Here, on kind of the tail end of day two of the tech conference. I hope you all have enjoyed yourselves, enjoyed your meetings. We are super excited to once again welcome back Magnite. We've got CEO Michael Barrett and recently added CFO David Day.
Not this weekend. Not as a CFO. Exactly.
We convinced him to get up here. Anyway, so I'm starting off. So we're getting really close now to the 50/50 split between CTV and DV+. DV+, digital video plus everything else, revenue. When thinking about the business today, can you just kind of talk about the key growth drivers, maybe looking out into next year, and how you're focusing on each of these areas in terms of investing to support that?
Yeah, so you're right. It's fast approaching 50%. The growth profile of CTV being quite different than the growth profile of DV+. So that trend will continue. You know, I think growth drivers for us in general are a handful. First and foremost, this growth is all happening in what has been a relatively weak macro ad market. And although I don't have a crystal ball that says 2025 is the complete rebound to normalcy, I think there's a general sentiment that 2025 will be better than 2024, better than 2023. Some folks will take exceptions to that because of the political spend, but let's say ex-political in that regard. And political dislocates other spend too. It's just not found money that sits and doesn't force out any other money. So I think you have what could be a strengthening macro.
You have more and more streaming publishers leaning into programmatic. We have a supply and demand imbalance right now with all the ad-supported tiers coming to market all around the same time, global scale. It put a lot of inventory out in the marketplace. And whenever that occurs, generally speaking, programmatic is a wonderful solution to trying to move some of that inventory. So I think you have an accelerating adoption of programmatic, which is good for Magnite. And then lastly, for us specifically, you have a new customer like Netflix scaling up and probably exiting. 2025 is one of our largest, if not largest, clients. So I think those are the three drivers specific to the streaming story.
When we start talking about all these publishers, you've had a lot of success the last two years landing publishers. Is the number we could say 28 of 30 of the top publishers?
It's basically everyone but YouTube and Amazon Prime.
Yeah, yeah, yeah. I mean, so given the breadth of coverage today, can you just talk about how you're going to start shifting a strategy, presumably from landing to expanding and what goes into that?
Yeah, I think it's just kind of staying the course. I mean, our largest competition right now is the legacy broadcast companies that have Plus services that have direct sales teams. They are very fixated on not only balancing the decline of their linear business with the streaming business, so bundling it together and bringing it to market, but also wanting to be very, very much involved in the sales process from a direct sold standpoint. And that will never change. But as we talked about, the inventory footprint is increasing. And so we're all set. All the plumbing's there, the relationship's there, the demand is piped in. It's just a question of utilizing it and turning it on.
So I think it's very much, in large part, a tale of same-store sales where programmatic will just become an increasingly important part of the monetization efforts and will be there going along for the ride as their lead partner. I also think that from an expand standpoint, there's dynamics happening in international markets now that never existed before. If you go to a market like the U.K., very consolidated hold on ad spend by three or four players that had no need or desire to want to do programmatic because things were working pretty good. And this month alone, you had Max, Paramount, Netflix, Disney all launch in the U.K., and it roiled the market that all of a sudden the buyers now have a lot more say in how they want to transact.
And if they always were asking to do it programmatically and the existing linear guys were like, n o, thanks. Now there's an option. And that is creating a rush for legacy broadcasters internationally to start to lean into programmatic partners. You saw our announcement with TF1, and we fully expect more of those. And so what was kind of a shutout market for us two years ago is now opening up rapidly with the global expansion of the Plus services.
And then, maybe a similar question kind of down that train of thought on take rates when we think about your CTV revenue growth. And David, maybe this scenario you can chime in too. But how focused are you on take rate or pricing expansion relative to volume? And kind of what are the dynamics you monitor for both?
Yeah, I think the primary thing to remember for us is that for the most part, changes in take rate are really, it's our average take rate or it's a mixed factor. And so the largest increase, volume increase in our business today is all of this prime premium inventory from the Plus services, which currently we monetize at our lower take rate. So it's direct sold, it's publisher sold. We provide the programmatic pipes or service in that, but it is at a lower level. And so, for example, where we are able to bring in demand that they're not selling, we make a higher take rate.
And so the trend today, which I think is positive, we're having all this influx of lower monetized inventory, but it's growing the business. And they also represent at-bats for future higher monetization as we bring in more demand. And so we've got significant initiatives with our SPO deals with WPP, the other large agencies. We have a ClearLine product, which is an access point to all of our connected television inventory that is a low-cost simplified access point for agencies that may be hesitant to bring in linear spend because of the cost of running through the full DSP SSP model. And so as we bring that demand, we will earn higher take rates.
Yeah, and I think there's a common misperception or a common perception out there. We believe it to be a misperception that, well, okay, so your take rate is blank for the business you're doing now. And if you're telling me in a couple of years, it's going to be 4x that, 5x that, of course, those broadcasts are going to negotiate with you and knock down the take rate. The reality is we think it's probably at the lowest end that it's going to be because of the product that they're using. And then as they work with more high-value products, the take rate increases. So it sounds counterintuitive because who would 4x their business and not negotiate rate? And I'm not going to say they don't ever negotiate, but it's not nearly the take rate pressure that people perceive. It's more the mix, as David pointed out.
Two quick follow-up questions, actually, from when we were talking international. When your big publishers do go to a new market, do you typically go with? Or how's that?
Correct. We operate as their global programmatic partner. There's not, surprisingly, and it may not be true in DV+, there are regional specialists. There's not really regional specialists in streaming because why would you have created a regional specialist in streaming in Germany when there's no streaming? So we kind of go along for the ride. And a lot of the decision-making because of the expertise is being driven by the global head of advertising that's based in the U.S. So our relationships carry with it.
And then the second piece on something you said that got me thinking. It obviously catches a lot of headlines when you win a Fox or Paramount. But in terms of that mix of direct versus programmatic, do you sometimes see some of these smaller deals, like the one you referenced in Europe, being bigger than you would think because it sits in that higher take rate spend?
Yeah, I mean, I think you'd be relatively surprised if you saw the list of our top ad spend players. You wouldn't be very surprised at that list. You probably would be surprised at the list of the top revenue-generating. So yeah, very much so. And that's what David pointed out. That's all upside. That stuff that's coursing through the system at a lower take rate will one day work its way up the high-value chain.
It's getting that ad spend to that take rate.
Exactly. That's the journey.
All right. With that, we'll get to what we've been waiting for. The Netflix win was certainly a highlight of the year. I guess to the extent you can, walk us kind of through the partnership and why you feel you were chosen and then how you kind of see the partnership evolving over the years.
Yeah, I think we were chosen because of our strength in the operating system game so that we're going to be building an operating system that we'll be announcing. Joking. We've been asked that question a lot about Trade Desk today, but so Netflix was very deliberate because they had a chance to look at what they accomplished in the last two years with the partnership they had with Microsoft, and in fairness to Microsoft, they weren't very programmatically minded. They were very much direct sales minded, so as they started to evolve their thinking and think more that programmatic was something I had to lean on and maybe even become more programmatic first, they really had detailed knowledge of what they needed in terms of technology to help them do that.
They were very clear that they wanted to build technology that butted up against the consumer, be that an ad server that would serve the ad to the consumer or the creative formatting or the data collection. They wanted that to be theirs. They didn't want to ever rely upon a vendor that says, no, I know you want to do this crazy ad, but I don't do that. You have to use our standard stuff. They wanted the Netflix experience to translate into the ad experience, right? But then they looked at how they could become programmatic enabled. And they were like, that's a heavy lift. That's a lot of technology to build. Isn't that something someone already does? So they kind of RFP'd us along with the rest of the industry.
We felt really good about it because the RFP, even though they were very clear that they were doing the ad serving, the RFP probably 60% of it, including features or functionality that you would typically associate with an ad server. Knowing that we were one of the only players that had ad serving and programmatic capability, we felt that that put us in a really good position. Then they started to click down upon that. They were very interested in global capabilities. Did you have boots on the ground in these markets? Check, check, check. We were, as they say, we're an annoyingly global company for only 1,000 people, but we are very global. So I think that helped us secure it as well.
Then any comment on the relationship evolving or TBD?
Yeah, I mean, look, it's very sensitive to talk about the relationship, largely because a lot of folks are very interested in trying to understand how Netflix is doing in the ad business. But it's a very healthy relationship. And it's kind of expanding into other areas of technology that maybe you wouldn't necessarily associate just with a programmatic player. But they see our capability in building software and they're like, hey, could you lighten the load and help us over here?
Yeah. So I think one thing we've talked about before with Netflix, like when they first launched ad support in general, that it was a sign of the maturity curve for streaming platforms, that if Netflix got to a point of oversaturation and subscription that they had to go to ad support. This kind of shows everyone the way. For them choosing you as a programmatic partner, how does that impact your conversations with potential new customers or existing customers just as like a proof of concept?
Yeah, obviously there's validation there, right? And it's almost like it's almost better that we weren't chosen the first time around and everyone scratched their heads. And then when they had a chance to do a very exhaustive, knowledgeable bake-off that you were chosen, it made for a tough two years, but the validation was even sweeter. So that helps, obviously. Customers look at the potential customers, look at the customers you work with. You work with the best and the brightest, the Disneys, the Netflix. They don't have to really scratch their heads as to why they're bringing Magnite into the picture. But I think most importantly was that modularity story that I told you. And that is folks were like, okay, I know you got an ad server, but I got an ad server. I don't need it. So let's not talk about ad server.
Let's just talk about programmatic, and yet when they start to talk about it, there's elements of their ad server that doesn't do what they need it to do, and so now I think people realize that they can come and kind of pick things off the shelf and say, I don't need your ad server, but I need the binge-watching feature or the live accelerator feature or, I don't need all your programmatic stack, but I need some of that, and so I think that folks are now looking at us as an entirely different player as opposed to just an off-the-shelf software SSP. They're thinking of us more as this full-breadth programmatic player.
In response to one of the questions you made mention of an operating system being launched by another ad tech company.
Yeah.
Comments, concerns?
No, it makes all the sense in the world for The Trade Desk to do that, right? So I don't think anyone's calling that into doubt. I think that in channel checks, and obviously we've been aware of it for a while as the industry. And in talking to the OEMs, they're not elated about it. And they do a lot of business with The Trade Desk. Does that mean they're going to stop doing business with The Trade Desk? Absolutely no. It's cutting your nose off despite your face. But the types of partnerships you might do with The Trade Desk might look a little bit different from an OEM standpoint if they feel as though they're going in deeper with a competitor. But I think just generally speaking, the sentiment is that it's an awfully tough, crowded market, the OS market.
And there's a lot of long-standing players that have had a long history of adoption with manufacturers. And either yours is going to have to be radically different and better to make someone make that choice. And I think we kind of learned through the TiVo world that it could be a lot better as a software. It still won't matter. Or the economics of the deal have to be so astoundingly different that you could disrupt an Android Google system because your economics are so much better than what a Google or an Android could give you, which kind of strains credibility a little bit too. So I just think it's going to be tough to land it. It's going to be highly competitive.
Maybe zooming out a little bit and thinking about the AVOD TAM in general, what do you think are the biggest catalysts to growth for the entirety of the market? Is it their technology gaps still, data gaps still, or is it just kind of getting people out of their comfort zone of linear? What do you think is going to drive more spend to CTV?
You know, I think that, and we've talked about it quite a bit as an area that's a bright spot for us, and that is the whole live area, right? 2025 will tee up 2026 to kind of be the year where more sports content is going to be consumed in streaming than it will in cable and legacy broadcast. All the rights deals that have come through all include streaming components. Some of them are streaming only. You have two Christmas Games this year on Netflix, so I think you're just going to see more and more of that, and those are the big tentpoles that attract the big ad spend, and when that happens and they no longer have to buy sports and entertainment over here to keep their sports deal and it all comes over here, I think you're going to see a bigger whoosh occur.
But there's always been a lag whenever a new medium or media comes out in terms of internet. For the first five years, we hand-wrung about how many eyeballs were on the internet. And yet billboards were still getting more money than the internet. And it all balanced itself out. The idea of advertising is to chase the most desirable eyeballs. Now you can chase them. They're all in streaming and you can actually target. It's a hard argument to fight that eventually it'll be a preferred choice of broadcast dollars.
Maybe moving off of CTV. Well, we're always kind of on CTV. But the United Airlines deal, I think kind of maybe opened up people's imagination a little bit about the types of partners that you could find. I guess just a quick story. I was with Nick, your IR, when we were talking about it. We were riding an elevator and he's like, well, there's a TV sitting up in the corner showing ads. And you get into a taxi and there's a TV showing ads. And so it's just kind of like wherever you can find screens might be potential for a partner. I mean, so can you kind of talk about what this opportunity is in commerce media?
Yeah, I think the interesting aspect about United, and we can talk about that a little specifically, but I think the broader message is that when people were thinking about retail media networks, it naturally swung to big retailers, thus retail media networks. And the idea was, well, if you're a retailer and you sell goods and you have a website that people go to and you have a store, boy, that's very powerful media. It's got attribution. It's got targeting. It works hard. It's performance. Boy, they're going to soak up a lot of dollars. And I think some people thought of it as a very narrow category where when you refer to it as commerce media, you start to look at, okay, what does it take to play in that game? And first and foremost, it's data, right?
Knowledge about your customer that other people find incredibly valuable, right? So a lot of partners of United find their loyalty program data incredibly important and incredibly valuable. So how does a United get into that game? Well, they have a website, right? They have an entertainment app that is their owned and operated real estate that you would watch on your laptop, phone, iPad. They have seatback screens. That's their screen. That's their media, their real estate. They have gate TVs. That's their real estate. And also, if they exhaust all that real estate, that inventory that they own, they can go off and target ads on a Hulu that target United frequent flyers and partner with Marriott to send ads specifically to those households. So I think it's a fascinating area because if you look at travel, by nature, they have all the great loyalty.
If you're a hotel, if you're an airline, we think that's a very interesting opportunity for us, largely because they're new to the game, so they need an ad server. They've never done advertising, so they need the ad server. And we're in a great position there. And they are so concerned about their data that they really want to keep it as close to them as possible. So that helps with the supply side argument versus putting it in a DSP. That was the early days of it. Walmart partnering with Trade Desk very successfully. The early days was pick a DSP, put my data in there, and then buyers can come by and find the data in that DSP. And I think what some folks have found is a leeriness about having the data so far away if you're the retail media network.
Almost more importantly, it's not DSP agnostic. In other words, you're now forcing partners that may want to access that data to switch DSPs to go to use that DSP because that's where the data is. As opposed to if you keep going on the supply side, use any DSP you want, the data is sitting here behind my firewall. Come on in and buy the way you've always bought. I think that that's kind of a growing trend that we're seeing.
Maybe switching to DV+, which for the time being still is the larger section in terms of revenue contribution. How do you think about differentiating Magnite in that market? And what's the role or maybe end game of supply path optimization when you talk to advertisers?
Yeah, I mean, I think our differentiation, so one of the things that's good about the DV+ business is that publisher battles aren't all that difficultly fought in one. You'd be fired if you didn't include Magnite in header bidding if you're trying to monetize that way. But we have chosen still to invest in the publisher business because of other products like Demand Manager, being able to be consultative to them, helping them with price floors, all that kind of stuff. I think in general is a way of having us feel different than other partners that they work with.
But more importantly, that footprint, being able to go into an agency like GroupM and say that if it can be bought and sold programmatically, you can find it on the Magnite platform, whether it's digital out of home, podcasts, banners on a website, or CTV, it's all here in one place, so to your point about supply path optimization, that's the ultimate SPO. I don't have to go to six different platforms to satisfy my needs in these areas that my clients, my advertisers want. I can just go to one-stop shop, and Magnite is by far the largest independent player.
We're getting to about five minutes. Are there any questions from the audience? All right. David, I'm going to get you involved then. You operate a largely fixed cost model, but how do you think about the balance of revenue growth and profitability, knowing that they are kind of tied together in a lot of ways?
Yeah. So our goal is continued EBITDA margin expansion. And so the way to think about our business is there's kind of a break-even point. Over 50% of our costs are personnel-based, and you give everyone a 4% raise in January, and you kind of got to cover those costs. But then when your revenue growth starts to exceed some of those fixed cost levels, then you have a pretty high flow-through to EBITDA and to cash flow. And so what we're doing right now is we're balancing. We'd like to continue to expand our margins, but we want to make sure we have huge opportunities, particularly in CTV. And there's an opportunity cost of not doing enough development. And so we're kind of equally balanced between the two.
We'll continue to increase our profitability and cash flow, but we are putting additional resources into our product and engineering teams and our investment in live sports, in curation data, marketplace, and some of those longer-term revenue drivers.
It's been a while since we've had to talk about capital allocation, but now that the debt is largely paid down, what are you going to do with all your money, David?
With all that money, just going to hang on to it. Yeah, a couple of things. So first, just as a reminder, so we ended the quarter with $387 million in cash. From a debt structure, we have $365 million in Term Loan B debt that's due in 2031. We have a line of credit for $175 million through 2029. So we did a debt restructuring in January, and it's set us up nicely for the next handful of years. For our business, we do need capital reserves. We have what I call a gross balance sheet on a net revenue business. So if a publisher has $100 of revenue running across our platform, we collect the $100, keep our take rate, and then pass the rest along to them. So we have $600 million in net revenue this year.
At any given moment in time, we'll have $1 billion in receivables and $1 billion in payables. So we keep about $200 million to just those flows. You get a payment early, late, whatever, to manage that kind of gross balance sheet, so that's about $200 million. And then in March of 2026, we have a convertible note for $200 million that comes due, and we intend to just simply pay that off. And that leaves us, call it $100 million-$150 million in excess cash over the next year or so. Our focus recently has been on net dilution management, so we spent about $32 million this year to buy back 2.9 million shares, and so our net dilution in 2024 will be about 2%.
And I think that's going to be, other than staying a little conservative to be able to pay off our converts and keep a little dry powder, is really dilution management and probably share repurchases at a reasonable price.
And then, Michael, David just mentioned curation. We talked a little bit about that on your last earnings call, but you want to go a little bit more into that?
Yeah, I think the curation, the reason why it made it into an earnings call wasn't because of the revenue directly attributed to curation. It was more thematic in the sense that as we talk about data-targeted, data-driven advertising, that the new trend is much more on the supply side than on the demand side. So historically, all the targeting has occurred in the DSP, largely because of the third-party cookie. And publishers were sitting on really good information, really good data about their users, but it just could never make it through the noise of third-party cookies. They were just so dominant. Now that you see the decline of them and the deprecation next year from Chrome, audience segments created on the supply side with the publisher is you're going to see it for audience targeting. You're going to see it for contextual.
You're going to also see it. There's a lot of folks that have risen in the curation business for kind of supply chain purity. So is this two hops? Is it one hop? Where did it come from? Is it really from that publisher? All those targeting aspects are becoming more prevalent on the supply side, which is meaningful because there's a data economics that is a big part of the DSP story. It's been lacking from the SSP and the publisher world. And so if publishers can start to participate in the data economics, we get to be the beneficiary of that as well. And so I think curation as a theme is going to be something that you're going to see be more and more talked about throughout 2025.
With that, we're out of time. Just thank you again for joining us again this year.
Thanks.