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         PubMatic, Inc. (PUBM) CEO Rajeev Goel on Q4 2020 Results - Earnings Call Transcript

         According to eMarketer global digital ad spend is a $395 billion industry in 2021. And it's expected to grow at a more than 10% rate annually over the next three years. Magna estimates that programmatic or automated approaches to digital advertising will represent 87% of global digital ad spend by 2025. And we believe it will eventually represent the entire digital market.

         Within the broader digital advertising market, we are focused on three high growth sectors, mobile app, digital video and OTT and CTV. Programmatic mobile is a $102 billion market growing at an 11% CAGR. Programmatic digital video or short form video is a $53 billion market growing at a 17% CAGR, and programmatic OTT and CTV is a $20 billion market growing at an 11% CAGR. We estimate that PubMatic currently has a 2% to 3% share of the addressable programmatic advertising market.



         Digital video, excluding OTT and CTV is actually a bigger market and growing more rapidly at roughly three times the size. Digital video is $53 billion today, growing 17% annually to $115 billion in 2025, whereas CTV and OTT is $20 billion today growing at 11% to $35 billion in the coming years.



         In Q4 2020, we have made significant progress in ramping our supply path optimization deals, with over 20% of ad buying on our platform via these SPO agreements as compared to approximately 10% in Q1 of 2020. All buying on our platform continues via demand side platforms, and these SPO arrangements are complimentary to our DSP partners.

         In addition to these key growth drivers, the industry continues to evolve and we feel strongly PubMatic is well-positioned to continue to gain market share. For example, consumer identity is driving rapid industry changes, which we believe will grow the size of the open internet advertising market relative to the walled gardens. PubMatic has recently announced key partnerships with many of the leading identity providers globally, including LiveRamp and The Trade Desk with Unified ID 2.0 through our Identity Hub solution.



         An important contributed to these results was our existing customer growth. For the full year 2020, we achieved strong net dollar based retention of 122%. We also added a significant number of new publishers despite the ongoing pandemic. Overall, we added 368 new publishers and app developers for a total of 1,208 customers at the end of 2020. Revenue growth from existing and new publishers also contributed to reduce revenue concentration of our largest single customer Verizon Media Group, which accounted for about 20% of revenue 2020 versus 28% of 2019. It should be noted that while Verizon Media Group revenues were impacted by the COVID-19 pandemic articularly it's desktop display business, we saw a solid recovery in Q4.



         With respect to our Q4 operating expenses. The combination of increased headcount for growth and incremental stock-based compensation resulted in operating expenses of $22.6 million or 18% year-over-year. For 2021, we plan to continue to invest in team members and related investments to drive growth. We will also incur incremental public company costs. Overall, we expect our operating expenses on an absolute dollar basis to increase over the course of 2021.



Justin Patterson
         Got it. Thanks Steve. And then for Rajeev, I appreciate your comments around privacy during the prepared remarks. Would love to hear how you're just thinking through the puts and takes around industry spend on targeting and pricing as we have IDFA come into place. And then the growth of these third-party identifiers, the alternatives to the cookies emerge. There's some cases out there where it's considered a threat, and other cases it sounds like this could actually be inflationary to the open web. So, curious to hear how you think through the puts and takes.

Rajeev Goel
         Yeah. Absolutely. And obviously it is an area of high degree of change. So, look, we think the identity transition that's underway is a tremendous opportunity for the open internet to grow its share of the ad market relative to the walled gardens. Advertisers are seeking a combination of brand safe content with known consumer identity, and that has previously not existed at scale. And by moving away from anonymous tracking, like third-party cookies or IDFA to known identity, the open internet is building a better solution. And we're really excited about the opportunity for that and also our position within that. And so, we're investing heavily behind this opportunity and have created multiple solutions.

          So if I can, I'll just spend a minute on those solutions. So, first, as an infrastructure provider to the ecosystem, we've partnered with many of the leading identity solution providers, Trade Desk and Unified ID 2.0, LiveRamp, Criteo, many others. And what we've done is we've created a software layer for publishers that allows them to seamlessly integrate and manage all of these identity solutions, so that no matter which solution an advertiser is working with, the publisher can access the advertiser's budgets. And that's a unique solution. And we're seeing a high degree of uptake from our publishers, and this really lays the groundwork for a transition from anonymous identity to known identity.

         And then second, both publishers and advertisers may have valuable first party data on their users. And so, we built a solution that's being used by both segments of the market, publishers and advertisers to package up these users into private marketplace deals and make them targetable by advertisers. And so, this is an opportunity really to target audiences when they're not logged in.

         So, ultimately, we think the ROI benefits from the conversion from anonymous to known identity will lead to increase ad spend and increase utilization of our infrastructure, benefiting both our customers and us. And I think key to why we're excited about this -- the potential here in the transition is that again, we're omnichannel, so we're not overly exposed to any single ad format or device, and we have a wide variety of different ad formats on our platform, which means advertisers and agencies are leveraging our platform for both brand spend as well as performance advertising spent.

~ data from PubMatic, Inc. (PUBM) CEO Rajeev Goel on Q4 2020 Results - Earnings Call Transcript