Q4 2024 Magnite Inc Earnings Call
Good day, and welcome to the Magnite 4th Quarter 2024 Earnings Conference Call.
All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions.
Speaker Change: To ask a question, you may press star then 1 on your telephone keypad. To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Nick Kormeluk of Investor Relations. Please go ahead.
Nick Kormeluk: Thank you, operator, and good afternoon, everyone. Welcome to Magnite's fourth quarter 2024 earnings conference call.
Speaker Change: As a reminder, this conference is being recorded. Joining me on the call today are Michael Barrett, CEO, and David Day, our CFO.
Speaker Change: I would like to point out that we have posted financial highlight slides on our investor relations website to accompany today's presentation.
Speaker Change: Before we get started, I will remind you that our prepared remarks and answers to questions will include information that might be considered to be forward-looking statements, including but not limited to statements concerning our anticipated financial performance and strategic objectives, including the potential impacts of macroeconomic factors on our business.
Speaker Change: These statements are not guarantees of future performance, they reflect our current views with respect to future events and are based on assumptions and estimates and subject to known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from expectations or results projected or implied by forward-looking statements.
Speaker Change: A discussion of these and other risks and uncertainties and assumptions is set forth in the company's periodic reports filed with the SEC, including our 2024 annual report on Form 10-K. We undertake no obligation to update forward-looking statements.
Speaker Change: Our commentary will include non-GAAP financial measures, including contribution ex-tac or less traffic acquisition costs, adjusted EBITDA, and non-GAAP income per share.
Speaker Change: Reconciliations between gap and non-gap metrics for our reported results can be found in our earnings press release and in the financial highlights deck that is posted on our investor relations website.
Speaker Change: At times, in response to your questions, we may offer additional metrics to provide greater insights into the dynamics of our business.
Speaker Change: Please be advised that this additional detail may be one-time in nature, and we may or may not provide an update on the future of these metrics.
Speaker Change: I encourage you to visit our investor relations website to access our press release, financial highlights deck, periodic SAC reports, and the webcast replay of today's call to learn more about Magnite.
Speaker Change: I will now turn the call over to Michael. Please go ahead. Thank you, Nick. We once again exceeded top-line guidance growth in CTV for Q4, and although our Q4 results in DV Plus were disappointing, I'm very proud of the terrific year that our team produced.
Michael Barrett: We generated contribution XTAC of $607 million and processed ad spend of over $6 billion. We generated adjusted EBITDA of $197 million.
Michael Barrett: and 118 million of free cash flow. All record highs for Magnite.
Michael Barrett: For Q4, CTV Contribution X-TAC increased 23% year-over-year, outpacing our guidance at 18% to 21%. And for full year 2024, CTV Contribution X-TAC grew 19%.
Michael Barrett: In contrast, our DV Plus business in Q4 came in later than we expected at 1% contribution XTAC growth as a result of some unusual spend patterns post-election.
Michael Barrett: This caused total Q4 results to come in below our range. That said, we're happy to report that DV Plus has rebounded nicely to start 2025, and David will walk through more details in his remarks.
Michael Barrett: In contrast to DV+, our CTV business continued to grow with significant momentum. Performance was driven by overall ad spend growth and a stabilizing year-over-year average take rate, illustrating a better product mix.
Michael Barrett: Our most significant growth in Q4 came from Roku, LG, Vizio, Walmart, Disney, Fox, Warner Discovery, and Paramount.
Michael Barrett: Netflix continues to ramp and we remain bullish about our Netflix opportunity as they significantly grow their global ad tier and corresponding ad revenue.
Michael Barrett: Live sports had strong growth in the fourth quarter, and we expect that to continue. We are encouraged by Disney's focus on live sports.
Michael Barrett: and NCAA football specifically in Q4 and their pending acquisition of FUBO to become one of the market's largest live TV subscriber bases.
Michael Barrett: We also continue to strengthen our international sports business with the addition of new partners including FIFA and Sky New Zealand.
Michael Barrett: Lastly, we announced a deal with DirecTV to expand our partnership in their streaming business on top of our efforts in satellite TV.
Michael Barrett: Clearline, our self-service direct buying platform, posted very strong growth in Q4 and is showing great promise for 2025.
Michael Barrett: The agencies and brands we work with continue to ramp their buying.
Michael Barrett: And when buyers use Clearline, not only do we receive a fee for use of the product, but many of these buyers also leverage our data, leading to additional revenue opportunities.
Clearline, along with Spring Serve, also power our agency marketplaces.
Michael Barrett: These marketplaces, which are leveraged by GroupM and Horizon, among others, provide agencies with their own end-to-end private label platform and establish direct connections with sellers, allowing more spend to go to working media.
Michael Barrett: We believe agency marketplaces are a differentiated product offering for Magnite and will contribute nicely to our growth throughout 2025.
Michael Barrett: Now to DB+. As I mentioned earlier, to start 2025, the business has resumed growing at healthy pace in the mid to high single digits.
Michael Barrett: We've seen this rebound broadly across verticals, and we're also seeing some benefits from ramping new deals, leading us to believe that the business has normalized after the unusual Q4 trend we experienced.
Michael Barrett: Audio, which is part of our DV Plus supply footprint, continues to be a solid growth driver and we see our partners focusing more and more on programmatic ad revenue.
Michael Barrett: We are excited about the growth opportunities of partners such as iHeart and Spotify this year and beyond as this channel grows.
Michael Barrett: Now I'd like to turn to AI, where we have some really exciting new initiatives.
Michael Barrett: We have a long history of using machine learning, neural networks, and sophisticated data science to optimize our data centers and efficiently process trillions of ad requests per day.
Michael Barrett: These tools reduce our costs and the cost for buyers allowing them to spend more across Magnet.
Michael Barrett: In addition, these tools that power operational efficiencies for clients behind the scenes, in 2025 we will be releasing a number of new client-facing tools powered by generative AI.
Michael Barrett: As an example, we recently launched in beta a generative AI feature for our Curator product that allowed buyers to quickly and easily identify the optimal audiences to meet their marketing goals while improving match rates.
Michael Barrett: Other AI-powered tools include, in DV+, a yield optimization engine for our demand manager header bidding solution, and in CTV, a tool for automating and standardizing content classification signals.
Michael Barrett: We are optimistic that these tools will help drive significant value for our partners and look forward to additional AI-driven product releases throughout 2025.
Michael Barrett: These advances will just further solidify us as the leading independent SSA.
Speaker Change: Before I turn the call over to David, I'd like to address head-on comments by the Trade Desk in their earnings call two weeks ago regarding their Open Path initiative in CTV and the presumption
that it will ultimately displace SSPs.
Speaker Change: Large parts of this argument are flat and wrong, but before I get into our points of contention, first a point of agreement.
Speaker Change: I can't blame them for thinking most SSPs are headed for a rel-liz.
Speaker Change: But it's not because the SSP model is inherently flawed or inefficient. It's because most SSP's tech is undifferentiated and outdated.
Speaker Change: Most of our competitors in the streaming space have taken display advertising technology and hacked it into working with CTV.
Speaker Change: Because they have no CTV ad server, they're limited to acting as a reseller of non-unique inventory in an open market capacity. It's a low-value practice.
Speaker Change: Meanwhile, our CTV offerings are purpose-built for this space, including our streaming SSP platform and, critically, our Spring Serve ad server, which is the industry's leading programmatic mediation layer.
Speaker Change: Magnate doesn't need to rely on reselling inventory because our tech has earned us direct relationships with every major streaming platform other than YouTube.
Speaker Change: We can now reach over 90% or 92 million U.S. households and over 90% or 75 million European households in EMEA's big five countries, which is amazing if you think about it.
Speaker Change: Trade Desk also argues that OpenPath is more efficient for sellers and avoids the unnecessary fees of middlemen. Yet, the Trade Desk charges sellers a healthy fee to use OpenPath in addition to their fees on the buy side. In reality, the economics are unchanged for publishers. How's that more efficient?
Speaker Change: Moreover, they claim that each seller using OpenPass would be better served conducting its own yield management.
Speaker Change: This misses the very obvious fact that most sellers don't have this technology and would be incredibly expensive and inefficient to build in-house.
Speaker Change: Building their own tech wouldn't be just inefficient, but disadvantageous, as none have access to the reams of pricing data that inform Magnite's yield management systems.
Speaker Change: As a result, sellers would be far more likely to leave money on the table.
Speaker Change: This is why sellers connecting to OpenPath continue to find enormous value in using Spring Serve.
Speaker Change: Further, the trade desk argument ignores the importance of diversity of demand.
Speaker Change: While they are obviously a huge player, no one DSP can represent all the world's demand for every geo and use case.
Speaker Change: In addition to established DSPs, we are seeing an explosion of DSPs focused on SMBs and performance advertisers.
Speaker Change: These essential demand sources aren't accessible through OpenPath and it's impractical to think sellers will tap into all of them by integrating and managing dozens of direct connections.
That is exactly what Magnite is spelled for.
Speaker Change: Simply put, OpenPath doesn't replace the need for yield management or mediation levels.
Speaker Change: So even as OpenPath grows, Magnite's technology will still be used and valued by publishers in the vast majority of OpenPath's CTV transactions.
Speaker Change: but a future dominated by open path is not in the best interest of sellers.
Speaker Change: Trade Desk talks a lot about objectivity, but let's be clear, as a DSP, their allegiance lies with the buy side. Despite their marketing effort, OpenPath is not about providing long-term value to sellers. It's about extracting more fees from every transaction that runs through their platform.
Speaker Change: It's about accelerating the commoditization of sellers' inventory and data. We see what happens when one player becomes too dominant on both the buy and the sell side of this industry, and sellers always end up getting the short end of the stick.
Speaker Change: As a sell-side company, Magnite's mission is to protect the interests of media owners.
Speaker Change: Like the Trade Desk, we believe in the open internet. But we also believe that for it to thrive, there must be a healthy and fair value exchange between buyers and sellers.
That's the future that technology like Spring Serve enables.
and that's the future we'll always be working towards.
Speaker Change: In closing, we delivered strong Q4 CTV results, with overall quarterly results being negatively impacted by DVPlus's post-election spending pause. However, our recent trends give us comfort that DVPlus headwinds are not structural as we've seen a normalization of trends in Q1.
Speaker Change: The strategic investments we've made to create the world's leading programmatic CTV platform.
Speaker Change: are clearly paying off, and we are incredibly excited for the remainder of 2025. With that, I'll turn the call over to David for more detail on the financials. David?
Thanks, Michael.
David Day: The fourth quarter was unusual for Magnite. We continued with very significant momentum in our CTV business and came in above the high end of top-line expectations with 23% year-over-year growth in contribution x-tax.
David Day: In the run-up to the election, we saw normal levels of paid impressions and CPMs.
David Day: in our non-political business, with CPMs roughly flat year over year. Immediately following the election, CPMs dropped significantly, 15 to 20 percent down through the end of the quarter.
David Day: As a result, we did not see the normal holiday ramp in our DV Plus business, resulting in 1% growth for the quarter and the underachievement compared to our expectations.
David Day: This was radically different from our experience in both the 2020 and 2022 election cycles. And this trend was consistent with the weaker-than-expected results reported by other open Internet industry players.
David Day: When all is said and done, we saw soft vertical demand in DV Plus in 13 of the 18 categories we tracked.
David Day: In particular, we witnessed pullbacks in consumer categories, health and fitness, retail, automotive, and food and beverage.
David Day: Other than the benefit from political, the only other bright spot was technology.
Michael Barrett: As Michael mentioned and as I'll highlight in guidance, DV Plus has returned to mid to high single-digit growth in Q1, which gives us some comfort that lower than expected DV Plus results in Q4 were an anomaly.
Michael Barrett: Turning now to full-year results, we generated record contribution ex-tac of $607 million and processed ad spend of over $6 billion. We also generated record adjusted EBITDA of $197 million and $118 million of free cash flow.
Michael Barrett: We ended the year with $483 million in cash, and our net leverage ratio has been reduced to 0.4x.
Michael Barrett: Our business is performing well, and our capital structure is robust.
Michael Barrett: CTV contribution next TAC was 78 million dollars up 23% year-over-year and again above the top end of our guidance range.
Michael Barrett: ad spend growth and strong momentum with our spring serve ad serving drove the outperformance in the fourth quarter.
Michael Barrett: DV Plus Contribution X-TAC was $102 million, an increase of 1% from the fourth quarter last year as we discussed.
Michael Barrett: Our contribution XTAC mix for Q4 was 43% CTV, 40% mobile, and 17% desktop.
Michael Barrett: From a vertical perspective, as expected, and as we discussed last quarter, political was the strongest performing category at approximately 6.5% of contribution next TAC.
Michael Barrett: Total operating expenses, which includes cost of revenue for the fourth quarter, were 154 million dollars, a slight increase from 152 million dollars for the same period last year.
Michael Barrett: adjusted EBITDA operating expense for the fourth quarter was a hundred and four million dollars within our guidance range
Michael Barrett: The increase from $95 million last year was primarily driven by personnel, software, and podcasts.
Michael Barrett: I'd like to touch on our tech stack cost initiatives that particularly impact our CTV profitability and scale.
Michael Barrett: First, our tech team continues to make gains in reducing per-unit cloud costs, which have allowed us to manage significant ad request volume increases with modest cost increases.
Michael Barrett: To this end, our cost per ad request in 2024 has decreased 26% in DV Plus and 45% in CTV.
Michael Barrett: Our focus on scale improvement and efficiency is one of our top priorities, and these efforts will continue in 2025.
Michael Barrett: In addition to our per unit cloud cost efforts, we've also been increasing our focus on optimizing our hybrid structure to move additional functions from cloud to on-prem.
Michael Barrett: We expect that these initiatives will lead to increasing margin expansion rates in 2026 and beyond, with some potential for benefit in the second half of this year. We will have more to report in coming quarters on these efforts.
Michael Barrett: Net income was $36 million for the quarter, compared to net income of $31 million for the fourth quarter of 2023. Adjusted EBITDA grew 9% year-over-year to $77 million, reflecting a margin of 42%, which compares to $70 million last year.
Michael Barrett: As a reminder, we calculate adjusted EBITDA margin as a percentage of contribution X-tax.
Michael Barrett: GAAP earnings per diluted share increased 50% and it was 24 cents for the fourth quarter of 2024 compared to 16 cents for the fourth quarter of 2023.
Michael Barrett: Reconciliations to non-GAAP income and non-GAAP earnings per share are included with our Q4 results press release.
Michael Barrett: Operating cash flow, which we define as adjusted EBITDA less CapEx, was 64 million dollars for the quarter.
Michael Barrett: Cash generation was very strong in the fourth quarter, and our cash balance at the end of Q4 was $483 million, an increase of $96 million, or 25% from the end of Q3.
Michael Barrett: Capital expenditures including both purchases of property and equipment and capitalized internally used software development costs were $12 million for the quarter, bringing the total to $52 million for the full year.
Our net interest expense for the quarter was $5 million.
Michael Barrett: As mentioned, our net leverage ratio was 0.4x at the end of Q4, a sequential improvement from 0.9x at the end of Q3.
Michael Barrett: We continue to focus on managing shareholder dilution after having successfully lowered our leverage.
Michael Barrett: For the full year 2024, our repurchase program and withhold-to-cover activity have effectively reduced dilution by 3.2 million shares for $37 million.
Michael Barrett: As a result, the increase in total shares outstanding at the end of 2024 was limited to 2% compared to the end of 2023. We currently have $110 million remaining in our authorized share repurchase program, which we will look to deploy strategically.
Michael Barrett: I'll now share our expectations for the first quarter of 2025 and our current thoughts about the full year.
Michael Barrett: For the first quarter, we expect Contribution X-TAC to be in the range of $140 to $144 million.
Michael Barrett: Contribution Nextach attributable to CTV to be in a range of 61 to 63 million dollars.
Michael Barrett: contribution XTAC attributable to DV Plus to be in the range of 79 to 81 million dollars and we anticipate adjusted operating expenses to be between 111 and 113 million dollars
Michael Barrett: which implies adjusted EBITDA margin of over 20% for Q1 at the midpoints.
Michael Barrett: and others. Thank you for joining us. Have a great day.
Michael Barrett: For the full year, we anticipate total contribution ex-tax to grow above 10%, or mid-teens excluding political.
Michael Barrett: Adjusted EBITDA to grow in the mid-teens with adjusted EBITDA margin to expand at least 100 basis points over 2024 and free cash flow to grow in high teens to 20%.
Michael Barrett: Overall, the fourth quarter and full year 2024 were strong for Magnite, despite the unexpected volatility in the post-selection DBPLUS results.
Michael Barrett: We had some very significant wins during the year, including Netflix, and continued to add cutting-edge capabilities to our industry-leading CTV toolset. We've also set a high priority on the cost efficiency of our tech stack and have made significant strides this year.
Michael Barrett: The team is performing well, and we are excited about what the future holds in 2025 and beyond.
And with that, let's open the line for Q&A.
We will now begin the question and answer session.
Michael Barrett: To ask a question, you may press star then 1 on your telephone keypad.
Michael Barrett: The first question comes from Jason Cryer with Craig Hallam. Please go ahead.
Yeah, I'll take that. I think...
Well, in DV Plus, let's...
Michael Barrett: split the businesses there. We're actually seeing a nice rebound, especially from Q4. And so, as mentioned, we're seeing, you know, current growth in the, you know, mid to high single digits. And so that's
Michael Barrett: We think, you know, running nicely and CTV, we've typically had, you know, Q1 is kind of a kind of a low point in our year-over-year growth and, you know, if
Speaker Change: I don't you got anything else Michael you want to add but you know you know I think it's within expectations yeah it's pretty market representative yeah
Speaker Change: Okay, got it. Thank you. I wanted to touch on some of the stuff you talked about, you know, SMBs. You kind of highlighted working with some partners to bring, you know, greater budget online and allow that kind of cohort of the industry that hasn't participated in CTV in the past to give them access to that. So just wondering if you can talk about what your role is there and kind of what you're seeing and what the timing looks like for those entities to be able to participate.
Michael Barrett: Yeah, great question, Jason. I think we're, you know, relatively early stages there, right? There's, it's kind of a two-putt move. First, you know, these newer entrants have to...
Michael Barrett: The impact of a CTV ad, coupled with advertising on DV Plus at the same time, and weighing whether or not that's more affectatious, is...
But there is, you know, a ton of appetite.
read every
Q4
Michael Barrett: or even earlier earnings from any of the big streamers. They've all kind of pinned their hope on.
Speaker Change: Hey, we're not just looking to shift dollar for dollar from linear to streaming. We need to expand the pie if we're going to be successful like tech companies. And so they're really leaning into a world of 10,000 advertisers, not 500 advertisers.
Speaker Change: So, the whole industry is kind of leaning into that and our role specifically is to bring that great supply to them.
There's no way they can create direct relationships.
Speaker Change: plug-in directly, access all the supply that we can globally and so we're a quintessential SSP in that respect but as I mentioned in our script a uniquely advantaged SSP giving our programmatic mediation layer with all the top streamers.
All right. Thank you.
The next question comes from...
This question comes from Dan Kernow.
Please go ahead.
Dan Kernow: Great, thanks. Good afternoon, Michael. Maybe just on, just how should we think over the median term about the growth of your CTV, X-TAC business, now that you have all these wins? I mean, obviously, it's going to be lumpy with Netflix and timing is hard, so maybe
David Barrett, Nick Kormeluk, David Day
Speaker Change: Are we talking, you know, utilizing the data you have to improve the conversion or drive more business wins, or are you talking about new business lines that can actually add incremental revenue to the growth story? Thanks.
Speaker Change: Yeah, Dan, great question. So, CTV growth rate, I think, you know, we've been pretty consistent in saying we have every expectation to outgrow the market. That market number has bounced all around given, you know, the economic backdrop of, you know, the last eight quarters or so. But, you know, I think we've seen
Speaker Change: the latest folks that we use, mid-teens, and so we fully expect on a full-year basis, sure there'll be market quarter differences, but to outpace the market in that respect. And, you know, as far as the inventory coming online,
Speaker Change: It's hard to project that, largely because some of that's just out of our control and it's a 100% go-to-market strategy for some of our newer streaming partners. But again, as it specifically relates to Netflix...
Speaker Change: feel very comfortable that our Statements that we originally said stand and that is exiting 2025. They'll be one of our largest CTV clients
Speaker Change: And the political comp, if you strip out political, our guide, you know, conservative, what I would say, guide, you know, not knowing the ramp of Netflix and others, would imply closer to 20% CTV growth next year. And so important to just to keep that political comp in mind.
Speaker Change: Yeah, and then lastly on the data piece of it. Yeah data is it's a new one Bucket of revenue opportunity for us as you know very well most data surcharges or data sales have occurred at the DSP level on the buy side and We're seeing a big uptake of our curation tools
Speaker Change: and buyers coming in and utilizing our data warehouse, if you will, our data storefront. And in that instance, our publishers and us can participate in those economics.
Thank you both. Appreciate it, guys.
Laura Martin: The next question comes from Laura Martin with Needham and Cumberland County.
Please go ahead.
Laura Martin: Hi there. My first one is on Gen AI. I wanted to drill down there a little more. It sounds like you're introducing a bunch of products.
in 25 and I'm interested
Speaker Change: housed at Google or Amazon or over at OpenAI. So I'm curious as to...
Speaker Change: bringing on-prem, increasing your CapEx on on-prem versus using the cloud. So could you, so that's my first question is, could you talk a little more about your Gen AI strategy in 2025, please?
and you bet Laura I'll
Speaker Change: I'll jump on the first part of the question and let David answer the second part. I would say, generally speaking, the tools that we have launched on the launching pad
Speaker Change: are definitely with an eye towards existing clients to make their life easier, to make it more efficient, and to have them spend more. So I would say the general focus of the first wave generation is to increase revenue with existing clients.
Great.
Speaker Change: And on the CapEx, we had $52 million in CapEx in 2024. And as you highlighted, we do expect about $60 million in 2025. That's actually not related.
Speaker Change: to our the Gen AI efforts. It's really more related to
primarily our CTV business that primarily runs today on AWS.
AWS per unit costs, even as they're being optimized.
Speaker Change: those activities on-prem. And so, there's actually a very significant ROI from that.
Incremental CapEx spend
Speaker Change: and the ability to bring some of that activity on-prem. So it's really, the CapEx is much more about our...
Speaker Change: optimization efforts of our tech stack and actually giving us greater opportunity to expand our margins as we swap out more expensive AWS cloud costs.
in the future to cheaper on-prem costs.
Speaker Change: can push the cost of the additional servers for those specific tools onto the end user. And so, therefore, we don't anticipate, you know, tens of millions in incremental costs as it relates to cloud usage because of LLMs.
Speaker Change: Okay, super helpful. And then my second one is, I understand you feel like you were provoked by the trade desk comments.
Speaker Change: And I appreciated your sort of pushback on, you know, why SSPs are still required. I guess my question, my big picture question is, is the open Internet healthy? We have the largest DSP and the largest SSP sort of...
Speaker Change: in a public war now of words about the relative usefulness of their services.
Speaker Change: But they are part of an ecosystem. And I'm just wondering, do you feel that the rise of Amazon's competitive layer is changing?
Speaker Change: and Therese. Thanks so much for joining us. I hope you enjoyed this. And thanks to the CEO and the sponsors for the work they do. And I hope to see you again next time. Thank you. Bye-bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye.
Michael Barrett: Well, I think it's very healthy, Laura, and I also think that, you know, this isn't some back-alley fight between us and Trade Desk.
Speaker Change: Jeff has a very clear view of how he thinks the world's going to play out and he thinks it's going to end with a thriving open internet.
Largely speaking, yes, Amazon can suck dollars out of it.
Speaker Change: so-called open internet. But more and more, what we're seeing is Amazon is a buyer of open internet inventory. They may have, you know, incredibly sophisticated buying capabilities, but they are very intent on being a
Speaker Change: the largest general DSP in the world, and that would have to include buying open-air inventory. So we have a very tight partnership with them, and they're fast-growing on our platform, and I think they're more of a
Speaker Change: more of a validation of the open internet than someone that is trying to underpin it.
Thank you very much.
Speaker Change: The next question comes from Suena Kajuria with Wolf Research. Please go ahead.
and Nick Kormeluk.
Nick Kormeluk: Thanks a lot for taking my questions. Let me try two, please. On OpenVAS, Michael, you gave a...
Nick Kormeluk: What drove the CPM pressure in the fourth quarter and what gives you confidence right now?
Speaker Change: simply a function of CPMs bouncing back and things are back to normal. Any comment there would be helpful. And what did you see through the quarter to date? So how did January trend versus February?
Speaker Change: And then, if I could please try a third one. Could you please help us unpack your 2025 guidance a little bit to the degree that you can comment on incrementality from any of these new partnerships? How should we think about that? Thanks a lot.
Speaker Change: I'll hit the open path economics. I think what wasn't broadly understood was that when a publisher engages with open path, there is a fee that they are charged by Tradesk.
Speaker Change: That fee can range as high as, you know, high mid-single digits to mid-single digits.
Speaker Change: The economics really are unchanged to the publisher. We've heard this from multiple publishers. So ultimately there's no huge savings here for advertisers and or publishers.
Speaker Change: And so that's what I was bringing to light, that the statement that this is a sweeping
At the highest level
Speaker Change: There was just a drop in demand in November and December. One can speculate where that came from, where there are concerns about having messy election results.
Speaker Change: It's hard to speculate, but the fact was that there was just less demand in the fourth quarter running up to the holidays in the DV Plus business.
Speaker Change: In January and February, we have seen a significant rebound. So that demand has come back, CPMs have improved.
And so that gives us...
you know confidence going forward and it also helps
Speaker Change: It's an unusual year-end, we have an extra month where we're reporting, so we're two months into our quarter.
Speaker Change: And so we have some, you know, reasonable visibility that that rebound has sustained, you know, for a good part of this quarter and it gives us additional confidence.
Speaker Change: and then from third question on the from a guidance perspective incrementality with our deals new deals you know I mean we
Speaker Change: We've talked in very general terms about what the impact of some of our deals could be. We don't control the timing of that and so you know we we attempt to be you know somewhat conservative in the guidance that we're giving.
Speaker Change: incremental revenue on top of that baseline flows through to EBITDA you know at a much higher rate and so to the extent we have upside you'll see better impact and proportionate better proportionality on the impact on EBITDA.
Okay, that's helpful. Thanks, Michael. Thanks, David.
Speaker Change: The next question comes from Matt Swanson with RBC Capital Markets. Please go ahead.
Matt Swanson: Yeah, thank you so much for taking my question. Maybe following up just where you were there, David, on the drop of demand you saw in November, December, it just, it didn't seem like it really impacted CTV, or did you see a similar dynamic, but it just outperformed anyway due to the strength, just trying to kind of put some guardrails around that.
David Day: Yeah, no we didn't really see the same impact. I mean it is a very different world with...
You know, lots of demand coming in and so...
David Day: You know if there was some impact it was certainly masked by you know, you know other other growth and demand and
David Day: We feel like we're kind of a share gainer in that space, so could it have grown higher in that quarter? Maybe, but we didn't see drop in CPMs or any similar kind of activity in CTV.
Speaker Change: And then maybe one for both of you, that's kind of a different version of Shweta's question. The secular growth drivers that you called out for being investments in 2025, we talked AI, curation, clear line, agency marketplaces. We spent a lot of time on CTV, but how should we think about those in terms of how monetizable they are this year, just in whatever color you guys are comfortable with?
Yeah, I mean I'll handle the opener. I think...
with many of these partnerships as we've talked about.
Speaker Change: They're very strategic and will be longer-term, mid-term, to fully ramp. A lot of these partnerships...
Speaker Change: We are very dependent upon our partner in terms of selling it through. I think agency marketplaces are a great example of that. We've been working with GroupM now for maybe going close to four years. And, you know, for the first two years, it was a concept.
that was pitched to their clients.
Speaker Change: their clients dabbled with it, and now it's, you know, a roaring marketplace. And so, I think a lot of these examples, like the Uniteds of the World, even in Netflix, Mediocean, etc., these just take longer to play out, so...
Speaker Change: I wouldn't anticipate, you know, a hockey stick happening any particular quarter for any of these. They just simply grow and add to the general revenue growth that we kind of anticipate in 2025.
Thank you.
The next question comes from...
Sounds from Cheyenne Patil with Susquehanna.
and Anna. Please go ahead.
Speaker Change: Hey, this is Aaron on for Sean. Thanks for taking our questions.
Yeah, I'll take that.
Speaker Change: Yeah, as we mentioned earlier, I think it was very different than, you know, 2022 and 2020 cycles. So, in those cycles,
We did.
Speaker Change: There was actually increased, you know, the CPMs did not really drop.
Speaker Change: and so it was it was dramatically different from that perspective and as far as the cause again you know we know what the output is you know one can speculate as to the cause you know whether folks
Speaker Change: just wanted to stay out of the market assuming that there just be you know really
Speaker Change: challenging, you know, political turmoil after the election or, you know, what you may, but.
Speaker Change: You know, we saw the drop and now we've seen recovery, and so, you know, I don't...
Speaker Change: don't have a lot better insight than what others might speculate. I don't know, Michael, if there's anything else. No, it's just look at like any political season, we know political spend crowds out consumer ad spend. It gets pretty expensive and it's tough to compete against political, so it's quite common.
Speaker Change: to see some larger advertisers pause and then kick in with their seasonal advertising in December after the general election.
Speaker Change: We just didn't see that and it's a unique phenomenon and you know the fact that
The advertising resumed in January.
Speaker Change: kind of and the fact that this happened exactly the day after the election we had this cratering of CPMs Kind of all fingers point to the election, but it's hard for us to get any more
definitive or have any others.
Speaker Change: Got it. And then if I could ask a second question, appreciated the commentary and response to the OpenPath comments from the Trade Desk. Michael, I guess I'd be curious to hear, what would you highlight as the top two or three differentiators of Magnus SSP versus OpenPath?
Speaker Change: Well, you know, I think it's pretty clear that OpenPath is a very valuable source of demand.
Speaker Change: It begins and ends there. Demand is the lifeblood for publishers.
However, it's just one DSP.
Speaker Change: And, as Jeff pointed out, if you're going to do this, you better build your own yield management as a publisher. And we kind of vociferously disagree with the publisher has the capability to build yield management, let alone have the data that we have to feed yield management.
So I would say, largely speaking,
Speaker Change: The Trade Desk isn't even operating in Latin America. We are. So we absolutely can bring all this demand and we add yield management to it. And so we're making sure that we're keeping the buyers honest and the publishers getting the best possible rate.
Speaker Change: And so that is not what OpenPath is. OpenPath is just a pipe of demand, valuable demand, but I think we could argue for the same fee, you get TradeDesk and the world's demand with yield optimization.
That's helpful. Thank you both.
The next question comes from...
from Eric Martin Zuni with Lake Street.
Please go ahead.
Speaker Change: Yeah, just one question slash clarification. You mentioned political at six and a half percent of contribution XTAC in Q4. What was it for the year?
Got it. Thanks.
Yvette.
The next question.
comes from SAC, Cummins.
Please go ahead.
Speaker Change: Hi, good afternoon. Thanks for taking my questions. I just wanted to ask about the CTV business. Have you seen any, I mean, worth calling out and make shift within that business? It seems like it relatively stable throughout 2024. So just curious of how you're thinking about that mix moving forward in 2025 and beyond.
Speaker Change: Yeah, I think that's a pretty accurate statement like if you look at our
Speaker Change: The expansion of media plans will bring on publishers that rely a lot more upon us for demand than perhaps Disney relies upon us for demand. So I think that over time we totally anticipate
Speaker Change: That mix changing, but I think you know as you go through 2025 still the bells of the ball are the big Premium streamers that everyone wants in their media plans and those guys as you know Prefer to sell their programmatic deals direct
Speaker Change: Understood. And just one quick follow-up. Just curious of your recent partnership announcement with X. Can you talk about your role in that partnership and kind of how we should think about, I don't know, potential contribution from that over time?
Speaker Change: Yeah, it was the partnership announcement that wasn't a partnership announcement. It was a press article. So we're kind of...
Speaker Change: somewhat limited to describe the deal. I think you can probably anticipate further information downstream, but that was a little premature. But again, a reporter doing what a reporter does.
Speaker Change: Understood. Well, thanks for taking my questions and best of luck with the rest of the quarter. Thanks, Ed. Thank you.
Speaker Change: The next question comes from Omar Dasuki with Bank of America.
Please go ahead.
Speaker Change: Hey guys, this is Arthur on for OMAR. Thanks for taking the question.
Speaker Change: So, David, I wanted to touch on your comment about, you know, being able to lower your cost per ad request meaningfully by, I guess, optimizing the number of ad requests you send to DSPs.
Speaker Change: How should we think about exceeding that efficiency improvement because it sounds like in theory if you have a model that's able to predict you know how DSPs are going to
respond to various different ad requests.
Speaker Change: your model should be able to like keep on getting better as you ingest more data into the feedback loop. So in theory, like your efficiency should just keep on getting better. Like, I guess, what are your thoughts on that notion? You know, where do you see the seeding of that efficiency gain and where do you think you are on that curve?
Yeah, I think, um...
Speaker Change: There's a couple of elements to those efficiency gains, and it's interesting that you highlighted
Speaker Change: something that we've actually been doing for a long time so that there's a there's a there's a brains so there's a core cost of processing an ad request and a core cost
of sending that ad request out to DSPs.
Speaker Change: And so there's a core cost to that, but there's brains behind that and how efficiently you filter what's valuable and where it should be sent. And so that part we've been actually working on, you know, we've had going for a long time and that's been, you know, part of our significant success.
Speaker Change: what and that will continue to grow and to improve over time but there's some
Speaker Change: step function gains in one on the per unit cost in utilizing the cloud. You know, we're relatively new to that in the last couple of years as we've acquired our CTV businesses and put them together in Magnite Streaming and with SpringServe.
And then, really, the big step function is...
Speaker Change: certain of those activities can be run much more efficiently on-prem, and we're just in the phase now of really sorting that out and optimizing that, and so I think that's where
Speaker Change: That's where the biggest gains will come over time. And so, it's a very long answer and way of saying a lot of good things happening. I think...
Barrett, Nick Kormeluk, David Day
But, corresponding to that is, we are doubling, tripling volume.
Speaker Change: And so you're going to always see kind of a steady layer cost. It's just that we're going to be able to do twice as much. And our lifeblood is auctions in volume. So that's a really good thing. You shouldn't expect this to go to zero because we're going to be taking on more and more volume at an affordable cost.
Thank you very much, guys. Appreciate it. Great. Thanks, Arthur.
This concludes our question and answer session.
for session. I will see you next time. Bye.
Michael Barrett: I would like to turn the conference back over to Michael for
Thank you for your time and any closing remarks.
Michael Barrett: Thank you, Megan. Thank you all for joining us and your support.
Speaker Change: We have a very exciting 2025 ahead of us that I feel very good about. The Magnite team is performing at a very high level, and I love our resilience, even when the market throws us challenges like in Q4, and our ability to bounce back quickly.
Speaker Change: We look forward to speaking with many of you at our upcoming investor events.
Speaker Change: We are participating in the Susquehanna Conference tomorrow. Benchmark meetings in Boston on March the 6th.
Speaker Change: Craig Hallam meetings in Chicago and Minneapolis on the 12th and 13th of March, Bank of America meetings in New York on March 19th, RBC meetings in Kansas City and Denver on March 25th and 26th, and B. Riley meetings in San Francisco on March 31st. Thank you all for joining and have a great evening.
Speaker Change: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.