Hello everyone, and welcome to PubMatic's Q3 2021 earnings call. My name is Megan and I will be your operator today. Before I hand the call over to the PubMatic team, I'd like to go over a few housekeeping items. As a reminder, this webinar is being recorded. After the speakers' remarks, there will be a Q&A session. If you plan to ask a question, please ensure you've set your Zoom name to display your full name and firm. If you would like to ask a question during this time, please use the Raise Hand function located at the bottom of your screen. Thank you for your attendance today. I will now turn the call over to Stacie Clements of The Blueshirt Group.
Thank you, operator. Good afternoon, everyone. Thank you for joining us on PubMatic's earnings call for the Q3 ended September 30, 2021. Joining me on the call are Rajeev Goel, Co-Founder and CEO, and Steve Pantelick, CFO. Today's prepared remarks have been recorded, after which Rajeev and Steve will host live Q&A. A copy of our press release can be found on our website at investors.pubmatic.com. Before we start, I would like to remind participants that during this call, management will make forward-looking statements, including, without limitation, statements regarding our future performance, growth strategy and financial outlook. Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and our future conditions. These forward-looking statements are subject to inherent risks and uncertainties and changes in circumstances that are difficult to predict.
You can find more information about these risks, uncertainties and other factors in our reports filed from time to time with the Securities and Exchange Commission, including our most recent Form 10-K and any subsequent filings on Form 10-Q or 8-K, which are on file with the Securities and Exchange Commission and are available at investors.pubmatic.com. Additional information will also be submitted in our quarterly report on Form 10-Q for the quarter ended September 30, 2021. Our actual results may differ materially from those contemplated in the forward-looking statements. We caution you, therefore, against relying on any of these forward-looking statements. All information was correct to date as of November 9, 2021, and we do not intend and undertake no obligation to update any forward-looking statements, whether as a result of new information, future developments or otherwise, except to the degree required by law.
In addition, today's discussion will include references to certain non-GAAP financial measures. These non-GAAP measures are presented for supplemental informational purposes only and should not be considered a substitute for financial information presented in accordance with GAAP. A reconciliation of these measures to the most directly comparable GAAP measures is available in our press release. Now I will turn the call over to Rajeev.
Thank you, Stacie, and welcome everyone. For the fourth consecutive quarter, we delivered exceptional results well ahead of our expectations. As an industry-leading sell-side platform, we significantly outpaced market growth, invested for future growth and continued to fuel our profitable business model. We generated record revenue of $58.1 million or 54% organic growth over last year. We generated $13.5 million in GAAP net income or 23% margin, an increase of 117% over last year. We generated $24.3 million in adjusted EBITDA or 42% margin inclusive of growth investments. We generated a record $26.4 million in cash from operations in the quarter. There are two key market dynamics underway that are fueling our strong results.
First, just as the demand side of the ecosystem consolidated over the last five years, the sell side is actively consolidating at a rapid rate, with clear winners emerging based on innovation and value delivery to customers. Second, the market continues to grow at a rapid pace, with elevated digital ad spend expected for the foreseeable future. On the back of these trends, I'm pleased to share that our latest results mark four consecutive quarters that we have exceeded both 50% year-over-year revenue growth and 30% adjusted EBITDA margins. Before I go further, I would like to address the recent industry concerns about the impact of Apple's removal of the IDFA. This is not an industry-wide issue. iOS-based advertising is a small part of our business, mid-single digits on a % of revenue basis, so its impact at most is very limited for us.
We are a well-diversified omnichannel platform with scale in mobile web, desktop and CTV, which includes OTT as well as iOS and non-iOS app environments. Equally important, we have anticipated Apple's and other similar changes for several years and have been hard at work innovating to get ahead of them. For example, our Identity Hub and Audience Encore solutions, which bring valuable identity and first-party data to our platform, continue to scale aggressively. Over 2/3 of our revenue has alternative identifiers to the third-party cookie and Apple's IDFA in place, up from a majority of revenue at the end of Q1. At a macro level, we are a brand advertising platform first and a direct response platform second, so conversion-based attribution and associated measurement challenges are relatively less impactful for us. Finally, we have a well-diversified set of advertiser verticals on our platform.
Steve will have more detail on that later in this call. Now, moving on. As of the time of our IPO, we estimated that we had 2%-3% share of the addressable market, programmatic non-walled garden advertising, with ambitions to grow our market share by 10x in the years ahead. We do this through a land and expand approach coupled with a usage-based revenue model similar to other leading high-growth software companies. In contrast to traditional SaaS business models, when we deliver incremental value to our customers, we participate in their upside. As a result, we are growing at 2x-3x the growth rate of the market. Our strong customer alignment also drives high revenue retention rates and provides a greater level of visibility into our future revenue, giving us the confidence to raise full year 2021 expectations for the third time this year.
We now expect over 50% year-over-year revenue growth. Our usage-based model incentivizes us to continuously innovate on behalf of both publishers and buyers with the objective that they expand their activity on our platform. Buyers expand usage by concentrating a higher share of their growing digital ad budgets on our platform. Publishers expand usage by monetizing more of their ad in-inventory on our platform at higher CPMs. All of this is done via seamless self-service interfaces or APIs for publishers and buyers, which makes it easy for them to do business with us. We have spent many years building the foundational elements that support the flywheel to our usage-based model, our technology platform, our team, and set up of customers.
The more value our platform delivers, the more our customers expand their usage and the more high margin revenue we generate, enabling us to continuously reinvest in the core growth drivers across our business. Importantly, we have been profitable for many years, providing the investment dollars for us to accelerate the flywheel even further. Let me first talk about how we create value for ad buyers. Buyers are rapidly consolidating ad spend on programmatic, driven by supply path optimization or SPO, a trend we pioneered several years ago. Buyers spend more with us and expand their usage of our platform because our differentiated solutions increase their ROI. We offer workflow automation, data integrations, audience addressability solutions, and high-quality inventory, all via our global omni-channel and transparent infrastructure. The addressable market for supply path optimization is increasing.
In the Q3 alone, we entered into a record number of advertiser SPO deals. Additionally, as third-party cookies in Apple's IDFA are phased out, the value proposition we deliver to buyers drives further expansion, particularly via SPO. A significant industry transition is underway, in which the value of data is shifting from the buy side of the ecosystem to the sell side with publishers. Our unique access to first-party data via publishers, combined with our rapid innovation and long-term focus on this opportunity, is driving great results. For example, Omnicom, Germany, and Netherlands use data from our Audience Encore partner, Semasio, and applied it directly on the PubMatic platform rather than via their demand side platform. As a result, Omnicom more than tripled the reach of their campaign when compared to applying the same data in their DSP.
Further, Omnicom saw significant uplift in viewability and click-through rates as we optimized inventory supply for their needs. Results like these create sticky buyer relationships, increase ad spend on programmatic, and demonstrate how SPO creates value via increased advertiser ROI. Over the next 3-5 years, we believe every major agency and advertiser, and many of the smaller ones, will engage in supply path optimization. We are one of only a couple of sell-side platforms that meets buyers' needs, buyers' criteria for being global, omni-channel, and independent of any owned media. Our strategy with publishers is to continuously innovate and deliver more products that allow our publishers to increase the monetization of their ad inventory, whether through higher CPMs or through monetization of incremental ad impressions. We do this through a land and expand strategy, which increases our platform utilization.
This, in turn, drives unit costs down and creates a larger pool of profitable impressions for us to monetize. This approach drives our profit growth and accelerates our flywheel. A publisher's journey with PubMatic typically starts with their need to generate revenue by monetizing their digital ad inventory. As publishers generate strong revenue through PubMatic, they're incentivized to add more inventory to our platform, including additional digital properties and additional ad formats. Newer formats like CTV fuel significant growth for us and provide a path for new publisher acquisition or an expansion of addressable inventory within our existing publisher base. In the Q3, CTV revenue grew over 7x year-over-year, and our publisher count jumped to 154. CBS Local and Meredith are examples of landing in desktop and mobile app and expanding with CTV inventory.
Other publishers like Crackle and Newsy started their deployment with us in CTV and expanded into additional formats and products over time. Publishers also expand their usage of our platform through new product adoption. These products, such as Identity Hub for identity data, Audience Encore for first-party data activation, and OpenWrap for header bidding management, create very sticky publisher relationships and add continued value throughout the publisher journey. Ultimately, these factors lead to our industry-leading net dollar-based retention of 157% over the last 12 months. We believe our broad product portfolio is a strong competitive moat for our business that also improves our forward revenue visibility. Our track record indicates we are driving a distinct combination of high revenue growth and cash profitability.
Our infrastructure-driven approach to digital advertising is highly differentiated, resulting in profitability that allows us to continuously reinvest in innovation, which in turn drives increased customer usage of our platform. Our usage-based model, which is similar to some of the fastest growing software companies in the world, allows us to share in the value we create for customers and further accelerates our flywheel. The omni-channel, global, and independent nature of our platform positions us to capitalize on a large and growing addressable market, with significant runway ahead of us to grow our market share. We continue to invest aggressively in a variety of growth initiatives such as supply path optimization, audience addressability and high-growth formats like CTV, mobile and online video, as well as our owned and operated infrastructure in order to enhance our moat and grow customer usage.
Let me now turn it over to our Chief Financial Officer, Steve Pantelick, to provide additional detail.
Thank you, Rajeev, and welcome everyone. Our Q3 results were outstanding on a number of fronts. We saw significant top and bottom line organic growth. We generated material cash flow from operations, and we delivered our fourth consecutive quarter well ahead of guidance. Our strong performance is driven by our well-diversified omni-channel platform, global scale, and a robust usage-based model. These factors collectively have made our business both resilient and durable, giving us the confidence to significantly raise our full year guidance. Revenue for the Q3 was a record $58.1 million, an increase of 54%. This rapid growth was a significant acceleration on top of last year's 33% year-over-year growth. A combination of revenue over performance and cost leverage resulted in high margin profitability with net income of $13.5 million, an increase of 117% year-over-year.
Adjusted EBITDA was $24.3 million for 42% margin and 81% higher than last year. Our financial results are the byproduct of consistent long-term investment in innovation, our owned and operated infrastructure, and operational excellence. The more value we create for customers, the more they use our platform and the stickier our relationships become. Q3 was a clear demonstration of these favorable dynamics. Q3 revenue growth was strong across every region, format, and channel. As Rajeev pointed out, ad dollars in our platform are primarily associated with brand advertising budgets as opposed to direct response aspects. In addition, iOS-based advertising is a small part of our business. Quarterly, we saw minimal impact from the elimination of Apple IDFA as advertisers shifted ad dollars to other high ROI formats and channels on our platform. During Q3, more than 60,000 advertisers placed ads programmatically via our platform.
With a growing array of impressions and formats, we saw the number of advertisers who spent more than $1,000 increased by over 40%. At scale, our real-time bidded marketplace delivers multiple bids per impression for our publishers' ad inventory. If an advertiser chooses not to bid, the impact to us and the publisher is limited. Ads on our platform is well-diversified across more than 20 verticals. Spending across every vertical except live ads was up double or triple digits over Q3 2020. The top 10 ad verticals in aggregate grew over 70% year-over-year. Revenues for our mobile and omnichannel video businesses grew 64% year-over-year and represented approximately two-thirds of our total revenues in the quarter. Our CTV business, exclusive of OTT, was launched in Q3 2020 and grew more than 7x over last year.
154 publishers programmatically monetized CTV inventory in the Q3, up from 114 publishers in Q2. Total desktop business comprised of display and online video also performed strongly, with revenue up 49% over Q3 last year. Revenues related to Yahoo, formerly Verizon Media Group, across all formats and channels grew more than 40% year-over-year and represented approximately 17% of our total revenues in the Q3, down from 28% of revenue in 2019. Supply path optimization plays an important role as advertisers and agencies expand usage of our platform. In Q3, we continued to sign new SPO deals, renew existing agreements, and grow our ad spend via these deals. SPO ad spend grew over 50% in line with total company revenue in the quarter. We also continued to expand usage among existing publishers.
In concert with our land expansion strategy, we added new impressions from our publishers, driving their revenue retention. The up-sell of products like OpenWrap, Identity Hub, and Audience Encore expands our footprint and increases impressions from our publishers. In Q3, we processed nearly 24 trillion impressions, more than double the amount processed for the same period last year. We view net dollar-based retention as an important indicator of publisher satisfaction and usage of our platform. With 12 months ending Q3 2021, this metric hit a high watermark at 167%, significantly up over the comparable period a year ago. It will naturally normalize from this level once Q3 2020 results are no longer a comparison set. Our long-term strategy of owning and optimizing our infrastructure enables us to reduce our unit costs while improving customer outcomes.
Importantly, as we grow and optimize our platform, the quantity of impressions we can properly monetize continues to increase. In Q3, we successfully reduced our cost of revenue per million impressions processed by 25% year-over-year. With our focus on optimization and efficiency, we achieved a 72% gross margin, our fifth consecutive quarter above 70%. Moving on to operating expenses. In pursuit of our growth goals, we have successfully increased our global team by over 20% this year, with the majority of hires in technology and go-to-market teams. The combination of increased head count for growth, incremental public company costs, and stock-based comp resulted in operating expenses of $28 million, up 24% year-over-year. With our strong revenue growth and cost leverage, CapEx as a percent of revenue decreased 4 percentage points from last year's level.
Strong revenue growth, operational efficiencies, and ongoing benefits from investments in our business resulted in GAAP net income in the Q3 of $13.5 million or 23% of revenue, up significantly from the 16% net margin a year ago. Q3 diluted EPS was $0.24. Adjusted EBITDA in Q3 was $24.2 million, or 41% of revenue, up from 35% of revenue in the entire year. Turning to our cash flow. In Q3, we generated net cash from operating activities of $26.4 million. We ended the quarter with cash equivalents, and marketable securities of $137 million, an increase of $14.7 million from Q2. Year-to-date, we have increased our total cash by $35.8 million. Now onto our Q4 and full year 2021 guidance.
Based on our outstanding results in Q3 and the momentum so far in Q4, we are raising the full year guidance for both revenue and adjusted EBITDA. Anecdotally, we've heard that some advertisers may pull back spend in the fourth quarter due to concerns about the supply chain. While it is possible this may occur, there are several reasons to give us confidence for the remainder of the year. A significant proportion of our ad spend occurs in categories less dependent on global supply chains such as personal finance, business, and health and fitness. Our business is resilient to advertiser shifts because we operate a vetted marketplace, has an omnichannel platform with global scale and multiple growth drivers. For Q4, we expect revenue between $74 million and $76 million or 32%-35% year-over-year growth.
Keep in mind we are lapping a very strong quarter last year that benefited from one-time effects such as political ad spend. Looking at our growth on a two-year stack basis, that is adding the Q4 growth from our guidance, plus the 64% growth we achieved last year provides a clear picture of our revenue momentum. Adding this stack growth translates to 95%-99% for the full quarter, an acceleration from Q3 two-year stack rate of 87%. On the cost side, we will incur new public company costs of approximately $2 million in the Q4 . We expect our GAAP operating expenses for Q4 to increase at a similar percentage rate as Q3's. We expect our adjusted EBITDA in the fourth quarter to be between $28 million and $30 million or approximately a 40% margin.
For the full year 2021, we are raising our revenue expectations by $18 million, and now expect revenue between $225 million and $227 million, representing 51%-53% year-over-year growth. On a two-year stack basis, our full-year revenue guidance implies organic growth of approximately 83%. In line with our significant revenue increase, we are also raising our full-year adjusted EBITDA expectations by $20 million and expecting adjusted EBITDA between $86 million and $88 million or 38%-39% margin. We expect CapEx to be $27 million-$30 million for the full year. A significant amount of our past investments will be put into service over the next several months, and consequently our Q4 gross margin may be slightly below our historical Q4 margin rates due to depreciation costs that occurred from Q3 and future investment will be brought forward from 2022.
The effect will carry over through the first quarter of 2022. In terms of our ad impression growth, we now expect the total number of impressions processed in 2021 to increase by more than 80% as compared to 2020. Looking to 2022 from the revenue growth opportunities you see, we plan to aggressively hire team members and to invest in platform capacity. Additionally, we will incur incremental costs related to office reopenings and significantly higher travel and entertainment expenses as our team re-engages in person with customers around the globe. In closing, we are very pleased with our progress in the Q3, and we are even more excited about the opportunities ahead of us.
With four consecutive quarters of top line organic growth over 50%, adjusted EBITDA margins over 30%, and material cash generation, we have significant momentum going into the end of the year and into 2022. Our financial results reflect the value we deliver to our customers and the strength of our usage-based business model. The self-service ecosystem is rapidly consolidating, and PubMatic is well-positioned to benefit from these trends due to our global omni-channel scale and our own and operated infrastructure. We have a diverse set of growth drivers, both in terms of publishers and buyers, and a broad array of formats and channels. Based on these factors, we are confident we can achieve significant revenue growth and strong profits in the coming years. With that, I will turn the call over to Stacy for questions.
As a reminder, you can ask a question by raising your hand located on the dashboard or if you're on your phone, star nine. In addition to getting answers from all investors, we'll also be taking a few questions posted from the broader investment community. With that, our first question comes from Shweta Khajuria from Evercore. Please go ahead, Shweta.
Okay. Thanks, Stacy. Two questions from me, please. One is on, could you remind us what normalized retention rates could be as you lap the 2020 on a trailing 12-month basis? Then, on the same topic, could you sort of double-click on what is really driving those retention rates higher? You talked about product portfolio and expanding your portfolio. What in particular are you seeing having the biggest impact? Then a quick follow-up on SPO. Could you share this time how much SPO is as a percentage of your business?
Great. Well, nice to see you again, Shweta. Let me first start out with your points and questions around retention. One of the very important drivers of our success has been our strategy about ensuring customer success. It really starts out with making sure that we have all the solutions that publishers want. We have omni-channel solutions across all the formats that are desired by the advertisers and ecosystem. As you know, we launched SPO deals, supply path optimization deals a number of years ago, and that is bringing on incremental demand onto the platform. The cumulative effect of having the priced offerings that publishers and advertisers want, combined with supply path optimization has been helping us drive our net dollar-based retention.
Now, in terms of a normalized level, the expectation is that, you know, with the adjustment, once the Q2 2020 quarter is now the comparison set, that a normalized level would be probably in the 120%-130% range. That again is a very significant benchmark that compares favorably to many usage-based services like ourselves. In terms of the question regarding the SPO proportion, we grew SPO spend in line with our revenue growth rate. The proportion is roughly in line with our last quarter's percentage of total.
Great. Thank you, Shweta. Our next question comes from Jason Helfstein at Oppenheimer. Go ahead, Jason.
Thanks. I guess I'll ask two. I just wanna start out on the identifier. You said 2/3 of revenue on an alternative identifier. Meanwhile, Trade Desk talks about kind of record adoption of ID 2.0. Maybe this might be a little refresher, but just help us understand a bit more how the two systems work together. Steve, if I play around with math, you know, could CTV revenue be somewhere in the 15%-30% of revenue? I was trying to play around, just maybe a little help there, if I'm at least in a range. Thanks.
While Steve thinks about your second question, let me answer the first one. I think, Jason, as you know, we've been focused really for several years now on this transition away from third-party tracking, right? That's things like third-party cookies and Apple IDFA towards much better ways of delivering a relevant ad to the user where the user has a voice, right? In terms of what data gets utilized. A couple of our key products in this area are Identity Hub and Audience Encore. Identity Hub is a software product that allows publishers to manage multiple first-party identifiers. Trade Desk Unified ID 2.0 is one of those identifiers alongside LiveRamp and others. I think we're supporting now something like a dozen or more identifiers.
Another solution that we have is Audience Encore, which allows publishers who have first-party audience data, so some data they know about the consumer, like maybe they're interested in, you know, a certain type of car or they're interested in homes, to be able to use that data to sell targeted campaigns. These things together are driving that coverage rate and that's, you know, gone from 0% to now over two-thirds of the revenue on our platform, and we expect that to continue to increase over the coming quarters. That gives us a lot of confidence that, you know, we are not seeing the same challenges that others are seeing around the third-party cookie and IDFA deprecation.
I would even go further to say, as you know, as you and I have talked about, that when we have identity, we can drive much better CPMs, much more targeted ads or relevant ads for the consumer, which leads to higher rates of utilization of our platform. I think this is way better than a replacement. It's actually building the sustainable foundation for relevant advertising in the future on the open internet.
Jason, with respect to your tracking and roadmaps, you know, we do not break out CTV revenues separately from our omni-channel video and mobile business. I'll tell you that, you know, as we noted, we've seen significant growth both in the CTV component over 7x last year's level. Also when you look at the overall mobile and omni-channel video business, that's grown over 60%. The reason why we focus on sort of the broad set of offerings is that really is a core strength of our company. As an omni-channel platform, we took a very resilient business that can navigate the vagaries of the ecosystem successfully. Our focus is on consistent innovation in coming up with the formats that advertisers and publishers want.
From our perspective, it's all about the overall platform. The important step is that, you know, we are well down the path of creating a very strong CTV business alongside our very significant and rapidly growing mobile and online video business.
If I could just briefly add to that, thanks, Steve. You know, our differentiated results are not new. You know, we've been growing significantly faster than several of the major market participants for several quarters now. If you look at our 50% for four consecutive quarters on revenue, 30% on adjusted EBITDA, you know, compare that last couple of quarters to Google, to Facebook, to Pinterest, to The Trade Desk. You know, we're growing meaningfully faster. I think that's really because we are focused on building a long-term infrastructure for the future of digital advertising. By necessity, that is omni-channel. We're not overly focused on one single ad format. CTV is obviously a very significant opportunity for us and something we're innovating hard against.
We're driving these differentiated results because we are focused on a wide variety of high-growth ad formats. I think we've really positioned ourselves well there, with focus on online video, mobile apps in addition to CTV.
Our next question comes from Matt Swanson of RBC. Go ahead, Matt. Matt, I think you're on mute.
Okay. Three consecutive quarters. I'll start off by saying congratulations again. I just said it to myself on mute there. So I'll stay on the SPO bandwagon here. It's great to see another quarter of record number of deals. When we think broadly about supply optimization and benefits, it really feels like it's become more and more of a differentiation. Can you talk about what features and functionalities are really driving customers to consolidate on PubMatic? And then secondarily, I guess, with IDFA and cookie loss, does that make supply path optimization accelerate as that differentiation becomes more and more important for, you know, generating unique value?
Absolutely. Let me start with the first. You know, what are the drivers of FTO? I think there's a couple. Number one is our ability to innovate on behalf of buyers. You know, Matt, as I think you know, we pioneered FTO with a deal with an agency several years ago. We were very early, first to that trend, and then have obviously followed that up with many FTO deals since. Having an ability to innovate on behalf of buyers, which means delivering ROI for those buyers is critically important.
We have a number of different products, bid shading product, for example, log level data sharing product, which allows them to have transparency into what's happening in their digital advertising supply chain. These types of solutions are quite differentiated in driving buyers to work with us. Innovation is one. Inventory quality is another. Making sure that we have the highest levels of quality of inventory. I believe we were the first to put out a fraud free guarantee for buyers. If they ever bought, you know, through DoubleVerify or IAS or others, that they're buying fraudulent inventory on our platform, we would refund them their money so they can buy with confidence on our platform.
The other key thing I would highlight there is our omni-channel and global scale. When advertisers and agencies are executing Supply Path Optimization agreements, they want to be able to do it on a global basis, and they need to be able to do it across ad formats, and they need to reach consumers across those ad formats. When you look at all of those things, I think we're in a very unique pocket in terms of our capabilities. I think the other thing that we focus on is building custom solutions for the biggest buyers in the industry. We're able to do that because we have a diverse global engineering team, you know, based partly in Silicon Valley and partly in India.
It's very efficient for us to be able to put engineers on specific projects that are going to help a major agency or advertiser with the workflow integration or some other efficiency play that helps improve their operations. I think all of these things together are really what's helping us. I think lead the market in terms of FTO. And as I called out earlier in the prepared remarks, I think every major advertiser and agency will engage in FTO in the years ahead. We think that's a major tailwind for us in terms of consolidating and winning in the market.
Thanks, Rajeev. Our next question comes from Justin Patterson at KeyBanc. Go ahead, Justin.
Great. Thank you. Just a few if I can. First, very healthy impression growth. As we look ahead towards 2022, what do you see as the biggest drivers of further impression growth? And then where there could be potentially more investment to drive incremental gains? That's question number one. Then question number two, Jeff over at Trade Desk has talked a lot about simplifying supply chain. It's something that Trade Desk has done in the past. When you hear those comments from one of the largest DSPs, how do you think about that as an opportunity versus threat? Thank you.
Sure. Do you want to take the first one, Steve, and then I can take the second?
Yes. Nice to reconnect with you, Justin. You know, from our perspective, there are significant opportunities ahead for PubMatic. You know, for many of the reasons that we've already cited, but it's worth underscoring. You know, first, we are very well positioned in the fastest growth sectors, CTV, online video, mobile app. We're certainly benefiting from the long-term tailwind of expanded digital consumption that sort of started with the pandemic, but clearly many digital behaviors are gonna continue into the future. You know, the fact that the overall digital business is growing 20% this year, we're growing 2x to 3 that. We anticipate being able to keep gain market share in 2022 and beyond.
The combination of those factors really give us confidence to continue to aggressively invest. Our game plan is to invest in a team that is gonna drive innovation, select few go-to-market opportunities around the globe, and of course, increasing capacity to take advantage of these numerous opportunities. Because we're not dependent on one particular source. We have multiple growth drivers, and we are really seeing the benefit of being an omni-channel platform in a world where there is you know, growing fragmentation of digital consumption.
Justin, on your second question, so I did have a chance to see Jeff's comments. I would say his focus in terms of simplifying the supply chain is very much in line with our own focus. The reason is that a simpler, more efficient supply chain creates greater ROI for advertisers, which then allows them to spend more to deliver a targeted ad campaign, and that means more revenue for publishers. That's very much in line with our mission, which is to fuel the potential of internet content creators. You know, anything that drives more revenue for publishers we think is very positive.
We've been working with The Trade Desk for multiple years now on a variety of initiatives that they've been driving around how to simplify and improve the supply chain. I think ultimately this looks a lot like another form of Supply Path Optimization from a different lens, you know, coming from Trade Desk versus from an advertiser agency. I expect it to lead to further consolidation among sell-side platforms. I think, again, we'll be a beneficiary and winner, you know, in that process.
Our next question comes from James Heaney at Jefferies. Go ahead, James. I think you might be on mute, James. Okay.
Can you hear me now? Nope.
Yep.
I'm here. Sorry about that. Apologies. Your Q4 revenue guidance implies further acceleration to your stack thesis. Clearly, X-ray had a nice tailwind behind you. What would you say is the biggest driver of the upside that's leading to the magnitude of you know upside to the prior guide? Is it CTV or is there any other strength in other channels that's driving that? That was my first question.
From our perspective, we really are hitting on all of our cylinders. You know, we saw strong growth, mobile omni-channel video over 60%, CTV 7x over last year. We saw very strong desktop growth, you know, almost 50%. You know, point number one is strong momentum across the board. Point number two, this is nothing new from our perspective. You know, we've been doing this for multiple quarters. This will be our fourth consecutive quarter with 50% revenue growth or higher. And of course, with our business model, and being able to deliver a significant profit and cash flow, we never really have, you know, slowed down investments.
Right through the pandemic, we invested in teammates and capacity because we see the tremendous opportunities ahead of us. The fact that, you know, we're seeing this into the fourth quarter and beyond is really a reflection of a long-term strategy and, you know, the benefits of our focus on, you know, not just driving the top line, but the bottom line as well. The final point is really around our usage-based model. You know, the fact that we are helping our publishers be successful is a self-reinforcing flywheel effect. The more they're successful, the more they use our platform, and the more we grow the business.
We really are, you know, hitting on all the relevant factors of growth, and we're investing for the future.
Great. Thanks, Steve. Maybe another one for Rajeev. We've seen definitely a lot of consolidation happening in the ad tech space. Just curious how you guys are thinking about M&A holistically. Is there anything that's maybe been holding you back from doing acquisitions? I'm just curious if there are any areas of interest in the portfolio that you could add to.
Yeah. There's nothing I would say in particular that's holding us back. You know, I think, we've done some M&A transactions in the past, and we continue to look at the market to find the right opportunities. I think those are things that would accelerate our roadmap, you know, our product and technology build-outs in certain areas where we're very focused in innovating. It could be something that brings us publisher scale in a particular geographic market that we're not in today. It could be something in the data-related space.
I think all of those opportunities are open to us. I would say that, you know, as you can see, we have a very strong focus on organic innovation. Given our focus on owning and operating our own infrastructure and the agility that comes with it, you know, we do have a high bar, given our ability, demonstrated ability, you know, to really innovate at a very rapid rate.
Thanks, Jason.
Thanks, James.
Our next question comes from Andrew Marok with Barclays. Go ahead, Andrew.
Thanks for taking my question. You guys talked a little bit about this on the call and in the Q&A, but wanted to drill down on the growth versus margin dynamics. With the high margins and high incremental margins from the usage-based model, just how are you thinking about investments, especially on the product and R&D side? And at what point might it make sense to really lean into that to potentially drive further value for customers? And is there anything in particular that your customers have been asking for that might make sense to build out? Thank you.
From our perspective, there's really no shortage of investments that we can go after. You know, we see the benefits of investments in technology innovation, and it's something we've been doing for many years.
You know, we've owned and operated our own equipment for close to a decade. You know, we're gonna continue to do the things that have been very successful for us because we do see the benefits of that. The usage-based model you know does drive the revenue retention that we are experiencing. Our focus is gonna be on innovation, and it's gonna be focused on you know going after the biggest growth opportunities. That's doing more of what we're already doing, but also investing for the future. You know, part of that investment is related to Supply Path Optimization, as Rajeev called out. You know, we see a tremendous opportunity to help the buy-side of the ecosystem be more effective in their processes.
We have the technology team to be able to pull that off. I mean, one of the very important points of leverage that we have in our model is that the majority of our innovation is done offshore. That allows us to, for a given dollar for investment, innovate at much more faster rates, higher ROIs, so to speak. We're putting those resources to work to help the buy side of the ecosystem drive SPO deals, as well as help publishers be successful through our usage-based model innovation. That really ranges from all the new products that we've launched in the last year or two, Identity Hub, Audience Encore, and OpenWrap. This is all part of focus on innovation and driving top line growth.
The business model that we've built allows us to keep on reinvesting for the future.
Our next question comes from Andrew Boone at JMP. Go ahead, Andrew.
Hey, thanks for taking my questions. Two quicks. One for Rajeev and one for Steve. I want to see if I can make you smile like Jason did. Rajeev, first one, early in your comments, you talked about increasing your market share by 10x. If you think about kind of the next few years, you know, do you have the right products in place today to be able to do that? Or is there something that's missing from your product portfolio that you want to be able to add? I think the other thing I'm asking, is there a next wave beyond SPO that you see coming that can drive that 10x gain?
Look, we look at that 10x as a long-term goal or objective.
We're not committing to doing that in the next two years. You know, to your question, I mean, we take a multi-pronged product portfolio investment approach, right? Meaning we're investing at a rapid rate from an innovation perspective across a wide variety of areas that really are high growth within the market opportunity space. We're gonna let those things, you know, help carry us towards that objective. Supply path optimization is clearly one of those. Audience addressability is another big one.
We've been investing there for several years and continue to make large investments there, and you'll see us, you know, keep pushing in that direction along with you know, Trade Desk and other great partners in the ecosystem. We look at high-growth ad formats, as we've talked about, like mobile app, like CTV, like online video. We are not singularly focused on any single ad format. I think geographic expansion is another one. You know, we announced presence in Spain, for instance, and there's other markets that we're looking at. I think all of these, you know, create a portfolio of investments that we think, you know, over time are gonna help us get to that 10x of market share.
At the same time as the market for SSPs itself is consolidating. I think, you know, as the market grows, there's also gonna be fewer players for a variety of different reasons. You know, we're very focused on investing in all of the fast growth opportunities.
Steve, if I think about kind of the CPM, it's understood that that's a great metric for kind of an output, but with SPO fairly flat through the quarter, kind of the growth and, you know, the shift to Android, where I would assume CPMs grow up in the quarter, CTV kind of other premium ad formats may be growing faster. Can you just help us understand the down 24% year-over-year for CPMs?
Sure. Let me just unpack the question a little bit.
First, you know, I wanna just articulate the SPO business is growing, but it's far from the percentage of the total. But our business for SPO is growing nicely above 50%, and that's really an indication of how embedded it's become in our overall business. Now, with respect to CPMs, there's a very important dynamic to understand. The dynamic starts out with the confidence that we have in the number of opportunities to grow our business. That starts out with our land and expand strategy. When we're successful doing that, we get more impressions. To take advantage of that, we expand our gross impression capacity, and that's the 24 trillion number that I quoted in my comments.
We have created the opportunity to sell up to 24 trillion impressions this past quarter. In a bid marketplace, you don't actually sell all that. It depends on the dynamics of the marketplace. We sell proportion of those total gross impressions, and those get monetized and sold. In our model, we get to participate in that because it's a usage-based model. Now, with respect to CPMs, our CPMs have actually been up. The dynamic that you see between gross impressions and our revenue is really a function of just a bid marketplace and our ability to be able to drive CPMs and overall revenues, which in the Q3, as we noted, grew over 50%.
We have confidence to do that, to grow our impressions at these rates because of our long-term strategy of owning and operating our own infrastructure. This allows us to reduce unit costs. Last quarter, we reduced our year-over-year unit cost by 27%, Q3 by 25%. It's our ability to get efficiencies, expand our gross processing capacity, and then ultimately drive monetization of all those impressions is what's made us successful and really sets the foundation for our long-term success.
Great. Our next question comes from Alex Ross, Berenberg. Go ahead, Alex.
Hi, thanks for taking my question, and congrats on the quarter. I just have one with respect to the Identity Hub. At the last quarter, you had dozens of ID solutions integrated. I was just wondering if you had a plan for adding more. Are there any specific IDs that users are asking for? Or are the main ones already integrated? A second question. You mentioned increasing headcount. I know that first half of this year, you increased it by 20% or for the first 9 months of 2021. I was just wondering if you see the rate of headcount continuing to grow throughout 2022. Thank you.
Great. Hey, Alex. Why don't I take the first question and then Steve can follow up on the headcount piece. With respect to Identity Hub, you know, our goal is to integrate every, let's say, viable identity solution in the geographic markets that we participate in. The reason why geography is important is the same IDs that are, let's say, prevalent here in the U.S. are not necessarily the same ones in Europe or in Asia, right? Different countries, different regulatory environments, different sources of data. You might see different IDs come to the forefront. There's no limit really to what we can implement or support. We are constantly in dialogue with buyers on our platform as well as sellers.
We will implement any ID that you know we get a critical mass of requests for from buyers and sellers. I would expect that number to continue to increase over time. Steve, over to you.
Yes. Well, nice to speak with you, Alex. You know, from our perspective, you know, as Rajeev and I have outlined, you know, we have multiple growth drivers ahead of us. We've been able to have considerable success to date with four quarters of 50% growth or higher with profit and cash flow generation. Throughout that time, we've been investing in people and infrastructure, and we don't anticipate that slowing down.
You know, overall, the digital ad spend globally is expected to grow about 20% this year. The current projections say it'll be about 10%-12% next year. We expect to grow faster, about double that rate, in 2022. To support that growth, we're gonna keep on investing in technology teams around the globe, particularly in India, go-to-market team members, and of course, our infrastructure to keep driving our usage based model. When you factor all those things together, the revenue opportunities that we see ahead of us, a very proven robust business model that delivers bottom line results and cash, we're gonna keep on investing for the foreseeable future.
Great. Thank you.
Our next question comes from Chris Kuntarich at UBS. Go ahead, Chris.
Hey, guys. Thanks for taking the questions. Two questions from me. First, I saw the Omnicom SPO case study with your Audience Encore. That's really interesting. So can you expand on that a little bit more? And do you see that as a product, as a way to gain some market share from DSPs? And any update on how many customers are using it? I think you said you had about 30 last quarter. And then second question is how quickly are you seeing kind of CTV move more into programmatic? It seems like kind of major media players don't want to give up too much control to the machines. But do you think there's an opportunity with CTV inventory from, you know, smaller and mid-sized media players to drive that growth, for you guys in the short to medium term?
Sure. Yeah. On the first part of your question, you know, Audience Encore and Omnicom.
You know, there is a meaningful shift underway, which is we think a big tailwind for us, which is the applicability and usage of data shifting from the buy side of the ecosystem to the sell side, right? That's happening because of privacy regulations, you know, third-party cookies, IDFA, things like that going away, consumers becoming more aware of how their data is being used. That ultimately puts the publisher in the driver's seat because the publisher is the one that has the relationship with the consumer. They're able to get consent for targeted advertising from the consumer. They're able to enforce privacy regulations. We think that's a real powerful tailwind for us. That Audience Encore example, Omnicom, is just one example, right? Where we're able to triple the reach of the campaign.
The reason is that, you know, between a consumer to the publisher to SSP to DSP, you apply data on the demand side, there's just traditional hops. At each hop you have some level of cookie degradation. The number of users that then you can target drops when you get to the buy side of the ecosystem. Because we're embedded with the publisher, we're able to apply that to a much broader set of users. That's a I think that's a big opportunity for us. I commented on that earlier, that it should lead to higher levels of utilization of our infrastructure and closer partnerships with agencies and advertisers. That's a key part of what we're doing as part of our supply path optimization engagements.
When we're able to show to the buyer that when you engage in FTO with us, we can drive more ROI for your ad campaigns, and that leads to more value for the buyer. They're willing to pay more, and that leads to more revenue for the publisher. On the second part of your question, CTV. So, you know, we are big believers in a bidded approach or a bidded marketplace. The reason for that is that it's simply far more efficient and transparent for all of the participants. I think we saw, you know, some of the other players in the market just in the last quarter, where certain advertisers stepped back in more of a managed service or a kinda direct sales approach.
That creates problems because it may take months to go sell a campaign. If an advertiser steps back, now you gotta, you know, take a few more months to sell the campaign. Well, that impression is gone. In our approach, which is a fully bidded approach, there's typically a variety, a number of different bidders. Could be five, could be 10, could be 15 for each ad impression. If one buyer steps back, it's not a problem. We've got plenty of other bids for that ad impression. You know, recently at Advertising Week in New York, I think there was a lot of talk about growth of programmatic advertising for CTV. That's, you know, one of the key drivers of what's leading us to 7x growth.
Whether it's in private marketplace deals, so more private transactions or it's in open market, that's a key part of our growth strategy. We think that'll be the preponderance of how CTV transactions are executed in the future. Jenny.
Thanks, Rajeev. We have a few questions that have come in from the larger investment community as well. The first question is for you, Rajeev. It's around the concept you mentioned in your script about the power shift happening in ad tech from the demand side to the sell side. How are those identity solutions helping to shift this power dynamic?
Yeah, I think we just touched on that a little bit with Chris's question. Again, there's a real shift in where data is being applied, and we think that's a long-term tailwind for us. We're positioned here already, I think, as leaders and beneficiaries with our multi-year innovation focus on Identity Hub and Audience Encore, as well as our extensive footprint and relationships with the world's most premium publishers. Again, because of regulation, because of how consumers are more and more aware of how their data is used online, and also platform changes by the likes of, you know, Apple, Google and others, the foundation of data targeting in the industry is changing. Third-party data is going away. What's sustainable now is first-party data, which is the relationship between the consumer and the publisher.
The publisher is in a unique position to get consent from the consumer, so to capture that consented data, as well as enforce privacy regulations. We're benefiting from this in at least two ways. One is we have a usage-based model. As publishers' CPMs rise from the application of this data on their inventory, they're able to demand higher pricing from advertisers, and we benefit with our usage-based model. Second, you know, those highly innovative products like Audience Encore and Identity Hub, they put us in a position to have much stickier relationships and create more value for the publisher. Most publishers are not in a position to build those capabilities themselves. When they deploy our solutions, obviously it creates, kind of, a much stickier relationship for us.
Great. I think we have time for one more question. This person would like to better understand your infrastructure-driven approach. Aside from cost savings, what other benefits does your infrastructure provide? How is it competitive differentiator?
Yeah. Our infrastructure-driven approach creates a significant competitive moat for us, really for two reasons. Better outcomes for our customers, and it's more efficient for us, leading to higher profitability. With our own infrastructure, we're able to control all layers of the infrastructure stack. That's network, it's hardware, and it's software. That's really important in an industry that's characterized by real-time transaction processing, ads in real time, right? Also, that is very data intensive. Let me just give you two brief examples of how we generate better outcomes. By controlling the network layer, we can process transactions faster with the demand-side platforms, with the DSPs. That means we can get more bids for each auction that we run. We run hundreds of billions of auctions per day.
More bids means higher liquidity, which means higher prices for our publishers. Of course, that creates stickier relationships with our publishers. Given our usage-based model, higher revenue for us. Second, by controlling the hardware, we're able to deploy specialized hardware to speed up the transaction processing times. In a real-time auction where you have, you know, maybe 150 milliseconds to process the transaction, you're always racing against the clock to do as much analysis as you can within that 150 milliseconds to figure out the most relevant ad at the highest price. If we're able to speed up the processing time, now that means we have more time for data analysis.
We can run more algorithms, we can use a broader set of data, we can do different things to get to an optimal outcome. Again, that leads to higher prices for our publishers, which creates stickier relationships with our publishers and higher revenue for us. You can't do those things in public cloud because you don't own the network and you don't own the hardware. Clearly, as mentioned, owning our own infrastructure is far more efficient from a cost perspective once you reach a certain level of scale, which, you know, clearly we have. This is a key part of our moat because then we can take a portion of our profitability and reinvest that back into innovation, and that really drives the flywheel effect that we've talked about.
Okay. We're just about at the top of the hour, actually a minute or two over that. I'm gonna turn it back over to you, Rajeev, for closing remarks.
Great. Well, thank you everyone for joining us today. This is a very exciting time for us. You know, via our usage-based model, which is consistent with many of the fastest growing software companies in the world, we're driving a distinct combination of high revenue growth and profitability. We have a proven flywheel that allows us to invest into a wide variety of growth levers for the future, and we really couldn't be more excited about how we're positioned for the opportunities in front of us. Thank you all.
This concludes the call today. We look forward to touching base with you over the coming weeks. Have a great rest of your afternoon, everyone. Thank you.