All right, why don't we go ahead and get started. Thanks again for joining us at this year's Raymond James TMT and Consumer Conference. I'm Andrew Marok, and I cover advertising technology and digital media here at RJ, and thrilled to have with me today Steve Pantelick, the CFO of PubMatic. Steve, thanks for joining us.
Great to be here. Thank you.
Why don't we go ahead and kick it off with the 30,000 ft view? So for those who maybe aren't as familiar with PubMatic, can you tell us a little bit about the company and where you fit within the digital advertising industry?
Very happy to. So we were founded about 20 years ago. We're still led today by the technology co-founders. So we're very much product innovation focused. And we are an AI ad tech company. We are focused on delivering value to the four key partners that we have in the ecosystem: buyers, publishers, data owners, and commerce media networks. And our focus has been to build transparency, control, and now increasingly performance. And so we're very well poised to do that. We have tremendous horsepower behind innovation, scale, and we've been a pioneer throughout our life as a company. And it's probably worth me mentioning just a little bit about our partners.
Please.
Our partners, media buyers, obviously drive the decision-making. We have deep relationships with all the major agency holding companies, mid-tier agencies, the big brands, Mars, Procter & Gamble, and approximately 100 demand-side platforms across the globe. Our focus is to ensure that we are delivering on their value needs in terms of what they're trying to accomplish in their goals. We've done that from an innovative technology perspective as well as a commercial basis. The next important category, of course, are publishers. We have over approximately 2,000 publishers in our ecosystem. For example, last month we monetized on over 80,000 different apps. We have 50,000 advertisers buying every month on our publishers. We have relationships with the top 30 global streamers. We have over 90% of all of those global streamers. Very scaled, premium inventory, head-of-the-market inventory across the board.
The next category, of course, are the data owners, data partners, companies like Experian, for example. And what we've done as a business is to transform our business to be able to be the place where media buyers can activate their campaigns utilizing now up to close to 200 different data owners on our platform to be able to find the right audience at the household level. And then finally, commerce media networks, a very fast-growing area, companies like Instacart, Klarna, where these businesses have very valuable audiences and are trying to expand beyond their immediate environment. And we provide the capabilities to do both on-site and off-site monetization. And so our mission has been to bring all of these parties together. And we are now doing that in a very efficient, effective way via our AI capabilities.
Very interesting. And I'm sure we'll touch on all four of those constituencies as we run through the conversation here. But before we do, if we could kick off with a macro question.
Sure.
We kind of heard some uneven results from the companies under our coverage in 3Q, and you called out a little bit of softness in October in certain areas. From where you're sitting now, what's the latest on the macro environment, and how should investors think about the health of the ad buyer?
Sure. From our perspective, just to start out from the PubMatic viewpoint, we had a very solid third quarter. We came in well ahead of guidance on the top and the bottom line, driven by the areas where we've been investing very extensively over the last couple of years. And that momentum certainly helped us going into the fourth quarter. Just for those who are not familiar with our third quarter results, our CTV business, which is nearly 20% of our revenues, grew double digits. Our merchant revenues, which now represent about 10% of revenues, grew over 80%. So really solid momentum. So in November, at our earnings, what I comment specifically on is that there were a couple of consumer discretionary verticals that had shown some, I'd say, muted seasonality. I wouldn't say it was like a negative.
It was more typically you start to see an uptick in October, like leading into Halloween, but for a couple of those, muted, so instead of being X%, maybe a little bit less of an uptick. Now, having said all that, I also commented on there was not a widespread trend that we were seeing at the time, and so it's really think of it in terms of just a conservative viewpoint in terms of knowing and sharing what we viewed at that point, but one of the things that gave us confidence as we put our outlook forward for the fourth quarter is that we have a very diverse set of ad verticals, over 20 ad verticals across the globe, and the kinds of numbers I shared in terms of the advertisers that spend and the publishers that we have relationships with.
So, our view is that going into our fourth quarter outlook felt really confident in terms of sort of the outlook that we were sharing, and arguably, based upon the data we had at the time, conservative viewpoint.
Great. And then when you're talking about your four constituencies, I think people might be interested to hear buyers because the typical SSP value proposition has been the representative of the publishers. But we've seen, I don't know if you'd call it a collapse, but at least a blurring of the lines between the buy side and the sell side. So how has that ongoing industry dynamic affected the way that PubMatic has kind of come to market, and where do you see it playing out?
So great question because I think it really speaks to who PubMatic is today. And so when I step back and take a look at what we're doing as a company in this ecosystem, there's a couple of really exciting things that are going on. Number one, we see advertisers becoming increasingly focused on performance. And coupled with that is the focus on transparency, control, automation. And so that's exactly what we do as a business. We've been expanding our relationships and our capabilities over a number of years. And so the trend in the industry is exactly what we've been preparing for. Number two, clearly there is now a shift towards value creation on the sell side of the ecosystem. That's where data is resident. That's where privacy compliance is well addressed.
And so that is clearly here, and it's exactly where we've been positioned for 20 years, next to publishers and helping them manage and protect their most valuable asset, their consumer data. And then third is AI. And so we are well ahead of our peers in terms of AI capabilities. And that is creating some significant value creation opportunities for us that we're already taking advantage of. We started in some AI products in the presidential cycle, but this year that's really accelerated. We enhanced our AI capabilities for our buy-side focus product, Activate. And now on the publisher side, and that combination of being able to provide AI capabilities is really setting us up in a very strong position to continue to create incremental value for many years into the future. And ultimately, it's always what our customers say.
In our products that we've launched this year, the one phrase that just rings in my head is that our buyers and our publishers are saying, "These products are exceptional." From my perspective, that's exactly what we need to be doing as a company, delivering on sort of their needs and doing it in an exceptional way.
And I think you touched on a little bit there, the concept of the sell side being more important in some of the decision-making processes. So let's touch on the concept of curation or this ability for the SSPs to kind of package high-quality inventory packages for buyers to activate against. How is that concept of curation gaining adoption in the industry, and how are you capitalizing on it?
So it very much is growing. And I think one of the most valuable things that we can do is to provide a very efficient, AI-driven platform to be able to take advantage of that. So by virtue of our long-standing and deep relationships with buyers, I referenced our many agreements that we have and the relationships, bringing those buyers into an AI-driven platform and being able to expose them to these very valuable data sets that allow their, whether it be an agency or direct brand, allow them to get more performance while getting control and insights at the household level. CTV performance is a very rapidly growing area. And so from our perspective, that's just going to become an increasingly valuable source of benefit to all sides of the ecosystem because ultimately, it's really getting the action as close to the ad as possible.
And so from our perspective, we're very well poised, and we think that data is right in the heart of it. And that's why one of the important things that I'd like investors to really understand about us is that we've created a unified platform. We have not created silos where there's different you go to this part of the platform to do X and another part of the platform to do Y. You can do all that on one platform. So for example, Mars can go on and activate their campaign on our Activate product, leveraging the data, for example, from Instacart. And then right there on the platform, single hop to be able to then have control over what they're buying and then execute and see the results of that advertising.
Really interesting. And maybe one more question on this kind of theme of the relationships between some of the various players in the space. You called out recently a DSP-related headwind and seemed to suggest that the headwinds on that were easing a little bit as we got into 4Q. So what's the latest on that? And kind of if you can give us a state of play on how you're diversifying your exposure to various DSPs.
Got it. So I think the big picture for the audience who may be less familiar with the industry is that the industry has grown and scaled through the efforts by a couple of very large global buyers. You have Google, of course, The Trade Desk, Amazon, Yahoo, Xandr, etc. And so for our efforts, we've obviously grown with them, and they have become an important part of our buying ecosystem. Now, over the last couple of years, we also recognize that it's very important to start to diversify. And a really important trend has emerged, and that's the focus on performance buyers. And so what we've been doing to diversify away from the legacy DSPs is to identify those buyers and then work more closely with them to ensure that we're meeting their needs when they are delivering on behalf of their advertisers.
And so our goal for diversification has been to obviously be the best partners we can with companies like Google and Trade Desk and Yahoo, but also expand relationships with sort of what we call internally the mid-tier, where the up-and-comers, where they are growing their business at a unique set of methodologies or data sets, and then making sure that they can define all that inventory on our platform in an AI-first approach. And so it's that diversification that we've been undertaking for a number of years now. One measure of that progress I shared the last quarter was that that category of mid-tier performance-centric DSPs grew 25% on a year-over-year basis. Another really important area are commerce DSPs.
We have a very large commerce DSP that is growing double digits on our platform because they're able to bring the data onto the platform and then find the ultimate user that they're looking for. So it's not like a one sort of effort undertaking for us. It's multifaceted to do as much as we can with the legacy DSPs, but expand our footprint. Now, with respect to that one DSP that I called out the last quarter, The Trade Desk, from our perspective, we've stabilized that relationship. We are totally focused on being a great partner to them. You may have noticed that we are the first sell-side platform to do an important initiative that they're undertaking called Price Discovery. So from our perspective, we are open and expanding the appropriate efforts to work with everybody, but also expanding our business into many other areas as well.
And finally, the last big competitive concern that we've gotten from investors on the Google trial, of course. So now we're in the home stretch here looking for the remedies decision likely in early 2026. So from your seat, how are you thinking about that potential range of outcomes now that we've heard all the arguments and the scale of the potential benefits for PubMatic?
When we step back and just look at what's unfolded over the last couple of years, clearly the government brought the case and has now proven to operate a monopoly. That fact, obviously, is a really big positive because it underscores sort of the challenges that we and others have managed through over many years. Anything that's going to bring sort of a more level playing field is absolutely going to be a positive to us and others. From our perspective, obviously, what's on the table is both behavioral as well as structural remedies. It's not clear what the path might be. It might be both at this point.
But if you just take a look at the behavioral remedies as an illustration, there are things that can be done relatively quickly that don't require a lot of, let's call it, spade work to get accomplished. And the judge can certainly say, "This is what the outcome should be," whether it be a monitor, whether it be elimination of uniform pricing rules, access to data. All of those things in the grand scheme of things are de minimis efforts. And so in that respect, if the judge decides to move quickly, she can certainly move quickly, and those things can get into effect pretty efficiently. And this is just reading the tea leaves. I have no insight other than to say I understand that the judge likes to move quickly in her decision-making. She clearly understands the gravity of the case and wants to right the wrong.
We anticipate and believe that there could be some behavioral remedies in place mid-2026 or a little bit later. That's our perspective right now.
Very interesting and definitely looking forward to see how that plays out. So you've talked over the course of the conversation so far about a lot of the AI initiatives that you're undertaking, but maybe if we could focus on a couple around the agentic space. You, as a founding member of the AdCP initiative, the announcement today of the integration with Context, I guess, how are you viewing agentic as an opportunity or even broader kind of AI-enabled advertising?
It's an enormous opportunity, no question about it. And we have absolutely leaned in for a number of years. And I can confidently tell you today that we are well ahead of our peers in terms of execution, thinking, and making it happen on behalf of our customers. And so the things that we are well ahead of the game is first on the infrastructure side. So just as a level set, we have been owning and operating our own equipment for close to 15 years. And that has allowed us to be able to inject into that infrastructure the latest innovation at the pace and the context of what we think is going to have the greatest impact. So we've been collaborating with NVIDIA now for a couple of years, engineer to engineer, in terms of understanding what is possible.
And that has led to some real substantive improvements into our infrastructure. And it's not aspirational. We are closing real-time bidded auctions more quickly. Think of it as sort of ad spend that has been reclaimed. So if you, and this is for illustration, if a real-time auction would close in 500 milliseconds, leveraging NVIDIA software and hardware that is able to be closed at under 20 milliseconds. Think of the upside to any company that can do that. And we are already doing that as a business because of sort of our leading position in terms of working with sort of the thought leaders and the companies out there. Now, that's just the infrastructure side. In terms of the application efforts, we've already been developing products for some time. I referenced an AI product that we launched with our political advertising efforts last year.
Fast forward to this year, we've AI-enabled our Activate products, so fundamentally, anybody can walk up to that and execute a campaign. I think some of you might have seen some of our demos around that. On the publisher side, we've already launched this year 17 discrete agents for publishers to manage their business more effectively, quickly, impactfully, and so we are well ahead on sort of just putting agents in place, and the reality is so much of this is evolving so quickly that you just have to get your hands wet and sort of start working with the clay, and so that's what we're doing, and we're actually making material results, and then finally, to your point on sort of, I'll call it the transaction layer, we are a founding member with Yahoo, LG, Raptive, others, identifying what the standards should be in terms of agent-to-agent communication.
It's obviously important that any leader sort of take that role, but it's specifically important for us because we've demonstrated an ability to be one step ahead. Understanding how these pieces are going to come together are going to allow us to continue to develop faster and more quickly and to market than anyone else. And why is that material? It's because the level of interest that we are seeing from buyers and publishers to talk with PubMatic about our AI efforts has just gone up dramatically. And it's not aspirational. We are doing it right now.
And at some point, they'll talk to PubMatic's agent, right? But it's all fascinating stuff to see how quickly this is evolving. And the pace of innovation has been something to behold.
Yes, absolutely, and I think that's one of the reasons why we believe that NVIDIA was very comfortable collaborating with us because they saw a company that moved very quickly, open to collaboration, and then actually executing.
Yeah, great to hear, and then maybe kind of building off one of the points that you made in the course of that answer, I wanted to touch on Activate specifically, so how are you winning spend through Activate, and how are those customers kind of scaling into Activate usage?
It's growing very rapidly. I shared last quarter that revenue from our Activate business grew 100% year over year. And just for those who are maybe unfamiliar with Activate, we've created a single layer of technology where a buyer can come onto our platform and to identify the data that they want to work with, Instacart, Experian, Klarna, and then execute their campaign right there with a feedback loop that tells them how they did. And so you get sort of efficiency, you get impact in terms of results and performance, you get measurement, and it's a self-fulfilling prophecy. And so a virtuous cycle. And so from our perspective, Activate is exactly on the trajectory that we would like to see it on. I'd say incrementally in 2026, we are going to invest even more resources in terms of the go-to-market effort.
We have a great product-market fit, and we've already significantly ramped up our buyer sales team against our broad set of solutions. I shared at our last earnings call that year to date, we'd increased our headcount in that area by 20%. So we're very excited about it. It clearly delivers results. One of the things that resonates in my mind that Mars Petcare, which was an early adopter of Activate, in their words, Activate usage was a game changer for them. And so that is actually the best testimony that we have, and that's obviously getting traction.
Great, thank you. Wanted also to talk about your CTV business. So you put up some strong numbers there in recent quarters. What's enabling you to win in the crowded space here? And while we're on the topic of how you're working with most of the top 30 publishers, do you think you'll get to all of them anytime soon?
We're already working with over 90%. There's arguably one, maybe two, that we don't have access to. I would say we are super proud of what we've accomplished in CTV. We have grown this business organically. We've been doing it about four or five years. It's now just under 20% of all of our revenues. We've been growing faster than the market. In the last quarter, we grew over 50%. What's going on there? There's a whole host of things. Number one, getting more and more access to premium inventory and check the box on that. We're clearly doing that. Number two, we are finding new pockets of opportunity. We've seen great traction in live sports. We have created a live sports marketplace, and that's really resonating with buyers. We're also being innovative in terms of the formats.
We have pause ads that we recently launched. An advertiser could come through Activate and do a pause ads campaign, and then from our perspective, a next sort of leg of growth is all the AI enablement that we built around that that will continue to sort of propel the Activate product, and then I'd be remiss if I don't mention we were a pioneer in developing supply path optimization relationships direct with brands, with agencies, and a core part of those relationships are around driving, obviously, more spend on our platform, but also about driving more spend through the most vibrant products like Activate, and so that will become, and CTV combined, that will become a real driver for CTV and Activate going forward.
Got it. Thank you. I think we have time for maybe two more here. So the second to last being, over the course of the conversation here, we've talked about a number of different initiatives and product priorities and things like that. So how, from an investment lens, are you looking at the prioritization and scale of a lot of these different initiatives if there's a stack rank or kind of trying to do everything all at once?
So we are definitely not going to do everything all at once. We've always been very targeted and measured in terms of our investment approach. I can unequivocally say that in 2026, CTV is going to continue to be a very strong investment area for us. Our new products, which we've really only touched upon a little bit, our emerging revenues, Activate will be a source of investment, commerce media, and of course, all the agentic work. So we have a clear understanding of the primary areas we're going to focus on. And then areas where we continue to invest at appropriate levels, we're going to continue to do so. And we are making choices.
I had shared at the last earnings call that I don't anticipate our total company headcount to grow significantly, but we are going to put incremental resources behind these fastest growing areas like CTV, like Activate, like agentic. And we're going to do that by really allocating resources. So it's always a balanced approach for us. But what we've proven, and this is, I think, super important for investors to hear, is when we put wood behind sort of the key areas of opportunity, whether it be CTV beginning five years ago or Activate or now agentic workflows, we deliver the goods over time through our focus and execution.
There's always wood to chop. And so before we let you go, the last question I like to ask everyone as we look forward into 2026, what's one thing that you feel the investment community should be focused on that you're excited about in the PubMatic story?
So I'm going to take liberties here. I'm going to give you two things.
You're allowed.
Okay, so number one, we are very excited about sort of this head start that we have in AI. I mean, we're getting material results, and we're executing against that. And you'll see that sort of in our innovation and our revenues. Number two, following the headwind that you described with respect to Trade Desk, that's going to be in the rearview mirror. And we believe that we're going to be on track to re-accelerate growth in the second half of 2026. And so I encourage everybody to look below the level of sort of the top line and to look at what's really happening in our business.
And over 80% of our business, if you exclude the Trade Desk and Political, we're growing quite nicely. And that's the expectation that I see you'll start to see in the reported numbers in the second half. But underneath the numbers, we are making great progress across CTV, our new emerging products, and now our AI capabilities.
It all sounds great. Thank you for the discussion, Steve, CFO of PubMatic. Thanks for joining us.
Thank you for having me.