PubMatic (PUBM) Q3 2026 Earnings Call Transcript

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DATE

Monday, Nov. 9, 2026

CALL PARTICIPANTS

• Co-Founder and CEO - Rajeev Goel
• CFO - Steve Pantelick

TAKEAWAYS

• Revenue -- $79.6 million, growing 17% year over year and accelerating for the third consecutive quarter.
• Gross Margin -- 70%, reflecting infrastructure optimization and a change in server useful life from three to five years.
• Adjusted EBITDA -- $26.0 million, representing a 33% margin and more than doubling year over year.
• CTV Revenue -- grew over 30% year over year, reaching 21% of total revenue and led by 40% growth in the Americas.
• Mobile App Revenue -- grew nearly 40% year over year, accounting for 27% of total revenue.
• Emerging Revenue Streams -- more than doubled year over year to reach 18% of total revenue.
• Activate Buying Activity -- grew more than eightfold compared to the previous year, driven by adoption from commerce buyers and independent agencies.
• Agentic Campaigns -- 120 fully autonomous campaigns delivered through the platform since Jan. 2, up from 80 in the previous quarter.
• AI-Powered Deals -- 14,000 created by publishers to date, automating the packaging and selling of audience inventory.
• Mid-Market DSP Spend -- grew more than 40% year over year as buyers utilized platform intelligence for performance.
• Political Revenue -- $5.6 million, increasing from $1.1 million in the third quarter of 2025.
• Monetized Impressions -- grew 15% year over year, while total gross impressions processed were reduced by 8%.
• Supply Path Optimization -- represented 55% of total platform activity.
• Full Year Revenue Guidance -- $312 million to $314 million, representing 11% growth at the midpoint.
• Full Year Adjusted EBITDA Guidance -- $79 million to $81 million, an increase of 30% year over year at the midpoint.
• Capital Expenditures Guidance -- $24 million to $28 million, raised to fund GPU-centric infrastructure.
• Share Repurchase Program -- $150 million expansion authorized by the Board through the end of 2028.
• Cash and Marketable Securities -- $144.5 million as of Sept. 30, with zero debt.
• Non-GAAP Net Income -- $12.6 million, or $0.25 per diluted share.
• Free Cash Flow -- $17.6 million, driven by cash provided by operating activities of $30.8 million.

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RISKS

• Pantelick warned that "election spending now has largely disappeared" and noted a historical "period of pause and pacing as advertisers reset the game plan for the fourth quarter seasonality."
• Pantelick stated that adjusted EBITDA expectations for the fourth quarter assume a "negative foreign currency exchange impact predominantly from Euro and Pound Sterling."
• Pantelick noted that growth in top ad verticals "helped offset softness in Business, and Food & Drink."

SUMMARY

PubMatic, Inc. (NASDAQ:PUBM) reported record third-quarter performance driven by the expansion of high-value channels such as connected TV (CTV) and mobile app environments. Management reported that revenue growth accelerated for the third consecutive quarter, supported by a structural shift toward sell-side decisioning and the adoption of artificial intelligence (AI) solutions. The company reported an increase in operational efficiency, expanding its adjusted EBITDA margin through infrastructure optimization and productivity gains from AI integration. Strategic initiatives included the launch of AgenticOS and a new partnership with OpenAI to manage ChatGPT advertising. The company expanded its capital allocation strategy through a share repurchase authorization and raised its full-year capital expenditure forecast to invest in GPU-centric infrastructure.

• CEO Goel noted that the company is at the center of an industry shift where "AI agents are cutting through that complexity, allowing buyers and publishers to transact directly."
• The company reported that nearly half of platform activity now utilizes sell-side targeting through curated deals and data partnerships.
• Management highlighted a partnership with OpenAI to manage ChatGPT ads, which Goel stated reach "consumers with strong signals and clear intent."
• CFO Pantelick reported that monetized impressions grew 15% while gross impressions processed fell 8%, illustrating the company's ability to "reallocate compute towards the products and impressions that created the most value."
• The company appointed Megan Ramm as Global Chief Revenue Officer to lead a buyer-focused sales team expansion.
• Management reported that all five global agency holding companies have now run Agentic campaigns on the platform.

INDUSTRY GLOSSARY

• AgenticOS: The company's AI-powered operating system designed for autonomous media planning and buying.
• Activate: A solution that directly connects ad buyers to publisher inventory, bypassing traditional demand-side platform layers.
• Decision Fabric: A solution that allows buyers and technology partners to deploy proprietary decisioning models natively on PubMatic's infrastructure.
• CTV (Connected TV): Television sets connected to the internet, usually through streaming devices or smart TV platforms.
• DSP (Demand-Side Platform): Software used by advertisers to buy mobile, search, and video ads from a marketplace.
• SSP (Sell-Side Platform): Software used by publishers to automate the sale of advertising space.
• SPO (Supply Path Optimization): Strategies used by buyers to reduce the number of intermediaries in the ad-buying process.
• Sell-Side Decisioning: A structural shift in programmatic advertising where buying decisions are made within the supply-side infrastructure rather than solely in the demand-side platform.

Full Conference Call Transcript

Operator: Hello, everyone, and welcome to PubMatic's Third Quarter 2026 Earnings Call. My name is Sean, and I'll be your Zoom operator today. Thank you for your attendance today. As a reminder, this webinar is being recorded. I will now turn the call over to Stacie Clements.

Stacie Clements: Good afternoon, everyone, and welcome to PubMatic's Earnings Call for the third quarter of 2026. This is Stacie Clements, and I'll be your operator today. Joining me on the call are Rajeev Goel, Co-Founder and CEO; and Steve Pantelick, CFO. Before we get started, I have a few housekeeping items. 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.

I would like to remind participants that during this call, management will make forward-looking statements, including, without limitation, statements regarding our fourth quarter and full year 2026 for revenue, revenue growth with and without political advertising, adjusted EBITDA and margin, and full year capital expenditures, as well as our future performance, free cash flow, the shift to sell-side decisioning and agentic buying, and the potential effect of remedies in litigation involving Google. These statements are based on our current expectations and assumptions and are subject to risks and uncertainties that are difficult to predict. Our actual results may differ materially.

You can find more information about these risks in the safe harbor slide of our earnings presentation and in our SEC filings, including our most recent Form 10-K and any subsequent Form 10-Q or 8-K available at investors.pubmatic.com. Unless otherwise indicated, all information discussed today is as of November 9, 2026, and we undertake no obligation to update any forward-looking statement, except as may be required by law. Today's discussion also includes non-GAAP financial measures, including adjusted EBITDA and margin, non-GAAP net income and diluted EPS, free cash flow and margin and revenue growth, excluding political advertising. These measures are supplemental and not a substitute for GAAP.

Reconciliations of historical measures to the most directly comparable GAAP measures are in our press release and in the appendix to our presentation. We do not provide GAAP net income guidance and cannot reconcile our adjusted EBITDA guidance to net income without unreasonable efforts because certain elements such as stock-based compensation are not predictable. And now I will turn the call over to Rajeev.

Rajeev Goel: Thank you, Stacie, and good afternoon, everyone. We delivered another strong quarter with year-over-year revenue growth accelerating for the third consecutive quarter. Revenue grew 17% year-over-year and adjusted EBITDA more than doubled with a margin of 33%, both well ahead of expectations. The disciplined investments we've made over the past several years to drive advertiser performance are translating into faster growth and a more diversified business. CTV, mobile app and emerging revenues, including Activate, AI and commerce-related solutions represented nearly two-thirds of our revenue, up from approximately 60% just a quarter ago. At the same time, our advertiser demand continues to expand with activity for mid-market DSPs up over 40% from a year ago.

Activate, which directly connects ad buyers to our data-rich inventory, hit an exciting inflection point driven by advertiser performance and efficiency. Buying activity on Activate grew more than 8x over last year and marked a sharp acceleration from Q2. Equally exciting, AgenticOS continues to scale rapidly. Since launching in January, buyers have run more than 120 fully Agentic campaigns on PubMatic, up from over 80 just a quarter ago. Adoption is broad and global. All five agency holding companies have run Agentic campaigns and independent agencies are bringing incremental demand as AgenticOS supports the AI transformation that brands are focused on. Importantly, the engine behind this momentum is our unique platform intelligence.

We built one of the richest sources of intelligence in Open Internet advertising. It combines publishers' first-party data, contextual and intent signals, proprietary bidstream and auction data that exists only on PubMatic, along with direct relationships with thousands of publishers. Every impression makes that intelligence smarter, driving better performance for advertisers. What's more, advertisers are increasingly building their buying around this intelligence. Nearly half of the activity on our platform now uses it for sell-side targeting through curated deals, publisher auction packages and data partnerships. And we continue to expand our intelligence in new authenticated, high-intent environments where audiences are deeply engaged and signals are strongest. Excitingly, we recently partnered with OpenAI, expanding into a new growth category.

ChatGPT ads reach consumers with strong signals and clear intent, and we expect it to become a regular part of advertisers' media plans. It builds on our leadership in agentic advertising. And as the category grows, there's meaningful opportunity for us to grow with it. Last quarter, we launched our preferred partnership with Sony Pictures Entertainment for their Live TV on PS5, delivering premium video to logged-in viewers inside the console experience. We also continue to grow our live sports streaming business, one of the industry's fastest growth opportunities. Over the past year, we built new features and added new premium inventory and data partners specific to the unique requirements of live sports.

As a result, audiences are far more addressable and our growth continues to scale. Buyers can target audiences by sport, league, team, game window and geography down to the ZIP code where inventory permits. That decision led to strategist choosing PubMatic as its preferred live sports partner. During the FIFA World Cup, Strategus, MayoSeitz Media and PubMatic targeted Citadel Credit Union's priority markets, bringing a global event to a local Pennsylvania audience. Across all of these environments, our intelligence turns data into a performance advantage for buyers and agentic workflows let them act on it instantly. Together, they're turning sell-side targeting into sell-side decisioning.

Buyers are coming into our SSP and bidding where the inventory and audience signals have the highest fidelity and scale, which delivers better advertiser performance. Three converging forces are accelerating the shift to sell-side decisioning. First, the scale of audience and inventory is significantly higher in the SSP due to traffic shaping, the process by which DSPs limit the impression volume passed to them by SSPs. This inhibits advertiser reach and performance. Second, the signals that matter most increasingly live on the sell side. As cross-site identity diminishes and privacy regulations increase, first-party publisher data, contextual signals and direct publisher relationships are becoming far more valuable to advertisers.

And finally, AI is making it far easier to act on these signals. Over the past two decades, buying media on the Open Internet has grown increasingly fragmented and complex with layers of technology between advertisers and publishers. AI agents are cutting through that complexity, allowing buyers and publishers to transact directly. PubMatic is at the center of this shift. We are the agentic leader. We own the intelligence, and we built a unified platform where buyers can put that intelligence to work in every decision. This happens in two ways: containerized bidding using third-party DSP models and direct buying in our SSP using PubMatic models in Activate.

In both scenarios, advertisers get access to all of our inventory and intelligence before traffic shaping limits what buyers can see. And in both scenarios, the decision happens on PubMatic, powered by our sell-side intelligence. For example, a leading agency holding company launched a campaign for a major online retailer that wanted to build awareness and consideration for its online shopping events. Through Activate, PubMatic unlocked new audiences and inventory that the retailer's existing buying platform couldn't access. As a result, the campaign delivered 10 million additional impressions to ideal audiences at a 32% more efficient CPM. And the client's brand awareness and brand favorability increased by nearly 7%.

We've also extended the same performance benefits to advertisers, agencies, DSPs and technology partners, where they can deploy their own decisioning models directly within PubMatic's infrastructure. Running within the flow of our inventory and intelligence, partners can also see supply before traffic shaping, gaining more time within each option to run sophisticated performance models and eliminate their own infrastructure costs. Whether decisioning is made with a partner's model or via our own, our models learn in real time, making our proprietary intelligence smarter with every transaction. Early results have been strong. A national quick service restaurant brand wanted to reach more of its target audience.

Working through its DSP of choice, the brand used our proprietary model on the sell side to select the impressions most relevant to its performance goals. The campaign increased average daily reach of its target audience by 50% while staying within its daily frequency caps. This is what makes sell-side decisioning so compelling. Buyers can reach a bigger pool of inventory and audiences and drive better performance. That's why adoption is scaling quickly and as it does, how we deliver it is a structural advantage. AgenticOS takes direct access even further. It lets agents do the work that traditionally required people to coordinate across teams, systems and markets.

Now agents plan media campaigns based on advertiser objectives, negotiate terms, set up campaigns and report on and optimize performance. For advertisers, that means campaigns launch faster, run more efficiently and perform better. For example, Goodway Group, an independent connected commerce partner for retail, multi-location franchises and CPG brands, used AgenticOS to launch a campaign for a regional grocery client. When compared to its existing media buying workflow, AgenticOS demonstrated significant improvement in cost efficiency, cost effectiveness and performance. The campaign reached more than 1 million unique users verified against the retailer's own first-party data. It delivered 2 million impressions above plan and put 20% more of the budget into working media.

Goodway Group utilized their audience agent to curate the audience targeting and then the campaign was built from a single prompt within PubMatic Assistant and the deal was created 75 seconds later. For publishers, AgenticOS delivers more working media for their inventory and access to new buyers. To date, publishers have created 14,000 AI-powered deals on our platform, which automates the manual work of packaging and selling each audience they want to monetize. The value we're delivering to both buyers and publishers is driving stronger customer performance and accelerated growth across our growing base of business in CTV, mobile app, commerce, Activate, AgenticOS and our AI solutions.

Ad buying across the Open Internet is quickly being reshaped and the market we serve continues to expand. The manual fragmented workflows of the traditional ecosystem are giving way to a simpler model where buying decisions are made closer to the inventory and its first-party insights and where Agentic buying creates efficiencies that accelerate adoption. We built PubMatic for this moment and the industry forces that are driving the shift are only gaining strength. One of our biggest opportunities is to invest in our buyer-focused sales team to bring more buyers onto our platform. Importantly, we're funding that investment through productivity gains and efficiencies across our business, primarily driven by AI adoption.

In August, Megan Ramm joined PubMatic as Global Chief Revenue Officer, bringing deep experience scaling revenue organizations at Uber, Snap and Google. She also understands exactly what buyers want, better performance, greater efficiency and more control over how they buy. She has already spent significant time with our customers, and she's the right leader to help us capture this opportunity. I'm extremely proud of what the team has delivered. The investments we've made across our business are delivering profitable growth and placing us at the center of a significant shift in the industry, and I've never been more confident in PubMatic's future. I'll now turn the call over to Steve.

Steven Pantelick: Thank you, Rajeev, and welcome, everyone. We exceeded our expectations on both the top and bottom line and delivered the highest third quarter revenues and adjusted EBITDA in the company's history. Revenues grew 17% year-over-year and adjusted EBITDA more than doubled, a clear demonstration of the operating leverage in our model. Cash from operations in the third quarter was also strong at $30.8 million and free cash flow was $17.6 million. Our outperformance in the quarter was driven by strong durable growth from mobile app, emerging revenue streams and CTV. Together, these high-value channels and formats grew more than 50% year-over-year and represented nearly 2/3 of revenue.

Importantly, much of this revenue is generated in logged-in mobile app and CTV environments where audience signals are strongest. Political revenue was $5.6 million, in line with our expectations, up from $1.1 million in Q3 last year. Our Q3 results benefited from our expanding AI capabilities. For buyers, that means better advertising performance and for publishers, more working dollars. For PubMatic, it translates into faster revenue growth and productivity gains we're reinvesting for future growth. Breaking the quarter down further. On a global basis, CTV growth accelerated to over 30% year-over-year and represented 21% of total revenue. In the Americas, CTV growth was particularly strong at over 40%.

Mobile app grew nearly 40% year-over-year and was approximately 27% of total revenue. The biggest drivers were our relationships with the top mediation platforms and continued expansion of our global app publisher base, supported by ongoing product innovation and double-digit growth in mobile app display. Emerging revenue streams more than doubled year-over-year and reached an all-time high of approximately 18% of total revenue, driven by increased adoption of our new AI products, including AgenticOS. Direct buying in Activate accelerated sharply in the quarter, growing more than 8x over Q3 last year. In addition to political advertising, we're seeing significant growth on Activate from commerce buyers, independent agencies and holding companies.

Total display revenues also grew strongly at 10% year-over-year, primarily driven by mobile app display. Our DSP partner mix continued to broaden. Spend through our mid-market DSP partners grew more than 40% year-over-year as more buyers turn to our data intelligence and innovative capabilities to drive performance. Across our diversified set of top 10 ad verticals, spending increased 17% year-over-year. Growth was led by shopping, health and fitness, hobbies and interest, which in aggregate increased over 30% in the quarter. This helped offset softness in Business, and Food & Drink. All in, this was a terrific quarter with broad-based growth, reflecting the impact of investments we've made to transform our business and a growing position as an innovation leader.

As the industry continues to evolve, these investments lay the foundation for sustained double-digit growth. Last quarter, I discussed reallocating compute towards the products and impressions that created the most value for our customers and for PubMatic. In Q3, we delivered on that. Monetized impressions grew 15%, while we reduced gross impressions processed by 8%. Because we own and operate our infrastructure, we have control to make these shifts quickly, unlocking incremental revenue while also generating cost savings. Our revenue growth and productivity improvements drove gross margin up by 5 percentage points year-over-year. We also benefited from an additional 2 percentage points from a change in useful life of our server infrastructure.

As a result, we delivered gross margin of nearly 70% in the third quarter, a strong improvement over 63% gross margin a year ago. Turning to expenses. This was our 42nd consecutive quarter of positive adjusted EBITDA. In Q3, operating expenses were 8% lower year-over-year, primarily from productivity gains with some hiring and go-to-market spend shifting into the fourth quarter. In Q4, we're ramping up hiring, primarily in our buyer-focused sales team to expand across high-value channels and formats and go deeper with existing advertisers and publishers. We expect these investments to drive growth in 2027 and beyond.

The combination of rapid revenue growth and lower expenses resulted in Q3 adjusted EBITDA of $26 million or 33% margin compared to $11.2 million and a 16% margin a year ago. Q3 GAAP net income was $5.5 million or $0.11 per diluted share. Moving to cash and our capital allocation. Our balance sheet remains a core strategic advantage. We ended the quarter with $144 million in cash and marketable securities and zero debt. Since the beginning of 2021 through Q3 2026, we have generated nearly $480 million in net cash from operations and more than $264 million in free cash flow. Our capital allocation strategy remains disciplined and balanced, focused on long-term shareholder value creation.

We continue to invest in innovation and infrastructure to drive incremental organic growth while maintaining the flexibility to pursue strategic investment opportunities. During the quarter, we used $15.2 million in cash to repurchase 1 million Class A common shares. Since the program began in February 2023, we bought back 16.5 million Class A shares for $226.6 million. Our Board recently approved $150 million expansion of the repurchase program and extended it through the end of 2028, reinforcing our commitment to returning capital to shareholders. Combined with the amount remaining under our prior authorization, we have approximately $198 million allocated to the program. Moving on to our outlook.

The strong momentum we built throughout the third quarter continued into October as revenue grew double digits year-over-year, led by monetized impression growth. We expect revenue in Q4 to be in the range of $91 million to $93 million or 15% growth at the midpoint, with high-value channels and formats continue to lead our growth. For the full year, we expect revenue of $312 million to $314 million or 11% growth at the midpoint. Our full year outlook reflects two very different halves: 5% growth in the first half, which absorbed the legacy DSP change and a rapid reacceleration to approximately 16% in the second half implied by our Q4 outlook.

We expect to exit the year with strong momentum going into 2027. Our adjusted EBITDA in the fourth quarter is expected to be in the range of $31 million to $33 million. For the year, we expect adjusted EBITDA to be $79 million to $81 million, an increase of 30% year-over-year at the midpoint. Last quarter, we described the next step in our ongoing shift towards GPU-centric infrastructure to further strengthen our proprietary data intelligence and processing, an advantage that compounds as the business grows. That infrastructure underpins Activate, AgenticOS, sell-side intelligence and containerization.

And given the exciting growth opportunities we see across all four, we're raising our full year CapEx outlook to $24 million to $28 million, up several million dollars from our prior range. In closing, this quarter is clear evidence that the platform and the financial model we have been building are working. Revenue growth accelerated for the third consecutive quarter to 17%. Nearly two-thirds of our revenue now comes from high-value channels and formats, which grew more than 50%. Adjusted EBITDA margin doubled to 33%, and we converted that into strong free cash flow, extending a track record of more than $264 million since 2021. None of this is a one-quarter event.

We have built an omnichannel platform where advertisers can move spend to the channel and format that best drives their performance, powered by our platform-wide data intelligence, spanning curated audiences, containerization and decisioning. Because we own our infrastructure, we can direct it towards the impressions that create the most value. Looking ahead, we're also preparing for the potential benefits of the remedies in the Google asset case as they emerge. With a debt-free balance sheet, $144 million in cash and an expanded repurchase authorization, we have both the momentum and the capacity to compound value for shareholders into 2027 and beyond. With that, I'll turn the call over to Stacie for questions.

Operator: [Operator Instructions] The first question comes from Jason Kreyer at Craig-Hallum.

Jason Kreyer: Nice job in the quarter. Look, mobile app continues to be a really nice source of strength for you. Just wondering if you can unpack the trends that are emerging that are driving the opportunity. And curious if you're seeing any more appetite for branded advertisers in that ecosystem.

Rajeev Goel: Sure. Yes. Thanks, Jacob, for the question. So mobile app is one of the two key high-growth market opportunities that we're very focused on between CTV and mobile app. And one of the reasons why mobile app has been such a strong opportunity for us is that we've been very focused on it for a long time. We have our own software development kit or SDK for about 10 years now. We access over 90% of inventory available via SDKs through our partnerships with companies like AppLovin, Google AdMob, Unity and so forth that have the leading mediation platforms.

And what's happening, I think, in mobile app is that advertisers are understanding that it's not just teenagers that are playing games. There's actually a very broad set of mobile app usage. And the signals or the data that's available from mobile app is very strong. Users tend to be logged in, in many of the environments that we're driving monetization within. And there's a lot of rich data available around context, around attention that drives better targeting and better performance for advertisers. So that's a key area of focus for us, obviously growing at a phenomenal rate.

I think as we go deeper into mobile, we're today attracting brand dollars, but going deeper into attracting performance advertising budgets as we focus our platform on performance algorithms that really prove themselves with advertisers through a higher return on ad spend.

Steven Pantelick: And let me just briefly add, one of the areas that we told the investing public that we would be investing more aggressively last year was to bring on new DSP buyers who specialize in performance advertising and mobile app is an ideal channel for them. And so it's a reflection of both our product innovation, our app publisher base as well as the sales efforts that we've undertaken over the last year.

Jason Kreyer: That's great. Maybe one follow-up. So I believe you've now anniversaried the event from a year ago, what we call the DSP2 event. Can you just talk about your relationship with that customer today and if you're seeing any greater transparency around where that relationship goes over the next several years or the potential for a return to growth there?

Rajeev Goel: Yes. I'll take the top of it and then Steve can comment on the expectations for the future. But the relationship is very strong and very healthy. That buyer continues to -- that DSP continues to buy from us at significant volumes. So we feel very good about four quarters, I guess, five quarters later now, having worked through that change with the DSP. So I think I have very positive expectations for that relationship going forward.

Steven Pantelick: Yes. I mean, just to build on that, we articulated over a year ago that we're going to find continued incremental opportunities to invest. And I've shared that we anticipated that stability would be the prevailing theme, and that's exactly what's happened. Very stable quarter-to-quarter. The current outlook assumes continued stability. But just for framing it, we're not anticipating significant growth. But at the end of the day, it's an important legacy DSP, and we're appropriately investing behind it.

Operator: Our next question comes from Shweta Khajuria at Wolfe.

Shweta Khajuria: Can I please try two? First one is on the OpenAI type partnerships. Even if they are not contributing, what does it mean? What are your conversations with them like? And what kind of other opportunities could emerge out of this? So that's the first one. And second is when we think about the durability of growth rate for 2027, how are you thinking about the building blocks in terms of contributors to sustain this growth? And how much of the ad tech benefit are you thinking you're going to benefit from in '27?

Rajeev Goel: The ad tech benefit, Shweta Khajuria, are you referring to Google there or something else?

Shweta Khajuria: Yes, the Google ad tech case.

Rajeev Goel: Okay. Great. So let me take the first part of it, and then Steve, I'll pass it over to you. So on OpenAI, yes, it's a new category of growth for us, and we're excited about our partnership with them. I would say ChatGPT ads, but really that category in the broader sense, reach consumers with strong signals and clear intent. So we do expect this channel to become a regular part of advertisers' media plans. I think some buyers are buying that out of search budgets today and others are buying them out of display budgets. So it has a high degree of relevancy for us. And the opportunity really builds on our leadership in agentic advertising.

And as the category grows and more AI platforms build advertising businesses, I think there's meaningful opportunity for us to grow with it. So let me pass it over to Steve now on 2027.

Steven Pantelick: So great question, Shweta. So as you know, from prior years, we'll come back in February to talk about '27. But I think it's really important, a couple of takeaways. You heard from Rajeev, you heard from me. As a business, we are very excited about '27. And the reason why is all the key trends that are going to influence our growth are already visible in the business today. Now let me start out with the mix. So nearly two-thirds of our revenue are in these high-value channels and formats. So you've seen the progress over the previous quarters. That grew over 50% in the quarter, and that was on top of consistent double-digit growth.

That mix is going to keep growing. It's the fastest part of our business. We've been investing behind it. We are investing in sales resources and product innovation, Agentic capabilities. So that mix is going to continue to be an important tailwind. Number two, these engines that we've been talking about, the emerging revenues, these are relatively new businesses. Activate, it went up sharply, 8x in the quarter. And that is a reflection of the value that is creating. And it was certainly propelled in part by political, but it reflects the underlying value creation. And then, of course, the AgenticOS capabilities.

And an important callout that I made and Rajeev made is the growth in commerce media partners now on our platform, especially on Activate. And then finally, I commented on sort of this mid-tier DSPs, the DSPs 11 to 20. Those were up 40%. Those don't go away as we turn the calendar. And so of course, then Rajeev just commented a moment ago on OpenAI, and that's just another growth trajectory for us. And then finally, underpinning all this momentum that we have is the structural shift. As a company, we've been articulating this for some time, but targeting clearly is moving to sell side as is decisioning.

And so that's just going to expand where we can monetize more on every impression. So '27, we're very enthusiastic about it. There's a lot of tailwinds in the business, and we're investing behind it appropriately.

Shweta Khajuria: Thanks, Steve. And any comment on the Google ad tech case?

Steven Pantelick: From our perspective, I shared that I've not assumed anything in the outlook for the fourth quarter. Absolutely, it's going to be a positive for us and others. And as a reminder to everybody, there isn't a huge amount of incremental investment that's required to take advantage of it. What's required is the implementation of those remedies. And it's clear there's some big upsides as has been shared previously, but just the advent of incremental brand-new demand on our platform. So it will be a net positive. We're just waiting for all the pieces to fall into place.

Operator: Our next question comes from Robert Coolbrith at Evercore.

Robert Coolbrith: When you look at AgenticOS and supply side decisioning, whether it's Activate or Decision Fabric, could you talk about maybe for both of those, the initial use case or particular types of customers where you're seeing strong uptake, Who do these typically appeal to? And could you talk about how you broaden that applicability? So when you talk about that 8x increase in Activate, where have the key power alleys been that you've been able to expand? And what's sort of left to go? Or what are some key unlocks that you could drive to broaden the applicability of Activate? And then I also wanted to ask about this web kit and iOS 27.

I think there's been a lot of confusion in the market around that. Are you seeing advertisers leaning into supply-side data activation as a workaround?

Rajeev Goel: Yes. Great. Thanks, Rob. So a couple of things there. So let's start with Activate and I guess, Decision Fabric, but more broadly sell-side decisioning. So we're still, I would say, early in all of these areas of market penetration and the opportunity. Sell-side targeting has only been happening for a couple of years, and we see that now shifting to sell-side decisioning where buyers are coming to bid where inventory and audience signals have the highest fidelity and scale, which is directly within the SSP and that results in higher ad performance. And this shift is a structural shift, right? There's traffic shaping limits, which reduce the amount of traffic or audiences that a DSP sees.

There's more signal available in the sell side due to limits in cross-site identity and privacy regulation, including some of the iOS changes. Then also with Agentic, right, in the suite of agents that we have, we're able to remove a lot of the complexity. So the benefits then are that buyers are seeing supply before traffic shaping, which means more inventory and there's more data available and so they're able to drive higher performance. With Activate, in particular, where we've seen the earliest -- the fastest early penetration is with independent agencies. They're much quicker to make decisions. They're also, I think, looking to level the playing field from a technology perspective relative to the large holding companies.

And so they're quick to grab a hold of Agentic technology, Agentic capabilities. I think it's important to keep in mind or keep in context that over the last 10 years, the share of total budgets that the large agency holdcos manage has reduced significantly. And so the independent agencies and actually direct-to-brand are gaining. Now with Decision Fabric, second part of your question, what we're doing is we're opening up all of these capabilities in our infrastructure with the data, with the inventory and our models, we're opening all of that up for our partners, whether they're DSPs or other technology partners to be able to take advantage of it directly.

So because we think sell-side targeting and the decisioning is so powerful, we said, hey, let's let curators and let's let DSPs take advantage of those capabilities directly within our infrastructure. Here, I would say we're even earlier than we are with Activate. What we're finding is that the smaller independent companies are not only taking advantage of it, but we have some very large partners, very large DSPs that are also quite interested in things like containerized bidding because they see the performance advantage from an inventory and from a user access perspective. Now I think turning to the third part of your question in terms of the Apple changes.

So I think important to keep in mind, Safari is a small part of our business. It's a low single-digit percentage of revenue. So our direct exposure is limited. As we shared in the prepared remarks, structurally two-thirds of our revenue already comes from CTV, mobile app and emerging revenue like Commerce Media and AI solutions, which do not depend on browser identifiers. So changes like this, I think, tend to reinforce the shift towards the areas where we're already quite strong. So I'll pause there, and hopefully, I covered all of your questions.

Robert Coolbrith: Great. I have one for Steve, too. Steve, can you talk a little bit about the change in the useful life of the servers, what internally you saw that maybe you want to make that change?

Steven Pantelick: Sure. I mean the bottom line is that through our growing efficiency of our software and the more sophisticated equipment that we've been putting in place the last couple of years, the useful life has expanded. And so we've gone from a three-year assumption to a five-year assumption. And from just an analytical perspective to understand the impact on gross margin, over time, over the next couple of quarters, a period of time, you can make sort of an adjustment of, I'll call it, $1.5 million, $2 million in terms of that impact, and that will dissipate as these servers are end of life.

The bigger point that I want to underscore is the overall shift in our gross margin operationally by 5 percentage points. And that's a function of -- if you take a look at what we've been able to accomplish, we've grown our revenue significantly on a year-over-year basis while keeping cost of revenue basically flat. And that's the promise of our model that we've articulated over many years. You're seeing it really vividly this quarter when you saw the 17% growth and the dramatic increase in year-over-year profitability more than doubled. So my perspective is this is a reflection of our investment approach, our owned and operated infrastructure, our continued ability to optimize that infrastructure.

And a point that I brought up the last couple of quarters is that we are now focused on how do we get more and more monetized impressions, moving our capacity towards the highest value impressions. These are the logged-in users that Rajeev and I have described. And so that will drive -- help support long-term gross margin expansion.

Operator: Our next question comes from Ethan Widell at B. Riley.

Unknown Analyst: Ethan Widell calling in for Naved Khan. To start off with, can you maybe speak to political, maybe what you saw in 3Q and how much you're thinking about in terms of fourth quarter guide?

Steven Pantelick: Sure. Let me just step back. The progress we've made in political over the last couple of cycles has been considerable, and it's a function of our investment, obviously, in expanding our CTV capabilities and over the last 1.5 years, 2 years, our AI and targeting capabilities. So we saw really a positive uptick that I had anticipated in the outlook that I shared for the third quarter. So it was about $5 million to $5.6 million in the quarter. And so when you take a look at sort of the progress that we've made driving political, we saw a similar positive uptick in the fourth quarter. Obviously, election spending now has largely disappeared.

But when I take a look at what we've been able to accomplish, for example, in the third quarter and the fourth quarter, that aggregate amount is very similar to what we were able to do in the presidential cycle, again, reflecting the larger base of business that we have and the expanding capabilities. Now in terms of the fourth quarter outlook, I've assumed roughly 7% to 8% of total revenue coming from political. These are obviously already embedded in our numbers.

And then what we anticipate, and it's again embedded in the outlook that in prior election cycles, there's this period of, I'd say, pause and pacing as advertisers reset the game plan for the fourth quarter seasonality, and we're sort of right in that area now. As I put together the outlook, based upon prior history, I decided that it's appropriate to be prudent in the outlook. So all of that is embedded in those numbers. Big picture, though, at the end of the day, what we've done as a company is we've accelerated our business every quarter after the first quarter.

And in the second half of this year, we're on target at the midpoint of our Q4 guide to grow that business overall 16%. So feeling really good about that. And then obviously, the carryover for the full year a return to double-digit growth as a company, and that's obviously an important milestone.

Unknown Analyst: Got it. I really appreciate that color. And then if I heard correctly, I think you mentioned CTV growing 30%, but 40% in the U.S. Can you maybe speak to kind of what you're seeing in the international markets and maybe what causes the delta between those two numbers?

Steven Pantelick: Well, the way that -- just to set the tax rate, we said actually over 30% globally. So what we're really seeing is across the globe, significant CTV expansion, and it was led certainly by the Americas with the assist of political. CTV as a channel proved to be very effective for political advertisers. So I wouldn't say there's really a disparity in terms of growth rates. I mean these are strong double-digit growth rates well ahead of our peers across the board in many cases.

And so from our perspective, it's a reflection of the long-term investment we've been making, a reflection of our AI capabilities, the benefit of the Activate channel and many of our DSP partners really recognizing that they can meet all their targeting CTV needs with PubMatic.

Operator: Our next question comes from Barton Crockett at Rosenblatt.

Barton Crockett: I was curious if you could talk a little bit about just thoughts about how you think AppLovin might evolve in terms of their presence in the CTV market. I mean they've been talking on their last quarterly earnings call about ambitions to do more there and about ambitions for some type of full funnel approach. And it's unclear at this point exactly what that could mean. But I'm just wondering if you have any thoughts about whether that means they'll be more of a competitor or more of a partner as they kind of proceed down that road.

Rajeev Goel: Barton, I can take that. So first of all, AppLovin is a terrific partner for us in the mobile app space, a significant and fast-growing part of our business, and we tap into their mediation layer to access inventory with our SDK. Obviously, they own world, so they have some CTV assets. Just stepping back and I would say more broadly, what I see is that there's a convergence of performance buying between mobile app and CTV.

In fact, this is one of my kind of key takeaways when I was in Cannes, where we saw that there's a number of buyers that are in mobile app and are looking to buy in CTV and vice versa as well, CTV buyers that are looking to cross over into mobile app. I think it's got more to do with what is the customer experience, customer journey look like as it relates to any particular advertiser and the opportunity to show that consumer ads as they go through that journey during their day from one device to the next and really influence purchase decisions or other services that the consumer might purchase.

And so as that's naturally the case, I think advertisers and tech platforms are seeing that being able to meet the consumer where they are across those multiple devices is really a key unlock in terms of performance. That's one of the key reasons that we've been focused on CTV and mobile for several years now, many years now, and we're seeing such great growth across both of those is our ability to connect those dots on the sell side with the consumer with the platform intelligence that we talked about earlier and be able to make that purchasing efficient. And with Decision Fabric and with Activate, we're actually bringing more of that decisioning into the PubMatic platform.

So I think we have a really important strategic role to play with many players in the ecosystem to enable this cross-channel CTV and mobile app buying.

Barton Crockett: Right. And then if I could ask just one other. Rajeev, you had put up before these very bold predictions of 25% Agentic in '28 and maybe 50% by 2030. How are you feeling about that now? And how do you see the evolution versus what you hoped for?

Rajeev Goel: Yes. So I said that by 2030, I expect 50% of buying in our ecosystem would be Agentic. As we noted in the call, we continue to grow rapidly here with over 120 campaigns fully Agentically executed through the end of Q3. I think the proof is in the results. Clever, for instance, with their client Rouge Care saw a 5x return on ad spend, which was double their target of 2.5x. Level Agency, another example where our AgenticOS performed better against their incumbent buying platform, incumbent DSP with 53% more efficient CPMs and 2x more impressions per dollar. So the proof is there, and we're seeing that scale up.

I would say right now, it's more of a change management gating the pace of change across the ecosystem. We're seeing rapid uptake with independent agencies. I think the agency holdcos are still a little bit getting their arms around what does Agentic buying mean for them and how do agents plug into their technology stacks. But I think that's coming closer and closer into the picture. So I think 2027 is set to be a pretty exciting year from the perspective of Agentic execution.

Operator: Our next question comes from Justin Patterson at KeyBanc.

Justin Patterson: I appreciate the comments on the tech infrastructure efficiencies in there. As you step back and look at the business heading into 2027, you have momentum in Agentic, CTV and some of your other growth initiatives. How are you thinking about the right level of investment in infrastructure and personnel to support kind of those underlying secular tailwinds as well as this potential market share redistribution from Google?

Steven Pantelick: Yes. I'll share my perspective from an investment viewpoint, and then Rajeev will share strategically. What we have been doing is in a targeted fashion, very focused on where do we see high ROI impacts, where can we continue to build out our capabilities around sell-side targeting capabilities, containerization, et cetera. And so our perspective is we're going to continue to put investment behind those because that's where we see all the growth and our ROI expectations is to deliver 12-month return paybacks or lower, less -- and so those are all holding, and it's going to continue to be sort of a case-by-case basis.

I think the key position that we've shifted over the last couple of quarters is to focus less on pure capacity expansion and more on high-value GPU-centric infrastructure to deliver against these capabilities. And a metric that I had shared earlier in the year that we're going to keep an eye on and report back to you is how are we doing in terms of growing our monetized impressions relative to sort of our overall capacity. And we made great progress against that. I shared in the prepared comments that we increased our monetized impressions by 15% while reducing our overall capacity gross impressions by about 8%.

So that's a great point of leverage that's going to continue to allow us to get more return on investment on the infrastructure. And because we own and operate our own equipment, we make the decision how and when we do that. And as you saw in the quarter, we can do that very quickly and have a pretty big impact on revenue. So we're going to continue to be very judicious as we've always been, and I anticipate this kind of profile going forward. I'll let Rajeev speak to the sales investment.

Rajeev Goel: Yes. Thanks, Steve. So Justin, one of the key strategies that we are employing as we roll out AI-based solutions for both our customers and internally against our various teams and operations is to make our business more efficient, make the way that we interact with customers more efficient and then reinvest those savings into sales. So a couple of examples of that. We released an AI agent that onboards and integrates new DSPs. And so last year, we integrated, I think it was 50 DSPs, and this year, it will be a little bit lower than that, but a similar number.

And with this AI agent, we've been able to go from two to three calendar weeks to integrate a DSP to one to two days. And actually, the DSP can do all of the work on their side. It frees up a lot of time on our side. So that's a significant productivity gain. That's just one example of many. So what we're doing is we're making our internal operations significantly more efficient. As we grow our revenue, that obviously leads to a significant efficiency. So we're redeploying that budget into sales.

And so Megan has been on board now our new Global Chief Revenue Officer for just a couple of months and really excited about where she's focused and the opportunity to put more people in market to cover agency holdcos to more aggressively go after independent agencies and also to build relationships with brands alongside the DSP relationship building that we've been doing. So that's where we're thinking about, and that's where we're headed with our 2027 strategy.

Operator: Our next question comes from Dawson Frisinger from Lake Street.

Unknown Analyst: Congrats on the results. So given the rapid adoption of AI-assisted advertising, how much of the advertising campaign is actually done by a human anymore? And what steps do you see that cannot be replicated? And then additionally, how does the rise of Agentic shopping change the way people advertise?

Rajeev Goel: Yes. So on the first one, Dawson, so I would say it's a mix in terms of human involvement depending on really the comfort level and experience set of the buyer client. So the way that we think about the Agentic opportunity is that eventually, there will be AI agents that are running autonomously across all aspects of the media planning and buying process. So that's discovery, planning, activation, measurement, reporting. I would say different buyers are at different places in their journey in terms of what their comfort level is and maybe also what their relationship is with their client. In some cases, it might be a brand and they have a high degree of confidence internally.

In other cases, it might be an agency, and so they need to make sure that they go through the requisite checks. So I would say we see customers in kind of all parts of the maturity spectrum where some will say, okay, I want to have an AI agent free in a plan, and then I want to review that and check it and see if the plan makes sense. And then if it does, then I'll move it towards activation. I'll have the AI agent set up a campaign and then I'll review it again before I approve it for execution. Other folks, while they might start there, pretty quickly, they get to, okay, great.

I can see the AI is doing a terrific job. And actually, the goal is that AI should make less errors than humans. The AI doesn't need to be perfect, right? Of course, there's plenty of volume of human errors in media trading operations globally. So some of those clients are all in on AI, and they let the AI go everywhere from planning, activation, planning to activation to measurement, and they might have their own AI agents do a periodic check to make sure that our AI platform is executed correctly.

So I think we're going to see many people go from that kind of early adopter to much more mature phases of Agentic just as they get their own organizations kind of tuned up around AI execution, and that becomes more of a familiar behavior. Can you remind me, Dawson, of the second question that you had?

Unknown Analyst: Yes. It was just on the rise of Agentic shopping and how people have to change the way they advertise or if they do? You see?

Rajeev Goel: Yes, yes, absolutely. So I think there's a couple of aspects there with Agent commerce. So one is, as you said, right, do people need to advertise to the AI agents? And I think that's a conversation that's happening in our industry, in our ecosystem. And we're talking actually to DSPs to find out how are you thinking about or how are you seeing your clients think about advertising to AI agents. If that becomes a meaningful market, then I think we have a key role to play in terms of connecting the consumer signal all the way through to the DSP. I think the second piece is around how does the buying decision point change.

And so who is the new decision-maker, right? If it's no longer a consumer, we could see power aggregated behind a variety of different AI agents. It could be AI agents for commerce that own the shopping destination like, let's say, an Amazon agent, but it could be an entirely third-party agent that doesn't own commerce and then it's going to find the right opportunity on behalf of the client. So this is something that we're monitoring closely.

I think this goes back to one of the earlier conversations, earlier discussions, which is this agentic inventory that is being created is a key growth opportunity for us and one of the reasons why we're very excited and focused on our relationship with OpenAI, but there's a much broader opportunity that we see and that we're going after.

Operator: We're just about out of time. I'm going to go ahead and turn the call back over to Rajeev for closing remarks.

Rajeev Goel: Thank you, Stacie. So we delivered an outstanding third quarter with revenue growth accelerating for the third consecutive quarter and profitability expanded significantly. Importantly, that growth was driven by strategic areas where we've invested over the past several years and all powered by our proprietary intelligence and first-party audience insights. As the industry shifts from sell-side targeting to sell-side decisioning, PubMatic is leading the way, especially in Agentic, and more buyers and publishers are choosing us for superior performance. We're ending 2026 in a much stronger position, both financially and strategically, and we're significantly expanding the market we serve. We look forward to seeing many of you at upcoming conferences.

On Thursday of this week, we'll host a fireside chat with Craig-Hallum. Contact Jason Kreyer at Craig-Hallum or Stacie Clements directly for details on that event. In December, we'll be at Wolfe's Virtual Small and Mid-cap Conference and at Raymond James TMT and Consumer Conference in New York. Thank you all for joining us today, and have a great rest of your afternoon.

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