Good afternoon. Welcome to the Magnite fourth quarter 2020 earnings conference call. All participants will be in a 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. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Nick Kormeluk, Head of Investor Relations. Please go ahead.
Thank you, operator, and good afternoon, everyone. Welcome to Magnite's fourth quarter 2020 earnings conference call. As a reminder, the comparisons you will see in the 10-K as reported included the combined financial results for the fourth quarter of 2020. For 2019 and for the first quarter of 2020, the results do not include Telaria, given the merger date of April 1st, 2020. During the course of this call, when we refer to results and associated year-over-year comparisons with the phrase as reported, we are referring to the basis as reported in our 10-K. When we'll make comments referring to pro forma comparisons, we are using combined company metrics including Telaria for the prior year period in 2019 and the first quarter of 2020 as the basis for comparison in order to provide additional detailed insights that management also uses to evaluate our business performance.
When discussing pro forma information as it relates to the SpotX acquisition, we are also including the preliminary results of SpotX for the relevant period. As a reminder, this conference call is being recorded. Joining me on the call today are Michael Barrett, CEO, and David Day, our CFO. I would like to point out that we have posted financial highlights live to our investor relations website to accompany today's presentation.
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 COVID-19 on our business, as well as statements concerning the proposed acquisition of SpotX, the timing or terms of the closing the transaction, and the potential benefits and synergies we expect to realize therefrom. 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 that may cause our actual results, performance, or achievements to be materially different from expectations or results projected or implied by forward-looking statements.
A discussion of these and other risks, uncertainties, and assumptions is set forth in the company's periodic reports filed with the SEC, including our 2020 annual report on Form 10-K and prior filings. We undertake no obligation to update forward-looking statements or relevant risks. Our commentary today will include non-GAAP financial measures, including adjusted EBITDA and, with respect to pro forma comparisons that include SpotX results, non-GAAP net revenue. Reconciliations between GAAP and non-GAAP metrics for our reported results or the preliminary SpotX results can be found in our earnings release and in a financial highlights deck that was posted on the investor relations website. We define cash flow as adjusted EBITDA less capital expenditures, which excludes changes in working capital. We define net revenue as GAAP revenue less amounts paid to sellers that are included within cost of revenue.
We'll be referencing preliminary non-GAAP net revenue and adjusted EBITDA results for SpotX for the year ended 2020 and for the fourth quarter of 2020. These results are preliminary and non-audited and are subject to change. Also note that we will use the term online video or OLV, where we previously used the term non-CTV video. At times, in response to your questions, we may offer incremental metrics to provide greater insights into the dynamics of our business. 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. I encourage you to visit our investor relations website to access our press release, financial highlights deck, periodic SEC reports, and webcast replay of today's call to learn more about Magnite. With that, I'll now turn the call over to Michael. Michael, please go ahead.
Thank you, Nick. Our revenue performance in the fourth quarter was strong across the board and most notably in CTV and online video or OLV, demonstrating our value as the leading independent sell-side platform. Top-line growth once again outpaced industry performance, especially in those two fast growth segments in the market, and we meaningfully exceeded the trends that we shared in our last earnings call. Overall, top-line strength led to further margin expansion, demonstrating the leverage we have in our financial model to deliver a profitable earnings growth. I'll briefly cover Q4 2020 results. Revenue was $82 million, which equates to a 69% as reported increase year-over-year and a 20% pro forma increase year-over-year. CTV revenue was $15.3 million, representing an increase of 53% year-over-year on a pro forma basis.
OLV revenue grew 35% year-over-year on a pro forma basis, we delivered $30 million of adjusted EBITDA with a margin of 37%. Next, I want to highlight a few key topics. I'll talk a little more about the pending acquisition of SpotX and share some additional details on their business. I'll talk more broadly about CTV product and market trends. I'll go into broader programmatic market trends, providing information on client wins and SPO progress. Lastly, I'll provide an update on our identity initiatives. We are thrilled to have announced the proposed acquisition of SpotX. The SpotX deal is a big strategic win for Magnite, our clients and shareholders. SpotX has great tech, great people, strong customer relationships, fast-growing revenue, and is highly profitable. The transaction is expected to close in Q2, pending customary regulatory approvals.
One of the exciting benefits of the acquisition will be to combine two great engineering and sales teams, which will accelerate the release of new features and functionality for our CTV clients. The goal of this supercharged development roadmap is to draw more linear TV advertising dollars to ad-supported programmatic CTV by providing our clients with the tools they need to succeed. Combining Magnite and SpotX pro forma results for 2020 would have resulted in approximately $350 million of non-GAAP net revenue. For Q4 2020, CTV would have been the largest format, closely followed by OLV, positioning Magnite to go head-to-head with the larger players in the CTV market. The combined companies would have also had a meaningfully higher combined adjusted EBITDA margin of 22% in 2020, and that's prior to any targeted cost synergies. David will provide additional financial details related to SpotX.
I'll now turn to CTV market trends and product news. CTV growth trends continue to be very favorable, from cord cutting to increasing growth estimates, to movement of linear TV dollars to CTV, to recent results from The Trade Desk and Roku, all signs support very healthy market growth dynamics. We continued to outpace industry growth estimates from eMarketer in CTV in the fourth quarter and grew our Q4 CTV revenues 53%. We recently announced an open beta for our new CTV Unified Decisioning solution. This product is critical to increasing publishers' revenue by enabling them to have their direct and programmatic inventory compete for the highest price, thus driving higher yields. It is particularly important during a time of increased demand where programmatic CPMs can exceed direct sold CPMs. Many publishers who primarily sold direct missed an opportunity to adjust their strategies and allocate more inventory to programmatic.
The product is currently in beta with a handful of clients with positive early results. It is something that we plan to charge for separately, and we'll share more specifics in subsequent quarters. The broader programmatic market also performed well in Q4. Of particular note, OLV grew 35% in Q4 on a pro forma basis. We are pleased to see the benefits of revenue synergies from the Telaria merger and the participation in this growing market earlier than expected. Next, I want to provide an update on key customers and examples of Supply Path Optimization or SPO. Consolidation continues to take place in our industry and our omni-channel offering, servicing technology, plus opportunity to cross-sell from the Telaria merger, have put us in a great position to grow further.
On the agency front, we expanded our work with Havas in building out a trusted marketplace while deepening relationships with key publishers. In Q4, Magnite launched Havas' Meaningful Media Marketplace on our technology platform. The program now features over 100 publishers across the U.S. and in key European countries. We also continued our work with Omnicom's marketplace in Q4. Omnicom is bringing large and engaged advertisers that are shifting spend into curated, premium and transparent inventory. The build-out of this marketplace is a major priority for them in 2021. We formally launched the marketplace in December. It now features 20 premium publishing partners running display and online video inventory. A CTV marketplace solution is in development.
Along with SPO, we believe there is additional room for total ad spend acceleration as there are several sectors, including auto, travel, entertainment, and sports, that are still performing well below pre-COVID levels and have significant upside. I'll now shift to give a brief update on our efforts with respect to identity solutions. As you're aware, third-party cookies and IDFAs are going away, and this creates an opportunity for Magnite to bring greater value to publishers. I'm pleasantly surprised at the pace of development of the new identity solutions and the way that the programmatic ecosystem has come together to find open, viable alternatives that work in a privacy-compliant manner. We believe three primary identity solutions will coexist and complement each other to replace the current landscape. We are deeply involved in the development of all three.
First, and particularly important to us, publisher first-party data segments that are created within our Magnite marketplace and can be bought at scale across a large number of publishers to find desired audiences. Second, open source identifiers such as offered by The Trade Desk and LiveRamp that are based on logged in users will play an important role in the market. We are particularly pleased to see The Trade Desk announce that its Unified ID 2.0 will now live within and be operated by Prebid, an independent organization that we co-founded, which is designed to ensure and promote fair and transparent marketplaces across the industry. Third, Privacy Sandbox from Google Chrome, where the browser preserves identity and creates cohorts or groups. We believe that our platform and scale position us well to provide the infrastructure and tools that publishers need to succeed in the new world of identity.
Our key growth drivers remain the same. Growing CTV, which will continue to be our most compelling opportunity for the foreseeable future, further accelerated with the addition of SpotX. Increasing market share gains across all formats and device types as we better service a fragmented marketplace as a transparent, independent omnichannel partner. Expanding our software solutions as seen with our new Unified Decisioning product and our Demand Manager offering. Lastly, playing a leading role in transforming the landscape of targeted advertising and creating value for our clients with broad-reaching identity solutions. Before turning the call over to David, I wanted to provide a contract update for a very strategic CTV and market-leading client, Disney. It is well known that we've been serving as their SSP partner and that we've had a strong CTV relationship through Hulu dating back several years.
We are pleased to announce that we have renewed our contract for an additional 18 months. In addition, we are excited to announce we'll be expanding our relationship by powering programmatic transactions across the wider umbrella of premium Disney, such as ESPN, ABC, among others, as part of their Disney D|XP or cross-platform offerings. As we continue to expand on opportunities within Hulu's platform and their many content partners, we will now also work across and directly with these additional Disney properties. This is a true omni-channel partnership and our relationship is stronger than it has ever been. We look forward to continued innovation and growth as we work closely with our partners at Disney. With that, I will hand things over to David, who will go into greater detail regarding financial performance and expectations. David?
Thanks, Michael. As Michael described, we're pleased to report improvements and strength in our top and bottom line performance as we continue our recovery from COVID-driven challenges in 2020. For the full year 2020, we delivered $221.6 million in revenue, a 42% increase over the prior year. Including Telaria revenue for Q1 2020, pro forma revenue would have been $236.7 million. For the full year, we generated $43.1 million in positive adjusted EBITDA, a $17.4 million improvement over 2019. As Michael mentioned, Q4 2020 revenue of $82 million represented a year-over-year increase in as-reported revenue of 69% and was up 20% on a pro forma basis. The revenue recovery was greater than originally expected and was broad-based across channels and formats, led by CTV pro forma growth at 53% and OLV pro forma growth of 35%, with OLV driven from both new business wins and Q4 political spend.
Q4 revenue was also supported by an unseasonably stronger than expected last 10 days of the quarter, where we have typically experienced greater revenue drop-offs than this year. Q4 revenue for mobile increased 24% and desktop grew 3% on a pro forma basis, with mobile growth driven by mobile app and OLV. Our revenue mix for Q4 2020 was 19% CTV, 48% mobile, and 33% desktop. For the year, total pro forma video revenue, including CTV, was $106 million, or approximately 45% of total pro forma revenue. Demand Manager revenue for the year came in slightly below $4 million. We continue to see more inventory through the product and a focus on larger publisher penetration, where we continue to see adoption by leading publishers. We previously provided specific ad spend and take rate amounts on an annual basis.
Given the growing complexity inherent in our ad spend, which would double count ad spend related to Demand Manager, Unified Decisioning for CTV and other initiatives. Importantly, given the significant and growing competitive sensitivity related to our take rates, we will not be providing specific ad spend and take rate figures going forward. From a qualitative perspective, however, take rates remain stable. Operating expenses, which in our case includes cost of revenue for the fourth quarter of 2020, were $74 million versus $47.5 million in the same period a year ago. Increases were primarily driven by the inclusion of Telaria operating expenses and some relative increases in cost of revenue due to increased amortization resulting from the Telaria merger and from the increasing cloud costs.
On an adjusted EBITDA basis, operating expenses including cost of revenue for the fourth quarter, were $52 million as compared to $33.2 million in Q4 2019, also driven primarily by the addition of the costs resulting from the Telaria merger. Our GAAP-based gross margin for the fourth quarter was 74%, up from 66% in Q3 2020, and also up slightly from 73% in Q4 2019 on an as-reported basis. Net income was $5.9 million in the fourth quarter of 2020 as compared to net income of $1.5 million in the fourth quarter of 2019. Adjusted EBITDA was positive $30 million, resulting in a margin of 37%, higher than originally expected, primarily due to strong revenue growth. The strong incremental flow-through of revenue to adjusted EBITDA continues to demonstrate the leverage we have in our financial model from incremental revenue growth.
GAAP income per share was $0.05 for the fourth quarter of 2020, compared to GAAP income per share of $0.03 in the same period in 2019. Non-GAAP income per share in the fourth quarter of 2020 was $0.19, compared to non-GAAP income per share of $0.17 reported for the same period in 2019. There were 112.7 million weighted average basic shares and 124.4 million diluted shares outstanding for the fourth quarter of 2020. The increase in diluted shares is directly attributable to more in-the-money options driven by the increase in our share price. Capital expenditures, including both purchases of property and equipment and capitalized internal use software development costs, were $9.3 million for the fourth quarter of 2020, resulting in a total of $24.5 million for the full year, in line with our guidance from last quarter. We had strong free cash flow in Q4.
Free cash flow was $20.7 million in the quarter, which we define as adjusted EBITDA plus CapEx. We closed the year with $118 million in cash, up $14 million from the $104 million balance at the end of Q3. The cash increase was driven primarily by the positive free cash flow of $20.7 million for the quarter, plus the inflow of $10 million of stock option proceeds, and offset by working capital changes. As a reminder, our cash balances can swing disproportionately both up and down compared to the run rate of our business since we collect and pay the gross amount of flow-through to our sellers while we record revenue on a net basis.
As Michael mentioned, we are thrilled with the pending acquisition of SpotX, which we believe, combined with our current industry-leading team and technology, will create important scale for us as we compete for advertising spend and significantly accelerate our CTV footprint, growth, and opportunity. I wanted to highlight both SpotX standalone as well as Magnite's combined metrics that would illustrate our potential future scale following the successful completion of our acquisition of SpotX, which we expect to occur in Q2, pending customary legal and regulatory requirements. Note that the following amounts are based on preliminary and unaudited results from SpotX. Note also that because SpotX reports a portion of their business on a gross revenue basis, I will use non-GAAP net revenue to represent combined results on an apples-to-apples basis. All of SpotX's revenue is in video, CTV, and OLV.
On a standalone basis for 2020, SpotX generated $160 million in non-GAAP net revenue, of which $67 million was CTV. Total non-GAAP net revenue year-over-year growth of over 25%, CTV non-GAAP net revenue year-over-year growth of over 40%, OLV non-GAAP net revenue year-over-year growth of high single digits, adjusted EBITDA of $35 million, for an adjusted EBITDA margin of just over 30% based on non-GAAP net revenue, and SpotX has about 440 employees with almost half in engineering, product, and technology. Combining Q4 2020 Magnite and SpotX on a pro forma basis, CTV and OLV non-GAAP net revenue would have represented approximately 67% of total combined non-GAAP pro forma net revenue. CTV non-GAAP pro forma net revenue would have nearly tripled to $42 million versus Magnite standalone, or approximately 34% of non-GAAP pro forma net revenue. The OLV business would have represented approximately 33% of non-GAAP pro forma net revenue.
Combined pro forma adjusted EBITDA for the full year 2020 would have been approximately $76 million, for a margin of approximately 22% prior to the application of any potential cost synergies. This includes adjusted EBITDA of negative $2.4 million for Telaria in Q1 2020. Note that we are currently targeting an excess of $35 million in run rate operating cost synergies, with more than half of the synergies targeted to be realized within the first year of combined operations. The SpotX acquisition consideration would've been valued at $1.17 billion based on the value of Magnite stock on the date of signing, comprised of $560 million in cash and 14 million shares issued to the RTL Group. This represents a roughly 10X multiple on SpotX's 2020 non-GAAP net revenue. Goldman Sachs has provided committed financing for the transaction.
I will now share some indications for our first quarter, which I will remind you, of course, does not include SpotX, as it is expected to close in the second quarter. We expect revenue for the first quarter to be in the range of $58 million-$62 million. We expect CTV to continue a strong year-over-year growth rate. We expect Demand Manager revenue to roughly double to $8 million in 2021. We expect that adjusted EBITDA operating expenses in Q1, including cost of revenue, will be $51 million-$53 million. We expect the CapEx for the full year 2021 to be roughly $25 million. Shifting now to our long-term financial targets. We continue to target long-term annual top-line revenue growth above 20%, with an upward bias as the broader advertising market more fully recovers from COVID and post-closing of the SpotX acquisition.
We are raising our long-term adjusted EBITDA margin targets to 30%-35%, pending our successful acquisition of SpotX, to reflect the higher margins from SpotX, including achievement of related synergy targets and overall scale and efficiency improvements in our operating leverage. We are very pleased with our performance this quarter as the clear leading independent omni-channel SSP, particularly with our CTV and OLV growth rates and with our margin improvements. We look forward to closing the SpotX acquisition and benefiting from the potential accelerated growth rates and margins. With that, let's open the line for Q&A.
Thank you. We will now begin the question-and-answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question will be from Laura Martin with Needham. Please go ahead.
Hi, guys. Can you hear me okay?
We sure can. Hey, Laura.
Hi there. Really great numbers, you guys. Michael, let's talk about chess playing, which you're doing an awesome job, master chess player here. What acquisitions do you need next? What holes do you want to fill? What should we expect from you, the big picture master chess player over the next 12 months? Then secondly, maybe for David, when we bought Telaria, when you guys bought When Liberty bought Telaria, merged with Telaria, my recollection was that our OLV, this non-CTV video revenue, actually had negative growth. In the fourth quarter, you just reported 35% growth. Does that mean that's fixed, and when we buy SpotX, we should be able to accelerate the non-CTV revenue growth? Thanks, guys.
Thank you, Laura. I'll take the top one, and David, you can grab the second question. No, listen, I think that with Telaria closing Q4 of last year, and fingers crossed, SpotX sometime around there, I think we have our hands full, and we have all the pieces we need. We're going to integrate the heck out of it. We've got a great senior leadership team here. SpotX has extremely talented team there. Mesh the two teams together, go to team as one market, and I really truly believe if there's anything else that's gonna occur in the M&A area, it'll be rounding out the edges. It won't be a kind of swing for the fence like you've seen in the last two acquisitions.
On the OLV, yeah, Laura, really pleased with that performance. Nothing's ever truly 100% fixed in this business, so I don't want to jinx us. We're really pleased. As we mentioned, last quarter, our OLV had grown, turned positive, had grown 3%, we felt like we had stabilized the patient, as it were. We think we're ahead of schedule in bringing those businesses together and having positive momentum going forward. We think we're in really good shape.
Thanks very much. Congratulations on the Hulu-Disney extension. Thanks.
Thanks, Laura.
The next question will be from Jason Kreyer with Craig-Hallum. Please go ahead.
Hey, guys. Congrats on the quarter and SpotX. Michael, want to start out on connected TV. Obviously, one thing we've talked about, there's this opportunity where ad spend has really yet to catch up to consumer behavior, which has already moved over towards streaming. Just wanted to get your take. What triggers that catch-up? With the combination of Magnite and SpotX, how do you think you guys can help the industry accelerate that shift?
Yeah. Hey, Jason. A great question. Yeah, listen, I think in the history of advertising, especially whenever any new media comes along, boy, how long was it when online media first started, and you heard everyone grousing about, "Look at all these eyeballs over here," and magazines are still getting more money than online, and little by little, it wore away. I certainly don't see that occurring as slowly as it did or as slowly as it was perceived to have happened when you were on the online side, largely because the format is identical, right? You're talking about highly produced television ads that are running in highly produced content. It's just that the eyeballs have shifted over, and it's quite easy for marketers to shift dollars towards it. I think that some of it is ingrained practice.
Some of it is more of a committed upfront approach, where now folks are asking for more flexibility to target buckets of dollars towards programmatic. I think we, as an industry, have to get our measurement house in order, and that's more of an ecosystem thing than a Magnite thing. We have to figure out how it is that marketers who have spent the last 50 years advertising on TV and relying upon household audience numbers and gross rating points, how does that translate to CTV, and how are they able to know that they're selling boxes of Tide, right? All those things take a little bit of evolution, but it's happening with a pace that I don't think anyone thought it ever would. Some of that's the silver lining of the pandemic, where ad-supported video on demand just went up into the right.
The eyeballs are there, and generally speaking, folks follow that.
Another question just on your SPO conversations. Curious if you're having conversations today, how those conversations compare to those in the fall. What are the key drivers of the decision for an agent to consolidate their spend with Magnite? How do those conversations change when you layer in SpotX?
Yeah, another good question. If you look at the arc of SPO, and I couldn't even guess where we are in that arc, but you know we've been talking about this, Jason, for several years now. When we were Rubicon standalone, we were asked to come in to agencies and say, "Okay, we want you to be one of our top display platforms," right? We're not going to consider you for video because there's other people that do video. When we closed the Telaria merger, all of a sudden, the conversations were, "Well, why are we doing it video over here, display over here? We should be able to just have one conversation with one platform that can do both." I would say that SpotX just will further accelerate that.
It'll make us look that much more different than every other platform that's out there. I think that it puts us in a unique position from an SPO standpoint to really give the agencies the choices that they've been asking for, and that is, why am I spending all these dollars in the walled gardens, when there's no one out there that looks like them, that is scaled like them? I think we're slowly but surely answering that question for the agencies.
Okay, just the last one, kind of a point of clarification on what you talked at the end of your prepared remarks with Disney, you called that a true omni-channel partnership. I'm curious, is this inclusive of all ad formats? Wondering with that relationship, if there's any exclusivities or kind of partner of choice or anything tied to that?
Sure. It's Disney obviously being a far-reaching media empire with many, many, many media formats. The exclusivity or the preferred partner lies around the cross-platform inventory. If you were to buy inventory from the D|XP, that Disney cross-platform sale, all of that goes through Magnite. Specifically, if you were to buy Hulu only and didn't buy any of the cross-platform inventory, that too would go through Magnite. You're capable of buying ESPN without going through Magnite, but conversely, Magnite's very capable of selling ESPN inventory as well. We have access to all of it. Some of it in a preferred partnership, others is in an open market partnership, but we really do enjoy a special relationship with them, built some great software for them, and there's even more positive things in the offing.
Yeah, kudos to the team and to our Disney partners for getting this resolved because, boy, it's been a terrific last 18 months and can't wait for growing that relationship even further going forward.
Perfect. Thanks, Michael.
Thanks, Jason.
The next question will be from Shyam Patil with Susquehanna. Please go ahead.
Hey, guys. Congrats on a great 2020 and the SpotX deal and all the strategic moves you guys have made over the past two years. I had a couple of questions. I guess first one, in terms of the CTV competitive landscape from the supply side standpoint, Michael, could you just talk about how you feel about your positioning? At this point, do you think it's possible for a traditional SSP to kind of enter the CTV market? The second question is in terms of Unified Decisioning, it seems like this is something that's much needed in the industry. You talked earlier in the prepared remarks about early positive feedback from some of the beta clients, and I was just wondering if you could talk a bit more about this and just maybe elaborate a little bit on just your vision and expectations for what this could enable.
Great, Shyam. Thanks for the question. Listen, I think we feel very good about our positioning as it relates to the supply position from a CTV standpoint. I think it's silly to not acknowledge the fact that there are some very large sources of CTV supply out there that we go up against. Namely, Comcast Corporation's FreeWheel. Google has this little ad-serving company within their empire that has access to CTV, and obviously they have YouTube. You have more and more folks trying to attempt to do a walled garden approach where it's a debate short-term what value an SSP can bring to it. What I think we've done, I think with the pending acquisition of SpotX, we've clearly positioned ourselves as the leading independent CTV/omnichannel SSP. There is no one that looks like us.
As it relates to the ability for an SSP that has never done CTV to jump in, I just put myself in their shoe before we bought Telaria, and we were going through that build-buy partners scenario, and it just dawned on us that the build scenario would cost a lot of money. You'd have to hire a lot of talent, and there's a lot of risk because the market's always moving, and by the time you build your first version, the market might be onto the fourth version. We thought that a merger was the only way for us to get into it. As you look around the landscape, if I'm an SSP and I don't have CTV capabilities, I don't think building has become any more attractive.
I think if you start to look at who you could partner with or buy to get into it, there's a paucity of folks. I think unlike the display SSP world, there's an ability here to create moats that didn't exist. Again, to be clear, that moat just gets you into the game with the Comcasts and the Googles of the world. Everyone's asking for an independent company, and I think we're well on our way to being able to offer publishers and buyers that choice. You also, I'm sorry, also asked about UDI . Yeah. We're very excited about the Unified Decisioning tool. The marketplace is, again, in addition to the competitors that you have in the programmatic space, in some essence, you compete for inventory with direct sales, right?
Sometimes, as we pointed out in the call, the pricing there is less than what you could get programmatically, but the systems and the tools that are in place right now aren't easy to be able to calibrate between the two real time. That's what we're attempting to do with that product. It's early days. Publishers that are in beta are using it, enjoying it. Some of the friction to that is the adoption by the ad server, and of course, we're not an ad server, so that requires publishers willing to work with their ad-serving partner. To date, in the instances where we've been able to pull it off, unified demand has worked extraordinarily well, and I think that's kind of where you're going to see the industry going, and I think we'll take a leading effort there.
Great. Thank you, guys.
Thank you, Shyam.
The next question will be from Vasily Karasyov with Cannonball Research. Please go ahead.
Thank you. Good afternoon. A couple of questions. One about the different vertical exposures for Magnite and SpotX, if you could talk about that, not specific to connected TV at all. What would be the source of upside to your target EBITDA margin, if at all? Could you talk about it, how conservative this range is? Or is it something that you're really confident that you'll get to and there's potential upside to it?
Yeah, great, Vasily. I'll take the vertical exposure, and by that I would assume you mean ad verticals.
Yes. Correct. Sorry.
Great. Yeah. I don't think we have an exposure risk that you wouldn't necessarily see with any premium advertiser player. In other words, travel, auto, entertainment, sports, those are all significant verticals for us in terms of our total mix. We've been operating without those really going far less than full steam since the start of COVID. I don't see it as exposure risk. I see it as upside, because we really have been participating in this rebound and this growth without major participation from those categories. I think as you look at exposure, we've already weathered the exposure from those categories, you already see those built into the numbers. Obviously looking forward, as the new normal occurs, we certainly anticipate a rebound in those categories. David, did you want to hit the upside to the EBITDA?
Yeah. I guess, maybe the easiest way to approach that is from a baseline perspective, and to reiterate our new targets are at 30%-35% adjusted EBITDA margins. If you think about the impact of the SpotX acquisition, if you just take our combined results from just 2020, which is a COVID year, and if you were to add in our full achieved cost synergies, that out of the gate puts you at a 31% adjusted EBITDA gross margin. Now, of course, those cost synergies will take a little while to put in place, but at the same time, we're going to be growing and adding leverage to our adjusted EBITDA margin profile. We think that range is very achievable in the near and medium term. Longer term will obviously just depend on our pace of growth, discretionary investment decisions, engineering investments, and so forth.
Thank you very much.
You bet.
The next question will be from Kyle Evans with Stephens. Please go ahead.
Hi. Thanks for taking my questions. Michael, could you please talk about how programmatic the CTV market today and how you see that evolving over time? Specifically, if you can offer them up any kind of milestones or catalysts that we should be looking for possible inflection points. I've got some follow-ups.
Hey, Kyle. Yeah, I think what'll be interesting from a near-term standpoint is, and we've already been talking with some of the biggest marketers out there, how this year's upfronts are gonna play out, right? Typically, upfronts are a vestige or, well, they're not a vestige. They have been an efficient way for the television and cable companies to move their inventory in a condensed period of time with upfront commitments from marketers that had some flexibility but sometimes no wiggle room, and they were on the hook for the inventory. Programmatic was always kind of the spot market where it would round out the buy for the marketers throughout the year. Obviously last year with COVID, that kind of changed. The upfronts were all but canceled, and almost all the transactions were spot, which favors programmatic.
We're starting to see a hybrid this year where marketers are willing to play in the upfront world, but they're also asking for part of that upfront to be committed to programmatic as opposed to programmatic as an afterthought throughout the year. I think, Kyle, that might be an interesting signal that there's systematic change in the way that TV advertising is bought and sold, right? I think over time, as you just start to see as more and more cord-cutting occurs and you watch those numbers, as greater adoption of these ad-supported services occur, and you see the numbers from the content companies, that it's just impossible to reach the amount of folks you used to sell a car, to open a movie, to book a slate without having to advertise on CTV. It'll just become more and more the norm.
From a seller standpoint, you no longer will see programmatic as being that thing that rounds it out. Programmatic will be front and center as part of your decisioning as to how the inventory gets allocated, and you'll be doing it much more in an agnostic way.
Is it safe to say that CTV is not a very open programmatic marketplace today, first off, and then second off, how long do you think it takes for that change to come?
Good point, Kyle, the difference between open programmatic and just a programmatic or the way we refer to it is open market or OMP, open market programmatic versus PMP or a private marketplace or preferred marketplace. One is kind of the Wild West that you see in display, which is 200 buyers bidding on a piece of inventory, highest bid wins, ad gets served. That's never going to happen in CTV. The inventory's too precious. The ads are too scrutinized. The pods have rules with them that the highest bidder doesn't always win. If there's a Honda ad, Toyota can't advertise in the pod. The content producers are way too protective of their inventory and the consumer experience to have an ad that runs that does not fit with that programming or the vibe of the programming.
We do not advocate an open world. It's all gonna be private marketplace deals. They'll all go over programmatic rails, but it won't be this open bidding that you see that is developed on the display side.
Got it. Just two more quick ones. Could you kind of step back? I don't blame you guys for pulling your take rate information. That's why you gave it in the first place. Just generally speaking, kind of what your long-term thinking is on take rates and downward, what drives that?
Yeah, I think we've been consistent about that even pre-Telaria, Rubicon, pre-Magnite, and now with SpotX. We think that we celebrate $1 billion in ad spend and $2 billion in ad spend goes through the platform. We see a day not too far out where those look like small numbers and $10 billion is coming through the platform, $15 billion is coming through the platform, and there's no question that take rates will drift downwards. However, I don't view that as an investor risk. I don't view that as something that you have to account for your modeling because any decrease will be in the basis points range, and it will be more than made up by the gain in spend. In addition, particularly in CTV, we're talking very, very high value. We're talking CPMs, where in banners you can fight over a $0.20 CPM banner.
We're talking $15, $20, $40 ad spots. Any give on take rate is more than made up on the net revenue side. We don't view that as anything other than the natural maturation of a marketplace. It is of concern. From a competition standpoint, Google's been out there at 20% for, well, forever and hasn't really moved at all. We think the marketplace is pretty settled as it relates to take rate. If there's anything that decreases, it's just simply because of volume.
Great, thanks. One quick one for David. David, $30 million plus in cost synergies on a business that did $116 million last calendar year. Those are pretty eye-popping figures, and I just wondered if you could break down that figure into kind of component parts so that I understand it a little bit better. Thanks.
If you think about it, I guess a majority of that, over 50%, would come from a personnel perspective. We're bringing together two businesses. We have a lot of the same client relationships. The other components will come from combining our platforms. Our ultimate goal is to combine platforms, take the best products and features from each platform. That's not a quick process. That's a longer process. You have to be very careful. We don't want to disrupt any business along the way. When you're running, we have two data centers in each part of the world. We have a lot of duplication from a platform perspective. There's significant savings that come from that. Related to that, with our vendor relationships with the size that we're growing to, we have a lot more cloud for cloud computing and for other vendor relationships.
Thank you.
The next question will be from Matthew Thornton with Truist Securities. Please go ahead.
Hey, good afternoon. Thanks for taking the question, guys. Maybe a couple if I could. Maybe, Michael, if you talk a little bit about how do you think the average CTV relationship or what the average CTV relationship looks like over time? Really two parts to that, I guess. From a revenue model standpoint, do you think that remains a take rate model, or does it move to more of a fee-based model? I'm just kind of curious the thinking there. Just secondarily, do you think the typical CTV publisher has maybe two partners, a primary and a secondary, and you'll leave it at that? Just kind of curious your thoughts on that, on those two vectors. One for David. On CTV, you talked about continued strong growth in 1Q. I think the pro forma number was 53% in 4Q, if I'm not mistaken.
Is that a reasonable kind of bogey to think about for 1Q in any color there? Thanks, guys.
Hey, Matt. Thanks for the questions. I think that it's a great question about the revenue model for CTV and then of course, the relationship piece of it. From a revenue standpoint, there's no question we see this evolving more, as a software/take rate business, as you would see in the normal display world where it was almost exclusively take rate driven. Why is that? It's more complex. There's fewer players, there's more needs, there's more software involved, and not any great capability within the CTV players from a programming standpoint to build it themselves. I think that you're going to see, evolve over time, more of a hybrid approach where there may be a fixed fee, and then on top of that, a take rate if you're bringing demand or allowing demand to flow to the pipes. This will evolve over time.
I don't think anyone should be modeling this hybrid approach for Q4 this year. As it relates to partners, I think CTV will be much more of a monogamous world from a publisher to SSP, than you see in the display world where it kind of is to their advantage to invite 670 SSPs to compete in their header bidding to bring demand and to increase yield that way in an open market. As I had said before on a previous question, I don't see this becoming an open market world. It'll be private marketplace. When you do a private marketplace deals, you tend to do hundreds of deals and you create a deal library and buyers get used to where this deal library sits. They're generally not sprinkled around 10 SSP players.
They're sprinkled around one or two because there's just no advantage to it because they're not open market. The pricing has already been agreed upon. You're just transacting through pipes. Keeping the deal libraries with one or two players is what's occurring today, and I believe is what you're going to see long term. I don't see this evolving to 25 SSPs like you would see in the display world.
Great. From a CTV growth perspective, we're not providing point specific guidance. Last quarter we used I think the same terminology, continued strong growth. We're not going to refine it more specifically, but obviously that means we expect similar momentum to what we've seen the last couple of quarters.
Sorry, but m aybe I can sneak one more and then maybe for Michael. Michael, away from CTV, I think for several years now, consolidation amongst the traditional SSPs has maybe never really made sense when you mull about. One plus one didn't get you to two or better. I'm just curious if we're getting to a point in the industry from a consolidation standpoint where that is starting to change at all, or is that view unchanged?
Well, it's funny. To answer your question, yes, it definitely has changed. All you'd have to do is ask The Trade Desk how many platforms do they buy from on the display side, and it's less than it was two years ago, and next year will be probably less than it was this year. It's not going to get to one. It could get below 10, but even then, there's so many nuanced SSPs out there that only do this, that only do that. Where do we want to compete? We want to be that independent omni-channel with a focus on CTV, and we believe that that separates us distinctly from the rest of the SSPs. I think what we're seeing is validation of that from the agency side.
You see things like Havas, you see deals like Omnicom, that's where you're starting to see some of the real SPO moves play out. That is agencies deciding where their dollars run over what pipes. That will have quite an effect on narrowing the number of competitive SSPs. I think we're very well positioned there, not just because of the announcements we made and some to come, but well positioned there because of the resources that we have. That becomes a software business as well, right? Building out a private marketplace for Havas or for Omnicom is not for the faint of heart as it relates to technological resources, engineering resources, product resources. I think that combining our teams, SpotX and Magnite, you now have well over 250 engineering product folks.
We really do think we are extraordinarily well positioned as you start to look to kind of a software first world, if that makes sense.
Great. Very helpful. Appreciate it, guys.
Thanks, Matt.
Ladies and gentlemen, this concludes our question and answer session. I would like to turn the conference back over to Michael Barrett for any closing remarks.
Thanks so much. We are really pleased to put up a strong Q4 and continue to more strongly participate in the fastest growth areas of the market, CTV and OLV. Since December 2019, we have gone from an SSP without a CTV presence to becoming the clear independent market leader in both CTV and OLV with two-thirds of our revenue post-closing of the SpotX deal coming from video. I could not be more proud of the efforts of all of our employees in these challenging circumstances. There's still a lot of work ahead to support our clients, grow the business, and on the integration front. I feel more bullish than ever about the future of Magnite. Thank you all for joining us for our Q4 results call.
We look forward to talking to many of you through virtual investor meetings and conferences hosted by Stephens, Truist, and SIG or Susquehanna in the next three weeks. Have a good evening. Thank you again.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.