slides many.
A copy of our press release can be found on our website at investors <unk> com.
Before we start I would like to remind participants that during this call management will make forward looking statements, including without limitation statements regarding our future performance growth strategy and financial outlook.
Forward looking statements are based on our current expectations and assumptions regarding our business the economy and other future conditions.
These forward looking statements are subject to inherent risks uncertainties and changes in circumstances that are difficult to predict.
You can find more information about these risks uncertainties and other factors in our reports filed from time to time with the Securities and Exchange Commission, including our most recent Form 10-K and any subsequent filings on Form 10-Q, or 8-K, which are flat on file with the securities and Exchange Commission and are available at investors <unk> com.
Additional information will also be set forth in our quarterly report on Form 10-Q for the quarter ended September 32021.
Our actual results may differ materially from those contemplated by the forward looking statements. We caution you therefore against relying on any of these forward looking statements.
All information discussed today is as of November nine 2021, and we do not intend and undertake no obligation to update any forward looking statements, whether as a result of new information future developments or otherwise, except as may be required by law.
Additionally, today's discussion will include references to certain non-GAAP financial measures. These non-GAAP measures are presented for supplemental informational purposes, only and should not be considered a substitute for financial information presented in accordance with GAAP.
A reconciliation of these measures to the most directly comparable GAAP measures is available in our press release.
And now I will turn the call over to Rajeev.
Thank you Stacy and welcome everyone.
Our fourth consecutive quarter, we delivered exceptional results well ahead of our expectations.
Industry, leading sell side platform, we significantly outpaced market growth invested for future growth and continued to fuel our profitable business model.
We generated record revenue of $58 1 million or 54% organic growth over last year.
$13 5 million in GAAP net income of 23% margin an increase of 117% over last year.
$24 3 million and adjusted EBITDA of 42% margin inclusive of growth investments and we generated a record $26 4 million in cash from operations in the quarter.
There are two key market dynamics underway that are fueling our strong results first just as the demand side of the ecosystem consolidated over the last five years. The sell side is actively consolidating at a rapid rate with clear winners emerging based on innovation and value delivery to customers.
And second the market continues to grow at a rapid pace with elevated digital AD spend expected for the foreseeable future.
On the back of these trends I am pleased to share that our latest results for four consecutive quarters, where we have exceeded the 50% year over year revenue growth and 30% adjusted EBITDA margins.
Before I go further I would like to address the recent industry concerns about the impact of apples removal of the IV.
This is not an industry wide issue.
<unk> advertising is a small part of our business mid single digits on a percentage of revenue basis. So its impact at most is very limited for us.
We're a well diversified omnichannel platform with scale and mobile web and desktop and CTV, which includes OTT as long as iOS and non iOS app environments.
Equally important we have anticipated apples and other similar changes for several years and have been hard at work innovating to get ahead of them.
For example, our identity hub and audience Oncor solutions, which bring valuable identity and first party data to our platform continue to scale aggressively.
Over two thirds of our revenue is alternative identifiers to the third party cookie and Apple's Absa in place from a majority of revenue at the end of Q1.
At a macro level, we are a brand advertising platform <unk> and a direct response platform second so conversion based attribution and associated measurement challenges are relatively less impactful for us and finally, we have a well diversified set of advertiser verticals on our platform.
Steve will have more detail on that later in this call.
Now moving on as of the time of our IPO, we estimated that we had 2% to 3% share of the addressable market programmatic non walled garden advertising with ambitions to grow our market share by 10 accident years ahead.
We do this through a land and expand approach coupled with a usage based revenue model similar to other leading high growth software companies.
In contrast to traditional SaaS business models, when we deliver incremental value to our customers we participate in their upside as.
As a result, we are growing at two to three X the growth rate of the market.
Our strong customer alignment also drives high revenue retention rates and provides a greater level of visibility into our future revenue.
US the confidence to raise full year 2021 expectations for the third time this year.
We now expect over 50% year over year revenue growth.
Yeah.
Our usage based model incentivizes us to continuously innovate on behalf of both publishers and buyers with the objective that they expand their activity on our platform.
Buyers expand usage by concentrating a higher share of their growing digital AD budgets on our platform.
<unk> expanded usage by monetizing more of their admin inventory on our platform at higher CPM.
All of this is done via seamless self service interfaces or Apis for publishers and buyers, which makes it easy for them to do business with us.
We have spent many years building the foundational elements that support the flywheel to our usage based model our technology platform. Our team is breadth of customers.
The more value our platform delivers the more our customers expand their usage in the more high margin revenue regenerate, enabling us to continuously reinvest in our core growth drivers across our business.
Importantly, we have been profitable for many years, providing the investment dollars for us to accelerate the flywheel even further.
Let me first talk about how we create value for ad buyers.
Buyers are rapidly consolidating has spent on thematic driven by supply path optimization or spo the trend we pioneered several years ago.
Buyers spend more with us and expand their usage of our platform because of our differentiated solutions increase their ROI.
We offer workflow automation data integrations audience addressed ability solutions and high quality inventory, all via our global Omnichannel and transparent infrastructure.
The addressable market for supply path optimization is increasing.
In the third quarter alone, we entered into a record number of advertiser spo deals.
Additionally, as third party cookies in apples idea they are phased out the value proposition, we deliver to buyers strikes further expansion, particularly the SPL.
A significant industry transition is underway in which the value of data is shifting from the buy side of the ecosystem to the sell side where publishers.
Our unique access to first party data via publishers combined with a rapid innovation and long term focus on this opportunity is driving great results.
For example, Omnicom, Germany, and Netherlands use data from our audience on core partner <unk> and apply it directly on the <unk> platform rather than via their demand side platform.
As a result, omnicom more than tripled the reach of their campaign when compared to applying the same data in their DSP.
Further omnicom saw significant uplift and view ability and click through rates as we optimize inventory supply for their needs.
Results like these create sticky by our relationships increase AD spend on thematic and demonstrate our spo create value via increased advertiser ROI.
Over the next three to five years, we believe every major agency and advertiser and many of the smaller ones, we will engage in supply path optimization.
We are one of only a couple of sell side platforms that meets buyers' needs buyers criteria for being global Omnichannel and independent of any owned media.
Our strategy with publishers is to continuously innovate and deliver more products that allow our publishers to increase the monetization of their ad inventory.
Whether through higher CPM or through monetization of incremental ad impressions.
We do this through a land and expand strategy, which increases our platform utilization.
This in turn drives unit costs down and creates a larger pool of profitable impressions for us to monetize.
This approach drives our profit growth and accelerates our flywheel.
Our publishers journey with <unk> typically starts with their need to generate revenue by monetizing the digital ad inventory.
As publishers generate strong revenue symptomatic they are incentivized to add more inventory to our platform, including additional digital properties and additional ad formats.
Newer formats like CTV fueled significant growth for us and provide a path for new publisher acquisition or expansion of addressable inventory within our existing publisher base.
In the third quarter CTV revenue grew over <unk> year over year, and our publisher account jumped a 154.
CBS local and Meredith are examples of landing in desktop and mobile apps and expanding with CTV inventory.
Other publishers Flex Crackle and Newsy started their deployment with us in CTV and expanded into additional formats and products overtime.
Publishers also expand their usage of our platform through new product adoption.
These products such as identity hub for identity data audience Oncor first party data activation and open Rob for header bidding management create very sticky publisher relationships and had continued value throughout the publisher journey.
Ultimately these factors lead to our industry, leading net dollar based retention of 157% over the last 12 months.
We believe our broad product portfolio is a strong competitive moat for our business that also improves our forward revenue visibility.
Our track record indicates we are driving a distinct combination of high revenue growth and GAAP profitability our.
Our infrastructure driven approach to digital advertising is highly differentiated.
Resulting in profitability that allows us to continuously reinvest in innovation, which in turn drives increased customer usage of our platform.
Our usage based model, which is similar to some of the fastest growing software companies in the world and allows us to share in the value we create for customers and further accelerates our plywood.
The Omnichannel global and independent nature of our platform positions us to capitalize on our large and growing addressable market with significant runway ahead of us to grow our market share.
We continue to invest aggressively in a variety of growth initiatives, such as supply path optimization.
Audience address ability and high growth formats, like CTV mobile and online video as well as our owned and operated infrastructure in order to enhance our moat and grow customer usage.
Let me now turn it over to our Chief Financial Officer, Steve <unk> to provide additional detail.
Thank you Rajiv and welcome everyone.
Our Q3 results were outstanding on a number of firms.
We saw significant top and bottom line growth.
We generated material cash flow from operations.
We delivered our fourth consecutive quarter well ahead of guidance.
Our strong performance is driven by our well diversified omnichannel platform global scale and robust usage based model.
These factors collectively have made our business, both resilient and durable, giving us the confidence to significantly raise our full year guidance.
Revenue for the third quarter was a record $58 1 million an increase of 54%.
This rapid growth was significant acceleration on top of last year's 33% year over year growth.
The combination of revenue over performance and cost leverage resulted in high marginal profitability with net income of $13 5 million, an increase of 117% year over year.
Adjusted EBITDA was $24 3 million or 42% margin, an 81% higher than last year.
Our financial results are the byproduct of a consistent long term investment and innovation.
Our owned and operated infrastructure and operational excellence.
The more value we create for customers the more they use our platform and the <unk> relationships become.
Q3 was a clear demonstration of these favorable dynamics.
Q3 revenue growth was strong across every region format and channel.
As Rajiv pointed out AD dollars and our platform are primarily associated with brand advertising budgets as opposed to direct sponsor aspect.
In addition, iOS based advertising is a small part of our business quarterly we saw minimal impact from the elimination of apples idea bay as advertisers shifted AD dollars to other high ROI formats and channels on our platform.
During Q3 more than 60000 advertisers placed ads programmatically by our platform.
With a growing array of oppression and formats. We started in the number of advertisers who spent more than $1000 increase by over 40%.
This scale and our real time bidding marketplace delivers multiple bids per impression for our publishers ad inventory.
If an advertiser choose not to bid the impact to us and the publisher is limited.
And it's been on our platform is well diversified across more than 20 verticals.
Spanning across every vertical except <unk> was up double or triple digits over Q3 2020.
The top 10 verticals in aggregate grew over 70% year over year.
Revenues for our mobile and Omnichannel video businesses grew 64% year over year.
And represented approximately two thirds of our total revenues in the quarter.
Our CTV business inclusive of OTT was launched in Q3, 2020 and grew more than seven times over last year.
154 publishers programmatically monetize CTV inventory in the third quarter up from 140 publishers in Q2.
Total desktop business comprised of display and online video also performed strongly with revenue up 49% over Q3 last year.
Revenues related to Yahoo, quarterly Verizon media group across all formats and channels grew more than 40% year over year and represented approximately 17% of our total revenues in the third quarter down from 28% of revenue in 2019.
Supply path optimization plays an important role as advertisers and agencies expand usage of our platform.
In Q3, we continued to sign new spo deals renew existing agreements and grow our AD spending via these deals.
S. P O Aspen grew over 50% in line with total company revenue in the quarter.
We also continue to expand usage to limited and publishers.
With her with our land and expand strategy, we added new impressions from our publishers driving our revenue retention.
The up sell of products like opening around identity hub and audience oncor expands our footprint and increases impressions from our publishers.
In Q3, we processed nearly 24 trillion impressions more than doubled emo process for the same period last year.
We use net dollar based retention at an important indicator of publishers satisfaction and usage of our platform.
Whether it was multiple months ending Q3 2021 this metric at a high watermark at 157%.
Significantly up over the comparable period a year ago.
We will naturally normalize from this level with Q2 2020 results are no longer in the comparisons.
Our long term strategy of owning and optimizing our infrastructure enabled us to reduce our unit costs, while improving customer outcomes.
Importantly, as we grow and optimize our platform the quantity of impressions, we can profitably monetize continues to increase.
In Q3, we successfully reduced our cost of revenue per million impressions process by 25% year over year.
With our focus on optimization and efficiency, we achieved a 72% gross margin our fifth consecutive quarter above 70%.
Moving on to operating expenses in pursuit of our growth goals. We have successfully increased our global team by over 20%. This year with the majority of hires in technology and go to market teams.
The combination of increased head count growth incremental public company costs and stock based comp resulted in operating expenses of $28 million up 44% year over year.
With our strong revenue growth and cost leverage Opex and.
As a percentage of revenue decreased seven point of land last year's level.
Rather than revenue growth operational efficiencies and ongoing benefits from investments in our business resulted in GAAP net income in the third quarter of $13 5 million or 23% of revenue up significantly from the 16% margin a year ago.
Q3 diluted EPS was <unk> 24.
Adjusted EBITDA of 83, with <unk> related or 441% of product revenue operating partner incentive revenue in the prior year.
Turning to our cash flow.
It's a huge relief generated we now have online activities of 21 6 million.
We ended the quarter with cash cash equivalents and Martin <unk> Securities 130 <unk>.
Since we haven't had $1 million in it.
Increase in word Fortunately present.
No.
It's all of a sudden hired Bernard <unk>.
Year to date, we have increased our total cash by $35 8 million.
Now onto our Q4 and full year 2021 guidance.
Based on our outstanding results in Q3, and the momentum so far in Q4, we are raising our full year guidance for both revenue and adjusted EBITDA.
Anecdotally, we've heard that some advertisers may pull back spend in the fourth quarter due to concerns about the supply chain.
It is possible. This may occur there are several reasons that give us confidence for the remainder of the year.
A significant proportion of our AD spend occurs in categories less dependent on global supply chains, such as principal finance.
Business and health and fitness.
Our business is resilient to advertise its just because we operate in marketplace.
And as an Omnichannel platform with global scale, we have multiple growth drivers.
For Q4, we expect revenue between 74, and 76 million or <unk>, 32% to 35% year over year growth.
Keep in mind, we are lapping a very strong quarter last year benefited from one time effects such as clinical Aspen.
Looking at our growth on a two year stack basis that is adding the Q4 growth from our guidance plus the 64% growth. We achieved last year provides a clear picture of our revenue momentum.
This growth translates to 95%, 99% for the fourth quarter.
And acceleration from Q3, two year stack rate of 87%.
On the cost side, we will incur new public company costs of approximately $2 million in the fourth quarter.
We expect our GAAP operating expenses for Q4 to increase at a similar percentage rate as Q3.
We expect adjusted EBITDA in the fourth quarter to be between 28 and $30 million or approximately a 40% margin.
For the full year 2021, we are raising our revenue expectations by $18 million and now expect revenue between 225, and $227 million, representing 51% to 53% year over year growth.
On a two year stack basis, our full year revenue guidance implies organic growth of approximately 83%.
In line with our significant revenue increase we are also raising our full year adjusted EBIT expectations by $20 million in expected adjusted EBIT of between 86, and 88 million or <unk>, 38% to 39% margin.
We expect capex to be 27% to $30 million for the full year.
A significant amount of our capacity adjustments will be put into service over the next several months and consequently, our Q4 gross margins may be slightly below our historical Q4 margin rates due to depreciation costs deferred from Q3 and future investment we brought forward from 2022.
The effect will carryover through the first quarter of 2022.
In terms of our AD impression growth, we now expect that full year number of impressions process in 2021 to increase by more than 80% compared to 2020.
Looking to 2022 and the revenue growth opportunities, we see we plan to aggressively hired team members and to invest in platform capacity.
Additionally, we will incur incremental costs related to office re openings and significantly higher travel and entertainment expenses as our team re engages in person with customers around the globe.
In closing we are very pleased with our progress in the third quarter.
We are even more excited about the opportunities ahead of us.
With four consecutive quarters of top line organic growth over 50%.
Adjusted EBITDA margins over 30% and.
A material cash generation, we have significant momentum going into the end of the year and into 2022.
Our financial results reflect the value we deliver to our customers.
And the strength of our usage based business model.
The sell side of the ecosystem is rapidly consolidating it problematic is well position to benefit from these trends due to our global omni channel scale.
Our own and operated infrastructure.
We have a diverse set of growth drivers both in terms of publishers and buyers and a broad array of formats and channels.
Based on these factors we are confident we can achieve significant revenue growth and strong profits in the coming years.
With that I will turn the call over to Stacy for questions.
Thank you Paul.
As a reminder, with your Capex.
Question <unk>.
On the dashboard.
At Donlin.
And instead of bringing assets all in.
Four questions.
Right.
Right right.
Just wanted to die.
Please go ahead.
Okay. Thanks Casey.
Two questions for me. Please one is on could you remind us what normalize it retention rates could be as you lap. This 2020.
On a trailing 12 month basis and then.
On the same topic.
You sort.
Sort of double click on what is really driving those retention rates higher you talked about product portfolio and expanding your portfolio, but what in particular is youre seeing having the biggest impact and then a quick follow up on Spo did you share. This time, how much SBA is as a percentage of your business. Thanks.
Great well nice to see you again sweathouse so.
So let me first start out with your points.
Questions around retention. So one of the very important drivers of our success has been our strategy about ensuring customer success and it really starts out with making sure that we have all the solutions that publishers want so we have omnichannel solutions across all the formats that are desired by the advertisers.
The ecosystem.
And as you know, we launched a S. P O deal supply path optimization deals a number of years ago and that is bringing on incremental demand onto the platform and so the cumulative effect of having the product offerings that publishers and advertisers want combined with supply path optimization has been helping us.
This drive our net dollar based retention.
Now in terms of a normalized level the expectation is that with the.
<unk>.
Adjustment once the Q2 2020 quarters not the comparison set that a normalized level would be probably in the $1 20 to $1 30 range.
And that again is a very a significant benchmark that compares favorably to many usage based companies like ourselves.
And in terms of the question regarding the S. P. O proportion, we grew spo spend in line with.
Our revenue growth rate. So the proportion is roughly in line with our last quarters percentage of total.
Great. Thank you shutter. Our next question comes from Jason <unk> Oppenheimer go ahead Jay.
Awesome.
Thanks.
Yes, I'll ask two so I just wanted to start out on the identifier you said two thirds of revenue had an alternative identifier. Meanwhile, trade have talked about kind of record adoption of I need to point out so maybe if I deliver a pressure, but just help us understand a bit more how the two systems work together and then.
Yes, even if I play around with math.
You know could CTV revenue would be somewhere in the 15% to 30% of revenue I was kind of a plan around just maybe.
A little out there permanently.
In a in a range.
Thanks.
While Steve thinks about your second question, let me answer the first one.
I think Jason as you know we've.
We've been focused really for several years now.
This transition away from third party tracking right that things like third party Cookie and had Apple idea Fay.
Towards.
A much better ways of delivering a relevant AD to the user where the user has a voice right in terms of what what date I guess gets utilized.
And so a couple of our key products in this area, our identity hub and audience encore.
Any others.
The software product that allows publishers to manage multiple first party identifiers trade desks unified I'd like.
To point out is one of those identifiers alongside live ramp and others I think we're supporting now something like a dozen or more identifiers.
And then another solution that we have its audience encore, which allows publishers, who have first party audience data system data. They know about the consumer like maybe they're interested in.
Certain type of car or they are interested in homes.
To be able to use that data.
Two to sell targeted campaigns and so these these things together.
Our driving that coverage rate and that's gone from zero percent to now over two thirds of the revenue on our platform and we expect that to continue to increase over the coming quarters and so that gives us a lot of confidence that we are not seeing the same challenges that others are seeing.
Around the third party cookie and an idea Fei deprecation and I would even go further to say as you know as you and I have talked about that when we have identity. We can drive much better CPM is much more targeted ads more relevant ads for the consumer which leads to higher rates of utilization of our platform. So we think this is way better than a replacement it's actually.
Building.
The sustainable foundation for relevant advertising in the future on the open Internet.
And Jason with respect to your back the envelope math.
We do not break out CTV revenue separately from our Omnichannel video and mobile business, but I will tell you that.
As we noted we've seen significant growth both in the CTV component.
Over seven times last years level, but also when you look at the overall mobile and Omnichannel video business, that's grown over 60%.
And the reason why we focus on sort of the broad set of offerings is that really is a core strength of our company as an omnichannel platform. We built a very resilient business that can navigate the vagaries of the ecosystem successfully.
And our focus is on consistent innovation and coming up with the formats that advertisers and publishers want and so from our perspective, it's all about the overall platform and the important fact is that we are well down the path of creating a very strong CTV.
Business, alongside our very significant and rapidly growing mobile and online video business.
And if I could just briefly add to that I think Steve you know our differentiated results are not new we've been growing significantly faster than several of the major market participants for several quarters now if you look at 50% for four consecutive quarters on revenue, 30% on adjusted EBITDA compare that last couple of quarters to two.
Go to Facebook Pinterest to trade desk, we're growing.
Meaningfully faster and I think that's really because we are focused on building a long term infrastructure for the future of digital advertising and by by necessity that is omnichannel. So we're not overly focused on one single AD format. CTV is obviously a very significant.
Opportunity for us and something we're innovating hard against but we're driving these differentiated results. Because we are focused on a wide variety of high growth AD formats, and I think we've really positioned ourselves well there with focus on online video mobile App in addition to CTV.
Our next question comes from that.
Go ahead, Matt.
Okay.
Okay, three consecutive quarters I'll start up by saying congratulations again, I just thought to myself.
So I'll stay on the S. P O bandwagon here, so great to see another quarter of record number of deals.
Think broadly about supply optimization, who benefits it really feels like it's going to come down more and more of a differentiation and can you just talk about what features and functionalities are really driving customers to consolidate our probiotic.
And secondarily, I guess with idea play and cookie loss.
That makes supply path optimization accelerated.
The differentiation becomes more and more important you know generating unique value.
Yeah, absolutely. So let me start with the first you know what are the drivers of spo.
So I think Theres a couple number one is.
Our ability to innovate on behalf of buyers and Matt is as I think you know we pioneered spo with a deal with an agency several years ago. So we were very early our first to that trend and then obviously followed that up with with many sto deal sense.
Having.
And ability to innovate on behalf of buyers which means.
Delivering ROI for those buyers is critically important and so we have a number of different products.
Bid shading product for example.
Log level data sharing product, which allows them to have transparency.
Into what's happening in their digital advertising supply chain. So these types of solutions are quite differentiated in driving buyers to work with us.
So innovation is one inventory quality is another so making sure that we have the highest levels of quality of inventory and we were the first to put out and.
I believe we were the first to put out a fraud free.
Guarantee for buyers, so if they ever thought through didi or ias or others that they are buying fraudulent inventory on our platform, we would refund them their money. So they can buy with confidence on our platform.
And then the other key thing I would.
I would highlight there is our omnichannel and global scale, so when advertisers and agencies are executing supply path optimization agree.
Agreements you know they want to be able to.
Do it on a global basis, and they need to be able to do it across AD formats as they need to reach consumers across those AD formats and so when you look at all of those things I think we're in a very unique bucket in terms of our capabilities and then I think the editing that we focus on is building custom solutions for the biggest buyers in the industry and we're able to do that because we have a.
Diverse.
Our global engineering team based partly in Silicon Valley and partly in India. So it's very efficient for us to be able to put engineers on specific projects that are going to help a major agency of advertiser with workflow integration or some other efficiency play that helps improve their operations. So I think all of these things together are really what's what's.
Helping us.
I think lead the market in terms of spo and as I called out earlier in the prepared remarks, we think every major advertiser or agency will engage in spo.
And in the years ahead, and so we think that's a major tailwind for us in terms of consolidating and winning in the market.
Thanks again, our next question comes from Jeff comparison, Keybanc go ahead sorry.
Great. Thank you.
I guess two if I can first very healthy impression growth as we look ahead towards 2022, what do you see as the biggest drivers of further impression growth and then where there could be potentially more investment.
To drive incremental gains.
Question number one and then question number two check over at trade desk has talked a lot about simplifying the supply chain, it's something that trade desk has done in the past when you hear those comments from our one of our largest DSP is how do you think about that as say opportunity versus threat. Thank you.
Or if you want to take the first one Steve and then I can take that yes.
So nice to reconnect with you just and so from our perspective, there are significant opportunities ahead for problematic.
Many of the reasons that we've already cited but it's worth underscoring first we are very well positioned in the fastest growing sector CTD.
Online video mobile App.
We're certainly a.
Benefiting from the long term tailwind of expanded digital consumption.
That sort of started with the pandemic, but clearly many digital behaviors are going to continue into the future.
The fact that the AUM.
We're all digital business is growing 20%. This year, we're growing two to three times that and we anticipate being able to keep gaining market share in 'twenty two and beyond.
The combination of those factors really give us confidence to continue to aggressively invest and so our game plan is to invest in our team.
That is going to drive innovation select the go to market opportunities around the globe.
And of course, increasing capacity to take advantage of these numerous opportunities because we are not dependent on one particular source. We have multiple growth drivers and we are really seeing the benefit of being an omnichannel platform in a world where there is.
Growing fragmentation of digital consumption.
Great and just on your second question. So I did have a chance to see.
Jeff's comments, so I would say his focus in terms of simplifying the supply chain is very much in line.
With our own focus in.
And the reason is that a simpler more efficient supply chain.
Creates greater ROI for advertisers, which then allows them to spend more to deliver a targeted AD campaign and that means more revenue for publishers and that's very much in line with our mission.
Which is to field a potential of internet content creators so.
Anything that drives more revenue for publishers. We think is very positive. So we've been working with the trade desk for multiple years now on a variety of initiatives that they that they have been driving around how to simplify and improve the supply chain and I think ultimately this looks a lot like another form of supply path optimization from a different leg.
<unk> coming from from trade desk versus from an advertiser or agency, but I expect it to lead to further consolidation.
Sell side platforms, and I think again, we'll be a beneficiary in winter and that process.
Our next question comes from James Penal Act.
Jefferies go ahead Kim.
Thank you Mike.
<unk>.
Sorry can you hear me now.
Sorry about that.
Apologies.
Q4 revenue guidance implies even further acceleration on a two year stack basis. So clearly you have some pretty nice tailwind behind you. What would you say is just the biggest driver of that upside thats, leading to that the magnitude of that.
Beside the prior guide is at CTV or are there any other is there any other strength in other channels, that's driving that that that's my first question.
Well from our perspective, we really are hitting on all of our cylinders.
We saw strong growth on mobile Omnichannel video over 60% CTV seven acts over last year we.
We saw very strong desktop growth.
It was 50% so point number one is strong momentum across the board point number two this is nothing new from our perspective, we've been doing this for multiple quarters. This will be our fourth consecutive quarter with 50% revenue growth.
Our higher.
And of course, with our business model and being able to deliver a significant profit and cash flow, we never really have.
Slow down investment right through the pandemic.
Invested in teammates and capacity.
And because we see the tremendous opportunities ahead of us. So the fact that we are.
Seamless into the fourth quarter and beyond is really a reflection of our long term strategy and the benefits of our focus on.
Not just driving the top line, but the bottom line as well and the final point is really around our usage based model.
Fab that we are helping our publishers be successful.
As a self reinforcing flywheel effect.
If successful the more they use our platform and the more we grow as a business. So we really are.
Heading on all of the relevant factors of growth.
And we are investing for the future.
Great. Thanks, Steven and maybe another one for Rajiv.
We've seen definitely a lot of consolidation happening in the AD Tech space. So just curious how you guys are thinking about M&A Holistically is there anything that that's maybe been holding you back from doing acquisition and just curious if there are any areas of interest in the portfolio that you think you could add too.
Yes, so there's nothing I would say in particular, that's holding us back I think.
We've done some M&A transactions in the past.
And we continued to look.
At the market to find the right opportunities I think those are things that would.
Accelerate our road map, our product and technology build outs in certain areas.
We're we're very focused and innovating.
It could be something that brings us a publisher scale in a particular geographic market that we're not in today or it could be something in the data related space. So I think all of those opportunities are open to us I would say that.
You can see we have a very strong focus on organic innovation.
And given our focus on owning and operating our own infrastructure and the agility that comes with it.
We do have a high bar given our ability demonstrated ability to really innovate at a very rapid rate.
Great. Thanks, guys. Thanks.
Thanks James.
Our next question comes from Andrew morale.
Go ahead Andrew.
Thanks for taking my question you guys spoke a little bit about this on the call through the Q&A, but wanted to drill down on the growth versus margin dynamic so with the high margins and high incremental margins from the usage based model I guess, how are you thinking about investment, especially on the product and R&D side and at what point might have made.
To really lean into that to potentially drive further value for customers and is there anything in particular that your customers have been asking for that might make sense to build out. Thank you.
So from our perspective, there is really no shortage of investments that we can go after we see the benefits of investments in.
In technology innovation and something we've been doing for many years.
We've owned and operated our own equipment for close to a decade.
And so we're going to continue to do the things that had been very successful for us because we do see the benefits of that and is a usage based model does drive.
Revenue retention note that we are experiencing and so our focus is going to be on innovation and it's going to be focused on.
Going after the biggest growth opportunities and so that's doing more of what we're already doing but also investing for the future and part of that investment is related to supply path optimization as rajeev called out we see a tremendous opportunity to help the buy side of the ecosystem be more effective in their processes.
And we have the technology team to be able to pull that off I mean, one of the very important points of leverage that we have in our model.
Is that the majority of our innovation is done offshore.
And that allows us to for a given dollar of investment innovate at much much more faster rates higher ROI, so to speak and so we're putting those resources to work to help the buy side of the ecosystem drive spo deals as well as help publishers be successful through our usage base model innovation.
And that really ranges from all the new products that we've launched in the last year or two identity hub audience encore.
And open wrap so this is all part of focused on innovation and driving topline growth and the business model that we built allows us to keep on reinvesting for the future.
Our next question comes from Andrew Byrne example.
Hello again.
Hey, Thanks for taking my questions. Two please one for Rajeev and one for Steve I want to see if I can make you smile at chase net.
Rajiv first one early in your comments you talked about increasing your market share by <unk> 10 X and so if we think about kind of the next few years.
Do you have the right products in place today to be able to do that or is there something that's missing from your product portfolio that you want to you want to be able to add that the other thing and I'm asking is there a next wave kind of be on spo Thats that you see coming that can drive that Titan X game.
And look at it we look at that 10 X as a long term.
Goal or objective so we.
We aren't signing up to Brian we're not committing to doing that in the next two years, but two to your question I mean, we take a multi pronged.
Product portfolio investment approach right meeting.
We're investing at a rapid rate from an innovation perspective across a wide variety of areas that really are high growth within the market opportunity space.
And we're going to let those things help carry us towards that objective.
And so supply path optimization is clearly one of those audience addressable witty is another big one we've been investing there for several years and we continue to make large investments there and you'll see us.
Keep pushing in that direction along with trade.
Trade desk and other great partners.
The ecosystem and then we look at high growth AD formats, as we've talked about like mobile app like CTV.
Online video, we are not singularly focused on any single AD format, and then I think geographic expansion is another one.
<unk> presence in Spain.
For instance, there's other markets that we're looking at.
So I think all of these create a portfolio of investments.
That we think over time, we're going to help us get to that that tenex of market share at the same time as the the the market for Ssp's itself is consolidated.
So I think as the market grows there's also going to be fewer players for a variety of different reasons and we're very focused on investing in all of the fast growth opportunities.
And then Steve if I think about kind of the CPM and unrestricted that's weird metric, that's kind of an output, but with S. P O fairly flat quarter over quarter kind of the growth in the.
The shift to Android, where I would assume <unk> were up in the quarter CTD kind of other premium AD formats, maybe growing faster can you just help us understand that down 24% year over year for <unk>.
Sure Let me just unpack the question a little bit first.
I wanted to just articulate.
Spo business is growing.
As opposed to be flat, it's flat to the percentage of the total but our business <unk> is growing nicely above 50% and that's really an indication of how embedded it's become in our overall business now with respect to Cpm's.
Very important dynamic to understand in the dynamic starts out with the <unk>.
Confidence that we have and the number of opportunities to grow our our business and that it starts out with.
Our land and expand strategy when we're successful doing that we get more impressions and so to take advantage of that we expand our gross impression capacity and that's the 24 trillion number that I quoted in my comments. So we have created the opportunity to sell up to 24.
Trillion impressions this past quarter.
No bid marketplace, you don't actually sell all of that it depends on the dynamics of the marketplace. So we sell proportion of those total gross impressions and those get monetize installed in our model we get to participate in that because it's a usage based model now with respect to Cps.
<unk> actually been stable to up so the dynamic that you see between gross impressions and our revenue is really a function of just a bid marketplace and our ability to be able to drive CPM and overall revenues, which in the third quarter as we noted grew over 50%.
So we have confidence to do that to grow our impressions at these rates because of our long term strategy of owning and operating home own infrastructure. This allows us to reduce unit cost last quarter, we reduced our year over year.
Unit cost by 27%.
Past Q3 by 25%, so it's our ability to get efficiencies expand our gross our processing capacity in and ultimately drive monetization of all of those impressions is what's made us successful and really sets the.
Foundation for our long term success.
Our next question comes from Alex Barron.
Hi, Dara.
Hi, Thanks for taking my question and congrats on the quarter.
One with respect to the identity Hot at the last quarter, you had dozen plus I E solutions integrated.
Just wondering if you had a plan for adding more are there any specific I E that that you guys are asking for them or are the main ones already integrated and then a second question you mentioned, increasing head count I know that at the first half of this year you increased it by 20% alright for that first nine months of 2021.
Was just wondering if you see the rate of head count and continuing to grow throughout 2022. Thank you.
Hey, Alex why don't I take the first question and then Steve can follow up on the headcount piece, so with respect to identity.
Our goal is to integrate every let's say viable identity solution.
In the markets that we geographic markets that we participate in and the way the reason why <unk> geography as important as the same Ids.
That are let's say prevalent here in the U S are not necessarily the same ones in Europe or in Asia right different countries different regulatory environments different sources of data you might see different Ids could come to the forefront.
There is no limit really to what we can implement our support so we are constantly in dialogue with buyers on our platform as well as sellers.
And we will put we will implement any of.
That we get a critical mass of requests for from buyers and sellers. So I would expect that number.
To continue to increase overtime.
Steve over to you yes.
Yes.
Nice to.
Speak with you Alex so from our perspective.
And I have outlined we have multiple growth drivers ahead of us.
We've been able to have considerable success to date.
With four quarters, 50% growth or higher with profit and cash flow generation and throughout that time, we have been investing in people and infrastructure and we don't anticipate that slowing down overall.
Digital AD spend globally is expected to grow about 20% this year.
The current projections it won't be about 10% to 12% next year.
We expect to grow faster by double that rate.
In 2022 to support that growth, we're going to keep on investing in technology teams around.
Around the globe, particularly in India, our go to market team members.
And of course, our infrastructure to keep driving our usage based model and so when you factor all those things together.
Revenue opportunities that we see ahead of us.
Very proven.
Our robust business model that delivers bottomline results and cash we're going to keep on investing for the foreseeable future.
Great. Thank you.
Our next question comes from Chris <unk>.
Sorry go ahead Greg.
Hey, guys. Thanks for taking the questions.
Two questions for me.
But the Omnicom STL case study for audience Encore product was really interesting. So can you expand on that a little bit more and do you see that as a product as a way to gain some market share from DSP and any update on how many customers are using it I think you said you had about 30 last quarter.
And then second question is how quickly are you seeing kind of CTV move more into programmatic it.
It seems like the major media players don't want to give up too much controls the machines, but.
Do you think theres, an opportunity with CBD inventory from smaller and midsize media players who drive that growth for you guys.
In the short to medium term.
Sure Yeah. So on the first part of your question, you know audience Oncor and Omnicom.
There is a.
Meaningful shift underway.
Which is we think a big tailwind for us, which is the applicability and usage of data shifting from the buy side of the ecosystem to the sell side right and that's happening because of privacy regulations.
Third party cookies idea phase things like that going away consumers, becoming more aware of how their data is being used and then ultimately puts the publisher in the driver seat because the publisher is the one that has the relationship with the consumer they're able to get consent for targeted advertising from the consumer they're able to enforce our privacy regulations. So we think that's a real.
A real powerful tailwind for us and that audience. Oncor example, with Omnicom is just one example, right where we're able to triple the reach of the campaign and the reason is that between the consumer to the publisher publisher to SSP SSP. The DSP, we apply data on the demand side, there's just additional hot.
And at each hop you have some level of cookie degradation.
So the number of users that then you can target.
Drops when you get to the buy side of the ecosystem because we're embedded with the publisher, we're able to apply that on a much broader set of users.
We think that's a big opportunity for us and I commented on that earlier that it should lead to higher levels of utilization of our infrastructure I think closer partnerships with agencies and advertisers and that's a key part of what we're doing as part of our supply path optimization engagements, where again, we're able to show to the buyer that when you engage in.
With us we can drive more ROI for your AD campaigns and that leads to more value for the buyer, they're willing to pay more and that leads to more revenue for the publisher.
Now the second part of your question CTV. So we are big believers in abated, a bit it approach or a better marketplace.
And the reason for that is that it's simply our more efficient.
And transparency for all of the participants and I think we saw some of the other players in the market just in the last quarter.
There are certain advertiser step back.
And more of a managed service or a kind of direct sales approach and that creates problems because it may take months to go sell a campaign and so if an advertiser steps back now you got to take a few more months to sell the campaign for that that impression as dawn.
And our approach, which is a fully bedded approach. There's typically a variety of number of different bidders could be five could be 10 could be 15 for each AD impression. So if one buyer steps back.
Not a problem, we've got plenty of other bids for that AD impression.
<unk> had weekend in New York I think there was a lot of talk about growth of programmatic advertising for CTV and that's one of the key drivers of what's leading us to seven X growth, whether it's in private marketplace deals are more private transactions, where it's an open market. That's a key part of our growth strategy and we think that'll be.
The preponderance of how CTV transactions are executed in the future.
Thank you.
Okay.
A few questions that are currently in our lifetime.
Well the first question.
<unk>.
All right.
And you spoke about the power surpassed.
Ron Paul.
Our powerful powerful social power dynamic.
Yes, I think we just touch on that a little bit with with Chris's question.
But again there is a real shift in where data is being applied and we think that's a long term tailwind for us and we're positioned here already I think as leaders in beneficiaries with our multiyear innovation focus on identity hub in audience encore as well as our extensive footprint and relationships with the world's most premium publishers.
So again because of regulation because of.
How consumers are more and more aware of how their data is used online and also platform changes by the likes of Apple Google and others.
The foundation of data targeting and the industry is changing third party data is going away and what's sustainable now is first party data, which is the relationship between the consumer and the publisher and the publisher is in a unique position to get consent from the consumer and also to capture that consented data as well as enforced.
We see regulations.
We're betting benefiting from this and at least two ways. One is we have a usage based model. So as publisher Cpm's rise from the application of this data on their inventory theyre able to demand higher pricing from advertisers and we benefit with our usage based model and then second you know those highly innovative products like audience oncor and identity hub.
They put us in a position to have much stickier relationships and create more value for the publisher. Most publishers are not in a position to build those capabilities themselves. So when they deploy our solutions obviously it creates a much stickier relationship for us.
And I think we have time for one more question.
Personally I like core better understand our infrastructure performance.
One of our panel.
Infrastructure per barrel.
Thank you.
Yes, so our infrastructure driven approach creates a significant competitive moat for us really for two reasons better outcomes for our customers and it's more efficient for us leading to higher profitability.
So with our own infrastructure, we're able to control all layers of the infrastructure stack that's network its hardware and software and that's really important in an industry. That's characterized by real time transaction processing.
Ads in real time, right and also that is very data intensive. So let me just give you two two brief examples of how we generate better outcomes.
So by controlling the network layer, we can process transactions faster with the demand side platforms with the DSP.
That means we can get more bids for each auction that we run and we run hundreds of billions of auctions per day, so morbid means higher liquidity, which means higher prices for our publishers and of course that create stickier relationships with our publishers and again, given our usage based model higher revenue for us.
And then second by controlling the hardware, we're able to deploy specialized hardware to speed up the transaction processing times and a real time auction, where you have maybe 150 milliseconds to process the transaction Youre always racing against the clock to do as much analysis as you can within that 150 milliseconds to figure out the most.
Relevant AD at the highest price so.
So if we're able to speed up the processing time now what that means we have more time for data analysis. So we can run more algorithms. We can use a broader set of data we can do different things to get to an optimal outcome and again that leads to higher prices for our publishers, which create stickier relationships with our publishers and higher revenue for us and you can't do those things in public cloud.
You don't own the network and you don't own the hardware.
And clearly as mentioned owning our own infrastructure as far more efficient from a cost perspective. Once you reach a certain level of scale, which clearly we ask and so this is a key part of our moat. Because then we can take a portion of our profitability and reinvest that back into innovation and that really drives the flywheel effect that we've talked about.
We're close to that at the top of the hour.
Okay.
I'm going to turn it back on line.
Okay.
Great well. Thank you everyone for joining us today. This is a very exciting time for us via our usage based model, which is consistent with many of the fastest growing software companies in the world. We are driving a distinct combination of high revenue growth and profitability.
We have a proven flywheel that allows us to invest into a wide variety of growth levers for the future and we really couldnt be more excited about how we're positioned and the opportunities in front of us. Thank you.
This concludes our call.
Got it.
I have a great rest of that.
Right.
Okay.