PubMatic, Inc. Q2 FY2025 earnings call

• Delivered strong second quarter with revenue and adjusted EBITDA ahead of expectations. Underlying business revenue (excluding affected DSP and political advertising) grew 19% y-o-y; reported revenue returned to y-o-y growth at 6%. • Performance driven by CTV and emerging revenue streams; robust business model led to 20% adjusted EBITDA margin, 37th consecutive quarter of adjusted EBITDA profitability. • Journey from SSP provider to end-to-end platform; pioneered Supply Path Optimization, launched Activate, saw growth in sell-side data targeting and commerce media. • Diversifying DSP mix: performance marketers and mid-tier DSPs growing >20% y-o-y; adding SMB CTV ad platforms and China-based performance DSPs. • Accelerating investment on buy side: Activate buying activity more than doubled Q1-Q2; success with clients like Omnicom Media Group Germany and PayPal. • Advancing CTV leadership: CTV revenue grew >50% y-o-y; partnerships with Nippon TV and Wunderkind, live sports marketplace launched. • Scaling emerging revenue streams: platform fees from data curation, commerce media, enterprise software; partnerships with Trainline and use of Connect solution. • Integrating AI across tech stack: AI-powered capabilities like PubMatic for buyers, PubMatic Assistant, predictive diagnostics, dynamic floor yield module.

Omnichannel video revenues grew 34% year-over-year and represented 41% of total revenues in the quarter. CTV revenues increased by over 50% year-over-year for the fourth consecutive quarter and represented approximately 20% of total revenue in the quarter. Emerging revenue streams more than doubled year-over-year and accounted for 8% of total revenue in the second quarter. Display revenue was flat year-over-year, a significant improvement from Q1's year-over-year decline of 10%.

• Q3 revenue expected to be in the range of $61 million to $66 million. • Q3 adjusted EBITDA expected to be in the range of $7 million to $10 million, factoring in a $1 million plus incremental impact of continued weakness of the U.S. dollar. • Maintaining full year CapEx projection at $15 million. • Addressing headwind from a top DSP buyer; Q3 outlook conservative due to impact from large DSP and macro environment uncertainty; spend from top DSP stabilized in August but iteration/optimization with this DSP expected to take several months.

• Platform changes by a top DSP causing a notable drop in spend in July, with complexity in iterating and optimizing activity with this DSP expected to take several months. • Macro environment uncertainties impacting ad spending in certain verticals and regions.

Q: Anything else you can tell us about the nature of the change from the DSP and the process of iterating to optimize activity?

A: Beginning in July, a top DSP buyer shifted clients to a new platform with different inventory valuation; need to optimize inventory sent to this DSP; SPO partners needed to reimplement SPO settings, which takes time; spend stabilized in August but iteration/optimization expected to take several months.

Q: How have conversations with advertisers evolved with SPO at 55% of activity?

A: Conversations are deeper, focusing on solving advertisers' problems around transition away from cookies, performance-based solutions, sell-side targeting, and format growth towards CTV and Commerce Media; SPO metric may be more volatile as expanding into mid-market.

Q: View on industry evolution regarding DSPs and SSPs; is PubMatic still a platform of choice?

A: Industry evolving towards end-to-end platforms; PubMatic continues to be a platform of choice due to scale, omnichannel capabilities, data sets, global footprint; display impact from DSP change is in desktop/mobile, but CTV spending from DSPs continues to grow.

Q: Risks related to generative AI on display business?

A: Exposure limited to single-digit percentage of revenue; offensive opportunity as AI search companies may need ad-supported models; 60% of impressions are CTV and mobile app, unaffected by AI search; browser-based business has limited search referral traffic due to direct navigation.

Q: Timeline for recovery from DSP platform shift?

A: Teams reaching out to SPO partners to reupload SPO parameters; mitigation efforts involve iteration and testing due to complexity of ad impression ecosystem; takes time to work through, with conservative outlook factoring in limited effectiveness in Q3.