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The digital advertising industry is, in many ways, a bellwether of the American economy. It’s a direct look at how and where companies are acquiring new customers, as well as how things are going in the business world.

PubMatic (Nasdaq: PUBM) is one of the digital advertising industry’s earliest trailblazers. Founded in 2006, its mission has always been to provide a platform for PUBlishers to autoMATICally monetize their websites, podcasts, and streaming TV channels with programmatic ads. In the future, that might expand to new formats like VR headsets or even self-driving cars.

7investing recently sat down with PubMatic founder & CEO Rajeev Goel to discuss how he sees the digital ad industry evolving.

Here’s a look at the topics we discussed:

1) Industry overview (0:00): Where does digital advertising stand in 2025?

2) Competitive advantage (4:45): What are PubMatic’s structural sources of competitive advantage, especially compared to your peers?

3) The Next Big Thing (13:32) : Header bidding for CTV in 2020, then Connect in 2022, then Activate in 2023. What’s your next major growth format?

4) Connected TV (18:26) : Streaming ads seem more interactive now. How is CTV evolving?

5) Supply Path Optimization (22:32) : SPO is still 55% of total activity yet DBRR fell during Q1. Have the large publishers now fully consolidated their inventory?

6) The Trade Desk (26:02): The Trade Desk continues to promote OpenPath and says it will disrupt the industry. How do you believe OpenPath will most likely impact PubMatic?

7) The Macro (33:24): Several forecasts are reducing expectations for ad budgets in 2025. What are you seeing on the near-term horizon?

8) Capital Allocation (37:46): Just announced a $100m buyback expansion. How are you prioritizing capital allocation to maximize shareholder value?

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Transcript

Simon Erickson  00:00

Hello everyone, and welcome to today’s episode of the seven investing Podcast, where it’s our mission to empower you to invest in your future. You can see all of our stock market recommendations and learn even more about our long term investing approach at seven investing.com/subscribe

 

Simon Erickson  00:15

where your first seven days are absolutely free. My name is Simon Erickson. I’m joined by my friend and colleague, Cole barsha. We have a very special guest for the program today. Our return guest to the seven investing Podcast. It’s Rajeev Goel. Rajeev is the CEO and founder of PubMatic. The ticker on that company is P, U, B, n1, of the digital advertising industries OGs. He’s been around since 2006

 

Simon Erickson  00:41

PubMatic has always built a platform to empower publishers to use their websites, use their podcasts, use their streaming TV shows to monetize them by by using programmatic advertising and planting in that in there with it. So Rajeev, really nice to have you again on the show. Welcome back to the seven investing Podcast this afternoon.

 

Rajeev Goel  00:57

Thanks, Simon, great to be with you and with you as well. Cole, really excited for our chat today.

 

Simon Erickson  01:02

And Cole, you know, I know that you followed, you know, pub matte quite closely for several years. You’re an investor in the company. You’ve done some great research there with them. It’s great to have you connected here with Rajeevhere this afternoon as well.

 

Cole Barcia  01:12

Absolutely, I’m excited for an amazing conversation. And yeah, just, it’s an honor to be here.

 

Simon Erickson  01:18

Well, Rajeev, we’re going to go back and forth Cole, and forth. Cole and I have got a couple questions for you. We’ll go back and forth on asking those, but I always start out with the first question, which has remained the same for every time that I’ve shadowed gear on the program. You’ve been around for almost 20 years. I describe you as one of the OGS of digital advertising. You’ve seen this industry change and innovate quite a bit over two decades. Here we are in 2025 just like every year, it’s a special year. It’s an interesting year out there, but at a 10,000 foot level, how are you thinking about where we stand in the digital advertising industry right now?

 

Rajeev Goel  01:48

Yeah, look, I mean, digital advertising is typically a bright spot in terms of growth, right? So, you know, there’s, there’s obviously a level of macro uncertainty out there, but more and more consumer time is being spent on digital devices, and as a result of that, advertising is actually playing catch up in terms of catching up to to where those consumers are spending time. And streaming TV is a great example, right? We’re in the middle of the upfront season, which is when you know the major broadcasters and streamers are presenting to advertisers. Okay, here’s our show lineup and data and consumer lineup for the for the year ahead, and trying to sell that. And so what we see is that, you know, connected TV, which is about a $30 billion industry, is one of the fastest growing segments of the industry and a very fast growing part of our business. So that’s a good example of even, I think, despite some of the macro uncertainty, there’s a number of secular growth drivers in digital advertising. And that’s, you know, that’s part of what, what always excites me, and I’ll hand it over here to Cole in a second. But just a quick follow up on that, you know, just kind of the growth of the industry. The last 20 years, you’ve seen the rise of the DSPS, man side platforms, the supply supply side platforms, like you have, are more and more ad budgets working with platforms like yours, or with the DSP side of it, or kind of what is the state of the advertising industry out there? How is it evolving from versus what you’ve seen for the last several years? Yeah, you know, I think the role of the supply and the demand side are definitely evolving towards an ecosystem that is more integrated and more, and driven by performance and driven by really consumer safety and privacy, rather than, you know, a buy site layer and a sell side layer, you know that that are transacting between each other. And so, in fact, you know, to your point, we started, you know, many years ago as a as a sell side platform, right uh, driving yield for publishers, and that, of course, is a key part of our business, and really our our core and our center. But over the last five years, we’ve brought in significantly into how can we help advertisers and data owners and commerce, media, retail, media networks? How can we help them also participate in the ecosystem? And what we found is that when we bring all of the players together on our infrastructure, so when we connect buyers with sellers directly, there’s actually a mutual value creation opportunity, right? If we can help a buyer generate more return on on Ad Spend or return on investment, then actually they’re willing to pay more to the publisher, right? And so the publisher can drive more yield, and the buyer is happy to pay more because they’re getting, you know, more in return. And so we’ve really focused on, how do we build a virtual cycle around that? And that’s, you know, really where we’re headed with some of our more recent product announcements, which I’m sure we’ll we’ll get into a little bit later.

 

Simon Erickson  04:35

Go ahead, Cole, I hand it over to you. Let’s, let’s keep running with this.

 

Cole Barcia  04:45

All right. So I think, just to kick things off, an initial question that I think investors would really benefit from understanding is when PubMatic goes into a publisher or they go into an ad. Agency? What are PubMed unique structural sources of competitive advantage, or to put it another way, when compared to your peers, how are how is PubMatic creating that incremental value for publishers and its agency partners?

 

Rajeev Goel  05:17

Sure. Yeah. So I think there’s a couple of things that that really differentiate us. So first of all is our own and operated infrastructure, and I think that’s a clear structural source of competitive advantage. So I’m sure many of the investors that are listening are familiar with the hyperscalers or public cloud companies. These are Amazon with Amazon Web Services, AWS, Google with Google Cloud, Oracle, et cetera. Now we process about 840 billion ad impressions on a daily basis, something like 20 petabytes of data. It’s probably more at this point, so huge volume of transactions that have to be processed in real time, and we do almost none of that in those public cloud providers. So instead, what we do is we own 10s of 1000s of servers, as well as the networking equipment to connect all of these in about a dozen data centers around the world. We have to be all over the world, because advertising, digital advertising, has to be real time. We’re processing transactions in about 150 milliseconds, 200 milliseconds, and to do that, you’ve got to be close to the consumer. So we’ve invested in through capital expenditure, at the capital outlays, all of this great infrastructure.

 

Rajeev Goel  06:27

And what that means is that we’re able to save a significant amount of money versus leveraging the public cloud providers. So public cloud gives you great flexibility. You can turn up and turn down, you know, a processing job or volume, but it comes at actually very significant cost. And when you’re processing at the scale that we’re processing at, it’s really important to have very low cost infrastructure, and also infrastructure that you have complete control over, because it allows you to do more things with it, with the transaction, you know, capture more bids, layer more data on, you know, do more machine learning or AI analysis on every transaction so that you can drive better outcomes for your customers. And then I think another great area where we’re seeing strong advantage is with AI right? So with the AI arms race, you know, that’s going through every industry right now. Having our own infrastructure means we have a lot more data, a lot more control, a lot more ability to automate our platform and create AI driven workflows than if we were in in public cloud. AI and public cloud is also very expensive, so we can avoid all of that cost. And you see that in our free cash flow and operating cash flow margins.

 

Rajeev Goel  07:39

And then I think the last one, Cole last competitive advantage I’ll call out, is just our truly omni channel and global scale. And what I mean by that is omni channel is in we’re participating, really, in all of the consumer all of the devices that consumers use to consume media. So if you think about, you know, your own day and your own media consumption habits, where you might see ads. It’s typically on a mobile device when you wake up in the morning, then it’s on your laptop when you’re, you know, at work or working from home, and then it’s on a connected TV device, you know, later in the day, right in the evening. And so we’re, we’re full force on all of those devices. And then we’re also global. So as I mentioned earlier, you know, we have infrastructure around the world. We do business in about 30 different countries. And the reason that’s important is when you’re dealing with large global clients, you know a group, M ad agency, for instance, or Dell as an as an advertiser, or News Corp as a publisher, you know they have, obviously, aspects of their business all over the world, and so if you can service them everywhere, then you’re able to capture a greater share of their of their budgets.

 

Cole Barcia  08:47

That makes sense. I guess. One quick follow up on that I saw a pretty exciting announcement from PubMatic over the past month or so. It sounded like they released a enhanced buying platform that has a natural language interface powered by llms. Have you seen any early adoption or feedback on that product in terms of how that might differentiate PubMatic versus its competition?

 

Rajeev Goel  09:17

Yeah, let’s excited to talk about that, and let me give a little bit of context around what is that product. Is that product set doing, and then we can drill into the announcement we made just last week around the upgraded AI capabilities. So as I mentioned, you know, at the outset, we’re really focused on bringing the key stakeholders or key participants in the digital advertising ecosystem together on our infrastructure. So that’s publishers, it’s buyers, its data owners, and its retail or commerce media networks. And the traditional industry paradigm is an SSP sell side platform and a DSP demand side platform, right? One is working on behalf of the seller, one’s working on behalf of the buyer. And we think that that paradigm is becoming outdated, and the reason for that is.

 

Rajeev Goel  10:00

That when you have an SSP like PubMatic that’s sending a bid request, so that’s saying, Hey, I’ve got a consumer that’s about to see an ad next to some content. Are there any advertisers that want to bid? You know, we’ll send that bid request out to 100 different DSPs, and somebody will bid, and they’ll win that auction. Now there’s a lot of lot of good things about that, and the industry has grown up around that paradigm, but there’s also a lot of challenges. So there’s a lot of operational overhead. When you’ve got to process each ad impression in multiple platforms. There’s a lot of cost overhead dual processing and SSP, you know, incurs costs. DSP incurs costs. There’s privacy concerns. You’re sending data out, potentially to 100 different DSPs, whereas only one you know is going to show the ad. So there’s a lot of these different challenges. There’s latency right when you’re sending these, these bid requests through, through data centers. And so what we said is, hey, as the industry moves to more and more high value inventory, like CTV, that might be priced in 1020, $30 CPMs, or cost per 1000 ads. There’s got to be a better way to do this. And so we announced a product couple of years ago called activate, which allows an advertiser and ad agency to buy directly in our sell side platform. And so we do away with this SSP, DSP kind of paradigm, and a buyer can buy directly in the SSP. And so we solve a lot of the problems that we talked about earlier, lower latency, way lower operational cost, lower software costs. Privacy is now built in, and you’re not spreading the data to all of these different DSPs. And so what we announced last week is significant AI enhancement to that platform, and so here we’re using generative AI to enable a lot of different workflows, inventory planning and forecasting, packaging of inventory, purchasing, reporting and optimization.

 

Rajeev Goel  11:55

So all of the things that a buyer, a trader inside of an advertiser, an agency wants to do inside of an SSP. We’re enabling that via these AI workflows, and so we’re really taking the complexity out of it. And I think a key, you know, key opportunity with AI generally, is incumbents have a lot of lock in through their user interfaces, right? So you think about, like, what are broadly deployed software platforms, right? Something like a Salesforce. People know the Salesforce UI, and so that creates a lot of locking, right? Nobody wants to learn a new UI. But with AI, I think that software interface barrier, you know, goes away almost entirely, right? Because as long as a user can type and they don’t have to type in English, they can type in any language they want, you know, they can just tell the computer to do what they want and off the agent will go and execute that for them. So really excited about that. We’ve seen last year we shared in our q4 earnings call, 6x year over year growth and activate. Now it is coming off of a small base, but we’re seeing great,

 

Rajeev Goel  12:58

great results. For instance, Mars, you know, the big pet care and food they’re using activate, and they’ve seen significant results from it, in terms of 126% sales lift and lower cost to purchase inventory. So we’re really seeing nice results. But it’s early, but we plan to really scale that up.

 

Cole Barcia  13:26

Amazing. Simon, do you want me to jump into the next question here?

 

Simon Erickson  13:30

Yeah, let’s go ahead. Let’s keep going.

 

Cole Barcia  13:32

Okay, so PubMatic launched header bidding support for CTV back in 2000 and CTV revenues are still growing 50% year over year in this previous quarter, PubMatic launched its data marketplace business connect back in 2022 and that itself is growing 100% year over year as we look into the future over the next three to five years, is there a product or an ad format that you believe could be the next major growth engine for PubMatic’s business?

 

Rajeev Goel  14:03

Yeah. So at PubMatic, we’re really focused on innovating and thinking about, where’s the future of the industry, and what are those opportunities that we can help our customers with, and then deploying products into the market, and then, you know, planting those seeds and and letting them grow. And so, you know, as you mentioned, CTV is growing really quickly for us, up 50% in in q1 and we shared in q4 it was over 20% of our total revenue. So, you know, pretty significant from a skill perspective. And growing quickly, we have a whole set of of emerging revenue streams.

 

Rajeev Goel  14:39

So our connect business, as you mentioned, which is around data and curation, our commerce media business activate our open wrap software platform for header bidding management. So all of these things are growing very nicely, in fact, together that emerging revenue streams is roughly doubling on a year over year basis, and a pretty significant, high single digit percentage contributor to overall revenue. So the things that I’m really excited about, first of all, is what we just talked about in terms of the application of Gen AI into our business, and in particular, into our activate product. And the reason for that is, you know, I think it’s pretty, pretty clear, but there’s just a huge opportunity to disrupt I think the status quo make things a lot easier for our customers to engage with our platform, drive a lot more usage.

 

Rajeev Goel  15:29

And so we’re busy putting AI really into all of our products. And in fact, we’ve seen in adopting AI across our engineering team, really strong productivity growth. I think the second area I call out is our commerce media business. So we think this is really significant opportunity over the medium term. You know, the internet is moving towards more and more performance. It’s moving towards, you know, more relevant ads. And when you think about commerce media, you know, you often have a logged in user, they’re purchasing or transacting, and so it’s a great environment to be able to deliver a relevant ad, and then also to measure the outcome, right? You can see, okay, I showed the ad and then did the person purchase something, or, you know, go to a store and purchase and so now I can attribute that back to the ad, and I can optimize accordingly. So there’s great, I think, upside and opportunity there. And so we’ve been a key partner to companies like Instacart, Intuit, Western Union, Dollar General, you know, so a number of of leading, you know, online transaction platforms.

 

Rajeev Goel  16:30

And then I think the last thing I would just say Cole is that what’s exciting is that the canvasses for new advertising opportunities, they’re always growing right? And it’s important, because, you know, advertising plays a role of free or subsidized content for consumers, right? And so I think, you know, advertising is really fundamental to to human rights and democracy. But I think things like self driving cars or humanoid robots, those may be maybe the next campuses right for ads. So I can imagine a scenario where we take a self driving car and it’s actually like a driving bill, right? And it’s got ads, it’s got a screen on the outside, and it’s got ads on it. And if you’re sitting in that car and it’s running ads, your ride will be cheaper than if it’s not showing ads. And you know, everybody likes a cheaper a cheaper ride to going out to dinner or whatever. You know, when I started this business, smartphones and connected TVs didn’t exist, and now they’re the majority of our business. So there’s always, you know, great opportunity ahead.

 

Simon Erickson  17:29

What about metaverse? Rajeev? Is anybody playing around with VR? Zuckerberg loves to talk about the metaverse. Have you seen anybody actually creating content? VR, yet?

 

Rajeev Goel  17:36

You know, I think it’s still quite early in terms of the metaverse, both in terms of the consumption, and then, of course, the ads will follow. And the ads typically lag the consumption by a few years. I think in the metaverse really, what I think is people are still figuring out what’s the hardware interface, right? I have the meta remand sunglasses, for instance, and they’re pretty cool, right? Like, when I go play golf or whatever, like, it’s great to have, you know, ability to record or take a photo right there. I can’t wait until the augmented reality version of those comes out, right then, I’ll be able to put those on and it’ll tell me, like, how many yards to the hole? And okay, if it’s, you know, time to order lunch or something like that. But I think we’re still figuring out as society like, what’s the, what’s the, the hardware interaction in the in virtual reality world,

 

Simon Erickson  18:26

Okay, fair enough. And it’s very good for the golf course to prove, yes, I really did make that shot. Here’s the video to prove how well it went. Or in my case, I probably don’t want to film that you might see how horrible I am. Fair enough. Fair enough. No, so let’s go back to connected TV again, because I you know that that when you said $30 CPM, that’s, that’s very high. That’s probably one of the better ones in terms of the format that you get out there, in terms of pricing.

 

Simon Erickson  18:48

I wanted to ask about this specifically, because, you know, my wife and I, we watch a lot of TV together. Most of it is, is worthless reality TV shows. But again, it’s quality time we spend together. But I have noticed that, you know, the advertisements that are showing up, they’re changing, right? It’s not just a one way video ad anymore. A lot of it’s interactive. We now click on the channel change, or it can actually allow me to choose the type of ad I want to select, or even at sometimes, you know, even purchase directly within the advertisement itself. It seems, in a lot of ways, Rajeev to kind of like the shift in the greater industry from CPM to CPC, right, where it’s just showing impressions, actually the interaction and the clicking on things.

 

Simon Erickson  19:22

How do you how do you kind of size up the CTV industry right now? I know you said it’s growing 50% year over year, but is there anything kind of more foundational that’s changing about CTV right now?

 

Rajeev Goel  19:32

Yeah. So as you said, right for us, it’s growing 50% year over year in the industry, and the growth rates closer to mid teen. So we’re definitely taking share there, which is fantastic. I think the big change that I see happening is it’s it’s transforming from a purely brand awareness environment or brand advertising to much more performance credit. And so one of the stats, actually, that we shared in our last earnings call is that performance, CTV buying grew 3x on a year over year basis.

 

Rajeev Goel  20:00

This on our platform, and so we’re partnered with 80% of the top 30 streaming publishers. So for instance, we announced this in the last last earnings called spectrum reach, which is part of charter TCL, the hardware manufacturer and BBC, out of the out of the UK, is, you know, three new streaming publishers. So we see a pretty broad expanse of the inventory that’s out there. And I think where the industry is headed, and I think the current macro environment will accelerate this quite a bit. Is thinking about how to use CTV to drive performance and measurable performance, which then brings the advertiser back. And so Simon, some of the examples that you cited right where you can interact with the ad, or you can shop. That’s a great example of performance where the advertiser is measuring, hey, what’s the ROI when I show, you know, this kind of a product ad to this consumer demographic that’s watching this particular show, you know, what is the click through rate? What is the shopping rate? What is the ROI that I’m getting, and then experimenting with that, and then finding, you know, what’s the sweet spot? So I think there’s a huge opportunity to bring advertisers from search and social, you know, that have been, you know, in in the walled garden environments like meta and Google for many years, and bring them into CTV, because fundamentally they are, you know, performance advertisers.

 

Simon Erickson  21:22

And on that note, my one follow up is, Are you still seeing the pricing, price? Do you know, in CPM, is it still $30 per CPM? And just just to show things, are you starting to see, since it’s performance based, you know, that the pricing is based upon clicks or interactions instead?

 

Rajeev Goel  21:36

So I would say the pricing is still predominantly a CPM basis. And you know, you we see pricing all over the board, right? So it can be anywhere from five $10 on the low end to maybe 30 on on the higher end. And of course, you know, is it prime time? Is it, you know, broad reach environment? Is it hyper targeting? You know, there’s a lot of different things that go into that price, but I would say for the most part, everything is being converted into a CPM. There are players out there, companies out there, that have algorithms that will say, okay, a buyer can upload their campaign or their budget on a cost per click or cost per outcome basis, and then there’s an algorithm that will convert that into a CPM so that we can run, let’s say, an auction where we’re comparing CPM to CPM. But in fact, the buyer might think about it as if they’re buying on a CPC or some other cost per outcome basis.

 

Simon Erickson  22:27

Cole, I’ll hand it back to you.

 

Cole Barcia  22:32

Awesome. So I have a couple questions here. We’re going to start with the first one on SPO. So over the past three years, received SPO has grown from 27% of activity on PubMatic’s platform to over 55% in the most recent quarter. What inning are in the game are we in for SPO in terms of cleaning up the supply chain, and have the large publishers fully consolidated their inventory, or have they figured out who the most efficient SSPs are in the industry.

 

Rajeev Goel  23:04

Yeah. So let me just briefly describe what supply path optimization or SPO is, just to set context, and then let’s, let’s dig into that. So SPO is a process that we started in the industry about want to say now it’s about seven years ago, where, because publishers were making the same inventory available on multiple SSPs? So you take a publisher and maybe their inventory is available on our platform, it’s available on Google and on a few others, we needed to really answer the question, Why should a buyer buy that publisher’s inventory from us, as opposed to somebody else. And so that’s where supply path optimization came in, which is, if you think about it from a buyer’s perspective, there’s a path to the supply so that’s the supply path. Do I want to buy this particular publisher’s inventory through PubMatic, or do I want to buy it through Google or somebody else? And how could we create a win win equation where the buyer is choosing to buy that inventory on PubMatic.

 

Rajeev Goel  24:04

So as I mentioned earlier, you know, we really focused on, how do we create that win, win, where we are adding value to the inventory. We’re helping the advertiser or the agency generate more ROI when they buy on our platform, so that, in fact, they want to pay more, and they’re happy to pay more so the publisher gets more revenue because of the increased ROI that the buyer is getting. And so our value proposition here is really centered around automation, around workflow, around ROI, around data. So various things I would say in each advertiser and agency engagement, which are different to drive, you know that that consolidation, and in fact, you know, just recently, we run one ad exchanges 2025 SPO award for our activate product in conjunction with Mars, I mentioned some of the highlights earlier. And so we’re now, as you said, cola at 55% penetration. We think long term, that could be upwards of 75%.

 

Rajeev Goel  25:03

So I’d say we’re kind of in the in the mid innings, the big agencies have done a lot of consolidation, so we’ve done a lot of supply path optimization with the big agencies are typically consolidated down to buying on two or three supply paths. That’s down from maybe 30 to 55 years ago. But we think there’s still a lot of opportunity with independent agencies and also with with brands to engage in SPO and just one one example, and by the way, we think that’s about a $15 billion tam expansion with independent agencies and direct advertisers. So we published a case study recently with Kroger Precision Marketing. They’re the advertising arm of the Kroger grocery store chain, where, because of the SPO consolidation that they did, they were able to reduce their supply partners by 70% in consolidating spend on PubMatic. So that’s, I think, a really powerful example of SPO in action.

 

Simon Erickson  26:02

yeah. And I want to take that even one step further, Rajeev which is double clicking on something you mentioned earlier, which is activate, you know, one of your new products that’s growing. I think you said 6x year over year. Really, really good. That’s kind of giving buyers a way to buy directly from the publishers that you represent out there.

 

Simon Erickson  26:16

I know that. You know, this is such a fragmented, complex industry, this, this Dad, this digital advertising industry is, is very complex, and you certainly want to find the most efficient way for everybody to get in the bang for their buck. But, I mean, similar to, I think what you mentioned with activate, you know, other one, another one of the larger players in this industry, the trade desk, seems like they really like to talk about open path a lot of the times, right?

 

Simon Erickson  26:39

And kind of how that’s going to disrupt the, you know, the real time bidding process and the exchanges and everything like that. They even said that they’re thinking that it’s kind of at the point of inflection, or the S curve, or anything else you want to talk about, exciting about they’re seeing adoption on that.

 

Simon Erickson  26:52

How do you think that would impact PubMatic? You know, with the trade desk, which is on the demand side, not exactly in the same thing that you guys are doing, but certainly similar to a lot of the projects you’re working on, what’s the impact of open path on PubMatic, the business?

 

Rajeev Goel  27:04

Yeah, absolutely. So, you know, trade desk is a great partner of ours, and we have a lot of respect for the business that they’ve built. They’ve done a terrific job and and you know, as a DSP, they’re a significant partner buyer on our platform. And yeah, they have this product open path, which, gives them direct access into some publishers. And we think back to our activate conversation from earlier right, bringing the participants in the ecosystem together in the same platform. We think there’s a lot of value in that. And so what we’ve done to really go, I think, further, is we’ve got about 19 150 publishers on our platform, which is the vast majority of open Internet publishers, right?

 

Rajeev Goel  27:47

We spent 20 years, you know, building that, that publisher base, and so when you use activate as an advertiser and agency, you can buy nearly any publisher in the open Internet. There’s always a few in some markets around the world that we don’t have but you can buy nearly every publisher in the open Internet in this direct way. And we think that’s a huge advantage that resonates with buyers. Where, whether you want to buy mobile app inventory, CTV inventory, web browser, mobile browser, you know, whatever the device and publisher is, and geography, with our 840 billion daily ad impressions, and we generate about 2 trillion advertiser bids on a daily basis. You know, there’s inventory at scale for every buyer on our platform to be able to buy, you know, in in a direct way. And we do that in a very open and transparent way in order to remove friction. So group M, for instance, has chosen to partner closely with PubMatic on our most recent launch, but they’ve been a long term partner for ours in supply path optimization and using activate, because it really is driving better outcomes for their clients, more budget towards working media and then transparency and performance gains.

 

Simon Erickson  29:02

So if I can recap that directly and tell me if I’ve got this correct Rajeev or if it needs an edit, but it sounds like if a if a buyer is using activate, they can directly place an ad within any of your 19 150 publishers that you represent with that platform, versus if a buyer was working with open path, it would be perhaps for some individual, larger publishers that have got that direct path. Do I have that?

 

Rajeev Goel  29:23

Yeah, I think, I think that’s right. I mean, a couple of DSPs are working towards, you know, these direct integrations with publishers. But I think that’s a pretty new phenomenon, right? It’s a phenomenon in the last couple of years, whereas we’ve got 20 years of building these publisher relationships. So I think the scale of it is, is, is quite different.

 

Simon Erickson  29:39

Yep. Fantastic.

 

Cole Barcia  29:42

I You all right, I’m going to jump in with one quick question on dollar based retention. Sure. So over the past three years, PubMatics, dollar based retention has contracted from roughly 140% to roughly 102%. And it’s important. Call out that there was a impact, a one time impact, from a large DSP, changing their bidding algorithm approach, so reducing their spend, taking a step back or a step down, which has normalized, and I believe, even grown since that point in time, with PubMatic so in terms of dollar based retention, Is there still room to expand share spend within some of these large ad buyers? Or how do you see that trending in the future?

 

Rajeev Goel  30:32

Yeah, absolutely. So the dollar based retention, which we report on a trailing 12 months basis, that’s a key metric for us. Obviously, it’s showing you know, the extent to which we’re able to expand those existing relationships in the land and expand model is really critical driver for us. I mean, I would say across the entire business model in terms of the P and L, but also product innovation and product driven growth. So our dollar based retention metric is being impacted by this DSP change goal that you mentioned. And so, just for context, for the for the listeners, the viewers, in q2 of 2024 a very large DSP we’re not able to name, they change their bidding approach from a combination of first and second price auctions to processing first price auctions only. And so the result of that was a pretty significant revenue headwind for us that we’ve been, you know, working through for the last three or four quarters.

 

Rajeev Goel  31:31

The good news is that we’re lapping that later this quarter, right? So we’re here in mid May, so we’re just about a couple of weeks away from lamping that. And so that has really been driving a significant headwind in all of our reported metrics. So if we look at, you know, q1 just as an example, our overall revenue down 4% on a year over year basis because we had, we did not have that DSP headwind in q1 of last year, but we have it in q1 of this year. So it’s in the numerator, not in the denominator. So that, obviously is not a, not a an exciting statistic, but what we have been doing is very transparently for our investors, breaking out the rest of the business, so all of the business, except for that DSP, and also we’ve been taking out political spend, because that has been a big tailwind for us. And so we don’t want to kind of artificially show better than reality numbers.

 

Rajeev Goel  32:24

And so if we look at the rest of the business, that’s about 70% of our business, that portion of our business grew 21% in q1 of this year, and that was an acceleration from 17% on that same excluding the DSP and political advertising in the second half of last year. So 17% for the kind of the core underlying business in second half of last year. 21% so an acceleration into q1 and we have forecasted that that will continue to grow at at least 15% so I think we’re going to see that dollar based retention metric normalize and return to more normal, you know, more historical levels once we lap this, this DSP bidding change. And luckily, we’re in the final quarter of that. And I think investors are starting to see the light at the end of the tunnel, you know, starting to understand that. And I think that’s part of what, what’s driving the, you know, the great one or two month stock performance.

 

Cole Barcia  33:24

Absolutely, it’s great to hear that the core business of PubMatic is growing through this headwind and excited for for the guidance ahead of next quarter’s earnings. So I think that takes me into the next question here. So due to some of the macro uncertainties and even just the cost impacts of these import taxes. We’ve heard some forecasts that have shown ad budgets could contract in 2025. What is what are you expecting for, specifically pubmedx business for maybe the remainder of the year compared to previous years?

 

Rajeev Goel  34:03

Yeah, absolutely. So, you know, there’s definitely a degree of uncertainty now compared to, let’s say, three months ago, right? And that’s, I think, in large part, driven by the macro, sorry, by the trade policy and the terrorists and working through all of that. I’m not seeing forecasts for digital ad spend decline. I’m seeing the forecast come down, certainly compared to where they were at the beginning of the year. Guideline just shared their forecast for the US earlier this week. You know, post, post the the tariffs being announced in early April, and they’re stepping down digital ad growth to 10% growth this year from I think it was 12 or 13% earlier, which is still quite robust.

 

Rajeev Goel  34:47

I do think, though, the economic uncertainty even beyond whatever those growth numbers are going to be, right? And that’s trying to crystal ball it, but who knows where it’ll end up. It could be better, it could be worse. But beyond that, there’s important shifts that are underway, some strategic shifts, and we see those really as upside opportunities in our business.

 

Rajeev Goel  35:06

So the first is a shift from linear TV advertising to programmatic and streaming right? So we talked about earlier how the eyeballs have shifted. We’re in the middle of these upfronts, which is where advertisers typically make quote, unquote upfront commitments, right to the to the streamers, to the broadcasters, about how much they’re going to spend. They want to lock in, you know, preferential terms. It’s really hard for me to imagine in this environment, you know, an advertiser is going to feel good about increasing their their upfront commitment, when they also know that if they don’t commit, it’s not like they can’t get the inventory. They can buy it instead in what’s called the spot market, right, which is the real time market, where they can bid for that inventory and buy it, you know, as the consumer is watching a show, and there’s some trade offs there, but one of the big benefits is you get flexibility and agility. And if you’re a brand, you know, that has products that got to come in from overseas, and you don’t really know what’s the tariff situation going to look like in, you know, q3 of this year. You don’t know what the price of that product is going to be exactly. You know what the volume is going to be. Then I think buying in the spot market is going to make a lot of sense. So that’s, you know, one big shift. And our business, we don’t do anything in linear TV. We’re entirely in programmatic and streaming. So I think that can be a benefit.

 

Rajeev Goel  36:23

The other one is a shift from brand advertising to performance. So we talked a bit about that earlier as well. But in times of macro uncertainty, you know, typically what happens is CFOs go to their their CMOS or chief marketing officers, and say, hey, you know, whatever that ad budget was, we need to make sure that we can measure how much sales it’s driving, because we got to find ways to be more efficient, right?

 

Rajeev Goel  36:48

And then the third is, you know, when that conversation happens as well. Sometimes the conversation goes where the CFO says, Hey, that billion dollar budget that we had at the beginning of the year for marketing, you know, maybe that’s going to be 950 million now, or 900 million. And so if you’re a CMO, I think supply path optimization is a natural place to lean in, where you say, hey, if I can make my supply chain, you know, 510, points more efficient compared to what it was before, that’s a good way for me to save money that I can then reapply back into. You know, actually consumers see my ad message, that’s going to help drive that, that top line growth. So we think SPO is going to be another beneficiary. And so these are all areas where, you know, we are investing ahead of the curve, and that’s why we feel like we can drive 15% plus growth in that underlying business, excluding the DSP impact and political advertising,

 

Simon Erickson  37:46

I’ve got one more for you. Rajeev, you know, first of all, a couple of congratulations before I get to the question itself.

 

Simon Erickson  37:51

You know, congratulations. First of all, for that 24% year over year growth. You know, top line, love to see top line growth. You guys have also decreased your cost per impression by 20% year over year, which is definitely helping the kind of the gross margin line out there. And then you’re out of the revenue that you report in the first quarter, you also converted 24% of it into cash from operations, you know, $15 million of cash. So congratulations on growing your business, but also being a profitable business.

 

Rajeev Goel  38:16

Yeah, thank you. I appreciate that.

 

Simon Erickson  38:17

Now, the question I have as an investor who’s very interested in somebody who has done a good job of creating a profitable business, is the other side of it, right? The capital allocation piece.

 

Simon Erickson  38:27

I did see in the first quarter, you announced a $100 million expansion to your stock repurchase plan. You’ve, in the last several years, already repurchased I believe 17% of your outstanding share count on a gross basis, not counting the stock based compensation, but I’ve repurchased 17% by a gross basis for $138 million just expanded by $100 million

 

Simon Erickson  38:48

Rajeev, I guess my question is pretty simple, is, which is, now that you’ve got all this money flowing in, you know, how are you using it in the best way for the good of your shareholders? Is it still repurchases? You’re going to do a dividend? What’s the best way to to reinvest in the business,

 

Rajeev Goel  39:01

yeah. So we are really focused on balancing our strategic investments in growth with returning capital to shareholders, right? And so there are a number of high growth opportunities that we’re investing behind. We talked about a lot of them already, of course, AI connected, TV, commerce, media curation. So a lot of things that we think are great businesses for us to be in, where we have infrastructure, we have connectivity with customers, meaning we’re integrated in with them, and we can create more value for them and with them, and in return, you know, of course, grow our business. So that’s kind of priority number one is to make sure that we have enough capital to invest in those growth areas.

 

Rajeev Goel  39:44

Now, as you called out, Simon, I think we’re really good at driving efficiency, right? So we’ve been able to reduce our impression costs by 20% we’ve increased our engineering productivity. Our estimate for last year was about 15% by adopting generative AI solutions. Across the life cycle of software development and testing and release. And so we think a lot about, how do we build our business every day to be more efficient than the prior day? And so that then has the benefit of throwing off that operating cash flow, that free cash flow we’ve got about, I forget exactly, but around 140 $4 million of cash on the balance sheet. As of the end of q1 we have no debt, and we continue to generate cash, as you mentioned.

 

Rajeev Goel  40:27

And so we thought, given where our share price is, it seemed like an opportune time to refresh and expand our repurchase program. It had roughly 30 to 40 million left from the prior authorization. So we have added 100 million back to it. And so we’re buying on a long term basis, and we’re buying opportunistically because we think the stock is significantly undervalued and it’s a great, great upside opportunity. And so we’re really just, you know, putting our money where our mouth is. We don’t think we need, you know, the 100 and 40 million to operate the business, we continue to generate cash. And so we’re going to, you know, be, be buyers of our stock here.

 

Simon Erickson  41:09

Yeah, and so, and then my one follow up on that regime is knowing that, you know, all options are always on the table for you. But you’re in a very fragmented industry, right? There’s always acquisition targets out there. But I’ve also seen you’ve done a lot of the development in house. You own your own infrastructure. You tend to, like, build things from the ground up, rather than just go out there and acquire someone else’s.

 

Simon Erickson  41:28

All other things consider, are you looking to still kind of build internally versus acquisitions? And use the capital for repurchasing shares, that kind of allocation? Or, how do you think about, you know, with everything on the table, how you want to use the cash that you’re generating?

 

Rajeev Goel  41:42

Yeah, I mean, acquisitions are always, I think, something that we’re on the lookout for. We’ve done, I think, three, maybe four acquisitions in our in our company’s history. Our last acquisition was a couple years ago, a great company called martin.ai. They have great technology, great team. Vast majority of them are with us today, and that’s really at the core of our activate product.

 

Rajeev Goel  42:04

So I think that, you know that acquisition has gone very well for us. So that, of course, encourage us to encourages us to do more. The way I think that we think about it is, you know, where are there opportunities to accelerate either our roadmap? So things that are on our roadmap that we want to build.

 

Rajeev Goel  42:21

But, you know, there’s a great team out there that is ahead of us and building quickly, and so we want them to be part of PubMatic, but their technology and the team, or where is there, maybe customer penetration and integration that’s ahead of where we want to be, and maybe an adjacent or new market that we’re targeting. And so how can we accelerate, you know, our ramp in that customer segment.

 

Rajeev Goel  42:43

And so those are the things that I think make for good acquisitions for us. And so there’s a, you know, a couple of areas that we’re focused on, but as you notice, Simon, I mean, I think we have a really strong organic innovation capability set. And so the bar for us is quite high in terms of making acquisitions, but you know, we remain very open to acquisition opportunities and are constantly on the on the lookout.

 

Simon Erickson  43:08

I love that so much, Cole, I’ve checked all the boxes on the questions. I have any any final questions for Rajeev and our interview here today.

 

Cole Barcia  43:16

I think you and Rajeevhave answered all of my questions, it sounds like PubMatic is well positioned to help customers stretch their budgets in this uncertain time, as well as even allow a little more flexibility in terms of committing budgets, whether it be it more in real time versus upfront. So I’m excited to see how maybe PubMatic is positioned to accelerate out of the some of these hard times ahead.

 

Rajeev Goel  43:46

Yeah, thank you, Cole. I mean, we’re really excited about the acceleration of the underlying business through q1. We obviously beat our q1 numbers, and we raise the guidance at the midpoint for q2. So I think, you know, we’re, we’re feeling good about how we’re positioned in the industry. Obviously, there are some unknowns out there, and so, you know we’re going to, we’re going to stay agile and stay focused on execution. But when I think about the secular growth drivers and our product innovation and our customer integration in those areas, CTV, commerce, Media Supply, path optimization and activate, we feel really good about how we’re positioned and and what lies ahead for us.

 

Simon Erickson  44:25

Well, once again, Rajeev Goel, the CEO and founder of PubMatic, we’ve had him on the show several times. Cole and I are both long term shareholders of the business. I’ve described Rajeev several times as one of the most innovative leaders in one of the fastest growing and fastest paced markets that’s out there. Rajeev, I speak on behalf of everyone, thanks again for being with the 7investing Podcast here this afternoon.

 

Rajeev Goel  44:47

Thank you so much. Thanks. Simon, thanks, Cole, great to be with you today.

 

Simon Erickson  44:50

P U B M is the ticker for PubMatic. If you’d like to learn more about their company, you can see it at 7investing.com/PUBM, which is our home page for PubMatic and has all of the research that we’ve done on them over the years.

 

Simon Erickson  45:02

So that it’s it for today’s episode of the7investing Podcast, we really appreciate you tuning in. Hope you have a great week. We’ll see you next week with some more updates on the best investing opportunities out there. We’re here to empower you to invest in your future. We are 7investing!