Right, why don't we go ahead and get started? Thanks again for joining us this year at the Raymond James TMT and Consumer Conference. I'm Andrew Marok, and I cover advertising technology and digital media here at RJ, and we're thrilled to have with us Michael Barrett and David Day, the CEO and CFO of Magnite. Thanks for joining us.
Thanks, Andrew.
Thank you.
We'll kick it off with kind of the standard question for those who maybe aren't as familiar with the Magnite story. Can you kind of give a quick overview of the company and where you sit within the digital advertising ecosystem?
Yeah, sure. So we're what is referred to as a sell-side platform. And we have been described as the leading independent sell-side platform. Independence, in our definition, would be somebody who doesn't own media, so not competing with our publishers, and someone that doesn't own ad dollars. And so we run this independent platform for our publishers. They are our clients. So the world's largest digital publishers, whether it's Hulu or New York Times or Spotify, all work with us. And we help them take their digital ad inventory, bring it to market on our platform, and help them monetize that. And DSPs buy from us. Those are the counterparties on the other side of the marketplace.
Great. I think we've gotten a lot of interest from investors, especially over the last couple of weeks and months on the macro picture. Kind of had some inconsistent feedback from some of the companies in our coverage coming out of the Q3 cycle. Is that still the case that we're kind of seeing up and down? Or I guess, how would you categorize it from your seat where we're sitting right now?
Yeah. I mean, we don't formally update guidance, per se, from earnings call, obviously. But when we spoke about what we're seeing in October, we saw some vertical softness in a couple of areas. It was a little different than Q3. And so, for example, technology had been somewhat of a strength in Q3. We saw a little bit of softness in October. Home and garden was also kind of soft. It has a little more kind of discretionary income in both those categories, actually. Automotive was soft in Q3 and just a little softer in October. But everything else is fairly stable. And so that led us to a little bit of a more conservative guide, I'd say, in Q4. All that said, we all read the same things regarding macro since then. And nothing's cratered, but also nothing's sort of taken off either.
So kind of more of the same, I think.
And then maybe on that broader topic, I mean, I've been interested in kind of exploring this question with a few of our management teams. What are you kind of seeing in terms of behavioral changes from advertisers and publishers post the Liberation Day tariffs and walkbacks and some of the more turbulent, maybe, geopolitics we've been seeing recently? Is that having an effect on how advertisers are planning, what types of media they're buying, et cetera, et cetera?
Yeah. I mean, I think certainly Liberation Day was kind of the nadir in terms of expectation of spend or any kind of crystal ball. And we actually happened to have been at a conference then, and we were meeting with the CMO of Walmart. And boy, the story that he walked you through, if all the tariffs were to hit and they could swallow it and not pass it to the consumer, but on June 1, it gets passed to the consumer, and that'll add 10 inflation points to the U.S. because for everyone that Walmart goes up. And so it was just like, and then the upfronts were beginning. And so when the dust all settled and it appeared that all the tariffs weren't going to be enacted and the upfronts commenced and then settled, they were surprisingly strong.
I think the sellers, the big streamers, the big linear broadcasters were kind of price takers. But the volume was higher than I think both the advertisers expected going in. And why are upfronts important? They're kind of a future spend, right? It's a commitment to spend dollars in the future, typically speaking, when the new shows come online in the fall. And so that showed some sign of confidence among CMOs and marketers that maybe it wasn't going to be as horrible. And I think that's kind of played out. I think it's better than feared. As David pointed out, there's ups and downs in certain verticals, certainly not firing on all cylinders. But I think we look back on this year and kind of.
Wipe the brow a little bit.
Yeah.
It's even worse.
Dodged one there.
Yeah. It's a good point. And then, David, I think maybe while we're on the topic of Q3 and what you were talking about and seeing since then, I wanted to bring up quickly the DSP-related headwinds that you had called out and some of your peers had called out as well. I guess, what's the latest on that situation? Because we've heard from a couple that maybe it's getting a little bit better.
Yeah. And I think it was we had it somewhat ring-fenced to begin with. And so Trade Desk has a platform. They use Kokai, and they had some default settings so that and they're transitioning from an older platform. And some of those default settings were leaned more towards utilizing their OpenPath versus and sort of lumped all SSPs into the same category, sort of threw the baby out with the bathwater, so to speak. And those buyers on the Kokai system had this default, and it created some disruption. And that default setting was kind of late September and into October. What we've seen is that important buyers have all reversed the settings that they need to have. Trade Desk mentioned that they're, I think, 85% through their Kokai transition. And so we kind of have ring-fenced the impact to us.
We pegged it at we had a couple of other factors, including the macro, that created a, call it a $4 million kind of maybe lower than expectation challenge. We estimate that the Trade Desk issue was maybe a third of that, so $1 million and change. Yeah, we haven't, again, not formally updating guidance since our earnings call. The floor hasn't fallen out of things. We're relatively comfortable that it's a blip and not an existential crisis.
And then maybe zooming out a little bit from this specific issue, but a big topic of conversation among investors has been kind of this blurring of the lines between the buy side and the supply side, with The Trade Desk moving into the supply side in some fashion and SSPs responding in turn. I guess, overall, how has this dynamic been an impact on Magnite? And how are you carving out your value proposition?
Yeah. I mean, certainly much is written and said about this, and I can appreciate how it can get confusing and alarming all in the same. I do think it's understated some of the traction that we've gotten on the buy side, but I think much along the same lines as The Trade Desk pledging that they're not an SSP, we're certainly not a DSP either, but there are dollars that aren't in The Trade Desk's coffers that want to find their way in an easy, low-fee way into the streaming ecosystem, into the programmatic ecosystem, and they implored us to build a solution for that, and so we will process hundreds of millions of dollars through our product ClearLine, just like OpenPath will have a fair amount. Sometimes we will benefit from that OpenPath revenue, particularly in the CTV, where we'll enjoy the economics of it.
Other times, we will in an open web DV+ world. So even that can get a little confusing. But I think one thing that hasn't changed is, although from an industrial logic, you might look at it and say, boy, it's awfully complicated. Look at all those hops. There should just be one pipe, one vendor servicing both the advertiser, buyer, and the seller/publisher. And if you ask the publisher, that's not what they want. And if you ask the advertiser, that's not what they want. So the inevitable conclusion isn't that unless those two customers change their minds. But I know our publisher clients value our independence and value the fact that when we bring their inventory into a transparent, well-run marketplace, we are still looking on their behalf, making sure that they're getting the highest possible return.
Understood. And thank you for the clarification. Last kind of industry or macro question before we dive deeply into the Magnite story specifically. But with the Google AdTech trial remedies arguments now wrapping up, all that's left is the decision. We're, I think, expecting early 2026. So what do you think is the likely outcome or range of outcomes? And how would the different outcomes affect Magnite?
It seems that the overwhelming majority of experts that have been following the trial feel and have felt for a while that behavioral remedies are going to be issued from the bench. That is by no means a bad turn of events for us. We've always been steadfast that behavioral, all structural, as long as you make the auction fair, we'll be able to benefit from it, and behavioral has the benefit of being kicked in immediately, where structural is going to be appealed over and over, so we feel very good about the direction it's headed in, very good about our ability to participate in helping shape the decision, and I think you are right. Most people feel as though that ruling will come down in Q1 time frame.
We feel very bullish, and it'll be enough substance to it that it will have an impact on the fairness and equitable nature of Google's auctions, and we'll be able to benefit from that.
You think it can be a benefit for all of the independent SSPs?
No question. Yeah. I mean, I would say that what we're seeing is a separation in terms of the leadership in the SSP category. There still are quite a few players that aren't providing a tremendous amount of value that's still siphoned off. I don't view them as being winners. I think the ship has sailed on that. But someone like a PubMatic or an Index, folks that have a big publisher business and call on clients, and they're just not arbitrage folks, I think we benefit from that collectively. Yeah.
Great. So let's maybe talk about Magnite specifically then in that case. Let's talk about CTV first off. Continuing to grow nicely. On the supply side, you've noted the Netflix relationship, Amazon scaling. I guess, what corners or platforms in the CTV market are you most excited about heading into 2026?
Yeah. I mean, we're very fortunate enough to have a relationship with every major player and a direct relationship. And the vast majority use our server, our SpringServe ad server, whether as their primary server or as their programmatic ad server that would then talk to their primary server, which is, in most cases, FreeWheel. So we feel as though we are plugged into everywhere buyers want to be plugged into and everywhere consumers are. So I think the big growth for us next year will just be kind of same-store sales in terms of the greater adoption of ad tier levels by the consumer creates more inventory. The greater adoption of programmatic by buyers creates more programmatic opportunities as opposed to direct sold. And lastly, the globalization. As Netflix partners, we've been fortunate enough to go to all the global markets that they were expanded to.
The same holds true with Disney. The same holds true with Paramount. The same holds true with Warner Bros. And so you're now starting to see a big growth of international viewers that hadn't existed a year ago. And the knock-on effect is when they crash a market, it roils the local market. And so you'll see a flurry of announcements. We've already talked about TF1 in France, ITV in the U.K. You'll see a flurry of announcements where all of a sudden, these guys have to get programmatic capabilities because now they're competing against folks they've never competed against. And so international is going to be a big part of our story.
That makes a lot of sense. And that's a good point on the international opportunity. You touched on SpringServe there really quickly. And we talked about ClearLine or hinted at it in the past. But on those unique capabilities, how are they helping you win spend as the ad tech ecosystem continues to evolve?
Yeah. I mean, look at we talked a little bit about how if you pair an ad server with an exchange and you do it the right way, there is a kind of unfair advantage in terms of the data that you have and the stickiness that you have with the client. And so in the case where SpringServe is used by all the major streamers, it really does enable us to be a better programmatic partner. The intelligence you get from the ad server, I mean, silly examples like ads are podded. And the rules are if Budweiser's advertising in the pod, Coors Light can't. You don't know that if you're a blind programmatic serving into a pod, you're just like, "I don't understand why I didn't win the bid." If you have all the information at your hands, you're able to say, "No, no, no.
Serve GM, not Coors Light." So just silly examples like that, but the key about it is you'll hear time and time again, it is really sticky, the ad server. Really, the switching pain is quite high, and it allows us to offer something that's quite differentiated than our competitors in this CTV landscape.
Having a view of, for instance, the individual ad pods, does that give you incremental opportunity for things like upsell on the first ad unit within a pod or things like that?
Yeah. I mean, you know the rules. You can set the rules, work closely with your publishing partner. But even more importantly, it helps you with things like live. So live is a genre all in and of itself. Obviously, it's the most valuable inventory out there. Every streaming platform has live as part of it, mostly through the lens of sports. And it's quickly becoming programmatic viable. But the DSPs and the way the open web works isn't exactly the way live works. And it's also incredibly valuable inventory. You don't want to be screwing up ad insertion on an NFL game. And so it really takes a tremendous amount of coordination on the sell side to make the buy side work. And it's essential that you have an ad server in that equation.
So it gives us an incredible opportunity to be a primary monetizer of the live inventory that's coming to market.
That makes a lot of sense. And then I don't want to forget about this. We need to talk about retail media. That business came in for some praise on the latest quarterly call. Maybe seeing a little bit of cooling in the space as it matures or kind of runs into some of the problems that other formats have as they've scaled. And I'm sure the industry will figure them out over time. How do you see retail media evolving either on an industry basis or on a Magnite-specific basis into 2026?
Yeah. I do think there was this exuberance about it that hasn't evaporated, but I would say that it's become more pragmatic. The idea that I'm going to make this up, and hopefully, they're not a client, but True Value Hardware could create their own retail media network and compete with Walmart, right? I mean, it just became a little absurd that everyone was creating their own retail media network thinking that buyers would be beating a path to their door. Where we've really focused on is kind of a notch up, and it's in the same it's actually a larger umbrella. We like to refer to it as commerce media. So retail media being very SKU-focused, shelf-focused, big box, and we work with Best Buy.
But if you look at certain clients like a Pinterest, who has all this purchase data and shopping behavior data but doesn't necessarily have a store, it's very commerce media oriented. And they chose to work with us exclusively to help them there. And then you look at an example like United Airlines, where they have multiple opportunities to hit you in a vast amount of data from their loyalty program. So seatback screens, gate screens, mobile app. And so those are the kinds of guys where I think we're finding a lot of traction with. So they're either very new to the advertising business, and it'll take a while to ramp, or like a Pinterest, steeped in the advertising business but have never taken in programmatic dollars before or chased Pinterest users off the app. So yeah, it's a very bright spot for us.
I think it's a testament to not just for us, but for sell-side players. Because three years ago, as you well know, the way to prop up a retail media network was to take your data and drop it in a DSP. And then you had to force the marketer to use that DSP because that's where your data was. Now they're all saying, "Wait a second. We should rethink this. Let's keep the data here, closer to home. Use any DSP you want. And I'll be able to federate the inventory through this path." So I think it's a big win in a realization of the strategic nature of sell-side platforms going forward.
Makes sense. And now, of course, we're at the tech conference, so we have to talk about AI. You have a lot going on with AI, both in terms of applications, infrastructure, I'm sure internal processes, and things like that. So if you could kind of just, I'll give you carte blanche to talk about AI, possibly in the context of things like Ad CP or Agentic Commerce. But whatever you feel investors should focus on most acutely when it comes to AI.
Yeah. I think there's a keen excitement about it in our world, usually from the participants in the world. So if I'm someone that has to toggle between a PubMatic platform, a Magnite platform, et cetera, that's a lot of interfaces I have to go through. That's a lot. Isn't there an easier way to bring it all together, make it easy, make it natural language so I can optimize? And so I think that there's a real excitement about what that can mean for buyers of programmatic inventory, what it can mean for sellers of programmatic inventory. And it takes a lot of different shapes. And you talked about Ad CP, and there's others. But the only thing that should give relief to investors is that all of this is just kind of a UI that sits on top of an incredibly complex and expensive transaction system.
And that exists today. And even if you were able to get private equity capital and they gave you $1 billion, you couldn't come close to building what I have today. So you can build all the agents you want, and you can build the top layer. But at the end of the day, if I'm buying inventory, I need to know it's from Disney. Disney needs to know it's General Motors. They need to have a processing path where the ad comes, where the money comes. Someone has to collect the money. Someone has to disperse the money. So that whole infrastructure in any one of those plans that are being presented right now still exists. And so I think it only strengthens the leadership position that we have, not weaken it. And obviously, we're doing things on our own from a proprietary AI standpoint.
But we are also very cognizant that we're not going to satisfy the world's demand need for AI tools. But as long as they all are able to plug into our infrastructure, that will be where the win is for us.
And then maybe speaking about AI, would love to talk about your recent acquisition of Streamr.ai. What made them a particularly attractive target? And given your track record of success with acquisitions like SpotX and SpringServe, how does Streamr add to the platform's overall value prop?
Yeah. I think it really punches above its weight. I don't think we've ever disclosed the price. But it certainly wasn't along the lines of a SpotX or a Telaria. One of the trends that is very interesting, and I see Mountain presenting in this room, and they're doing a superb job at it. And that is attracting ad dollars to the streaming world that have never existed before. Most of the conversations we've had to date has been about catching linear dollars, the 500 national leading advertisers, and making sure it falls to streaming. This is all about TAM expansion. It's about bringing in Instagram advertisers. It's about bringing in TikTok advertisers. They already are video savvy. Let's bring them into streaming. The price points of streaming come down where there's efficacy there for performance advertisers. But there were still some big roadblocks, like creative, for instance.
How do I take that creative and make it that? Tracking, performance, attribution, metrics, all of that kind of stuff, ease of access to inventory. Streamer provides all that. Now, we're not going to be chasing the S&B themselves. A great example of that is we give these tools to our publishing partners. So someone like ITV, which is the largest commercial broadcaster in the UK. If you go to ITV to buy directly from them, where they're interfaced for the front end. You can come in your local store. You type in your URL. You type in your address. Instantly creates you a 30-second commercial. Press go, put a credit card down. Our role is to go to merchant wholesalers or to our publishers and now give this part of our tools a suite of tools. We're super excited about it.
Yeah, I encourage anyone to go to Streamr.ai. You can just make your own commercial in 15 seconds. It's amazing.
No second E in Streamr. It's an MR.
There you go.
For those on the webcast. David, haven't forgotten you down here. So maybe let's hit a couple of questions on the financial profile. First, on the gross margin side, you've dialed up your CapEx investments recently. So can you talk about the implications to EBITDA with the new capacity and impact on cost to serve?
Yeah. So we kind of turbocharged our investment this year. One of the really interesting dynamics we have are two components of our business, the CTV and then DV+, which is display, video, at-home audio, kind of everything else, kitchen sink. And DV+ has always run on-prem. So we own our own machines, our own space and data centers. And we're really, really good at low-cost management of the DV+ business. We see 2 trillion ad requests a day. So you have to be good on the low-cost side. CTV, on the other hand, has grown up in the cloud. And the cloud is 4 or 5x more expensive than sitting on-prem. And so what we did this year is we built out two new locations on the East Coast and West Coast from a data center perspective. And we bought some additional machines.
We're in the process of moving more of our CTV business from in the cloud to on-prem to get a lower cost base. So this is really setting the stage to continue that movement to on-prem. And so what that should do is we'll see expanded margin from that over time. And in fact, we would even see more in 2026. But we're reinvesting some of those gains into some additional investments within the business.
That kind of leads to my next question on OpEx. I guess how should investors think about the prioritization and scale of some of your various investment priorities, acquisition integration, AI, things like that?
Yeah. Key investment for us is really on increasing the velocity of our CTV product and feature output. And so we've invested in some additional engineering folks to focus on live sports, some of the things that Michael talked about, ClearLine, our audience initiatives, and then AI, both integrating AI into our product that Michael also talked about, and also for our internal productivity as well. And so there's a little bit of an investment ahead of the payoff, I think, in some of those areas. And then we'll see expanding margin, particularly, I think, in 2027 when we get the payoff from the investments that we're making on the business side, but also just the margin on the tech stack costs in the CTV business.
Understood. As we're running up on time here, we have just a couple more minutes. And so I always like to end with the same question with all of our companies. And since you have two representatives up here, you get two bites at the apple. What's one thing each that you're excited about for the Magnite story in 2026 that you feel investors should pay particular attention to?
With my finance hat on, I think the possibility for us to expand our margin over time. I think the investments that we're making, the headroom that we have in our CTV business to move from on-prem, or excuse me, to the cloud to on-prem, I think opens up some really interesting possibilities for the future. Then I'll add a second and a half one more.
Cheater.
Take my time. I'll be glad to get the narrative back to CTV from the amount of time we're spending on DV+.
Largely because of the Google.
Yes.
So yeah, there are folks in this story that hadn't been in this story before for that very purpose. I would just say folks ultimately miss the durability story. It's an incredibly durable company. It's a company that spends off a ton of free cash. It's a company that has weathered existential events every other quarter because, oh, this is it. This is the big one. And then two quarters later, it's still kicking. And so I really do think that folks just don't appreciate how consistent the performance of the company has been vis-à-vis the volatility of the stock story. And so I do think that the silver lining, I think, will be this Trade Desk, OpenPath, Kokai. You can't get any more aggressive than that.
And if you're weathered that, that means that you have a value proposition that's important to the most important buyers in the globe. And I think there'll be a respect for the role that we play in the enterprise value that we bring.
Fascinating. I'm sure no shortage of developments coming over the next little bit in the industry and with Magnite specifically. But thank you for the discussion. Michael Barrett and David Day, CEO and CFO of Magnite, thanks for joining us.
Thanks, Andrew.
Thank you.