PubMatic, Inc. (NASDAQ:PUBM) Q4 2021 Earnings Conference Call February 28, 2022 5:00 PM ET

Company Participants

Rajeev Goel - Chief Executive Officer
Stacie Clements - IR, The Blueshirt Group
Steve Pantelick - Chief Financial Officer

Conference Call Participants

Shweta Khajuria - Evercore
Brent Thill - Jefferies
Justin Patterson - KeyBanc
Matthew Swanson - RBC
Andrew Boone - JMP
Jason Helfstein - Oppenheimer
Andrew Marok - Raymond James

Operator

Hello everyone, and welcome to PubMatic's Fourth quarter and full-year 2021 Earnings Call. My name is Cara and I will be your operator today. Before I hand the call over to the PubMatic team, I'd like to go over a few housekeeping notes. As a reminder, the webinar is being recorded. After the speakers’ remarks, there will be a Q&A session. If you plan to ask a question, please ensure you've set your Zoom name to display your full name and firm. [Operator Instructions] Thank you for your attendance today. And I will now turn the call over to Stacie Clements with The Blueshirt Group.

Stacie Clements

Thank you, operator and good afternoon, everyone. Thank you for joining us on PubMatics earnings. Call for the Fourth Quarter and year ended December 31st, 2021, joining me on the call are Rajeev Goel, Co-Founder and CEO, and Steve Pantelick, CFO. Today's prepared remarks have been recorded after which Rajeev and Steve. A copy of our press release can be found on our website at investors. pubmatic.com. Before we start at an AC to remind participants that during this call, management will make forward-looking statements, including without limitation, statements regarding our future performance, growth, strategy, and financial outlets.

Forward-looking statements are based on a current expectations and assumptions regarding our business, the economy and future and other future conditions. These forward-looking statements are subject to inherent risks, uncertainties, and changes in circumstances that are difficult to predict. You can find more information about these risks and uncertainties and other factors in our reports filed from time-to-time with the Securities and Exchange Commission, including our most recent Form 10-K and our subsequent filings on Forms 10-Q or 8-K, which are on file with the Securities and Exchange Commission and are available at investors. [Indiscernible].com.

Our actual results may differ materially from those contemplated by the forward-looking statements. We caution you therefore, against relying on any of these forward-looking statements. All information discussed today is as of February 28, 2022, and we do not intend and undertake no obligation to update any forward-looking statements, whether as a result of new information, future developments, or otherwise, except as may be required by law. In addition, today's discussion will include references to certain non-GAAP financial measures.

These non-GAAP measures are presented for supplemental information purposes only and should not be considered a substitute for financial information presented in accordance with GAAP. A reconciliation of these measures to the most directly comparable GAAP measures is available in our press release. And now I will turn the call over to Rajeev.

Rajeev Goel

Thank you, Stacie and welcome everyone. It's an exciting time at PubMatic as we continue to deliver an incredible combination of durable, high-growth revenue and profitability. While we have grown significantly in the past year, I'm most excited about the number and magnitude of growth opportunities in front of us. We delivered record fourth quarter organic revenue of $75.6 million, up 34%. We also delivered a strong adjusted EBITDA margin of 51%, placing our performance over double the rule of 40 benchmark for the fifth consecutive quarter.

These results illustrate the value of our unique infrastructure-driven approach coupled with a usage-based software model that leads to an ability to grow our market share while delivering an incredible combination of growth and profitability. For the full year, we delivered 53% organic revenue growth, a significant increase over 31% in 2020. We delivered 25% GAAP net income margin or $56.6 million with adjusted EBITDA margin of 42%. Our profit margin demonstrates the leverage in our model and provides us with a strong foundation for continued investment and market share gains. We ended the year with a record $88.7 million generated in cash from operations.

These results reflect PubMatic's significant share gains in a rapidly growing market. In 2021, the digital advertising market grew 31%, almost double the pre -pandemic growth level, with double-digit spend increases expected again in 2022. Latest projections show that growth in digital advertising is not a pull forward, but rather reflects permanent consumer behavior changes in part due to the pandemic. For example, banking is predicted to move more online, evidenced by the closure of a record 2,900 branches in the U.S. last year. In grocery, e-commerce is projected to grow 17% annually over the next four years as consumers’ flock to online grocery shopping.

These changes have increased our addressable market opportunity considerably. PubMatic is committed to delivering the digital advertising supply chain of the future where both publishers and buyers can maximize value. As an independent technology company focused on the best interests of the publishers, we provide a platform that connects disparate parts to the ecosystem with robust audience addressability solutions, and cross-screen targeting that power the open Internet. And our infrastructure-driven approach is delivering superior outcomes and cost efficiencies that both our customers and we benefit from.

The more value our platform delivers, the more our customers use our technology. This generates more high-margin revenue for us, which we continuously reinvest in innovation and growth. The competitive advantages we derive from our infrastructure combined with our usage-based software model are driving PubMatic's outsized growth rate well ahead of the market. At the time of our IPO, we estimated our market share to be 2% to 3%. Updated industry data now estimates our market share to be 3% to 4% as of December 31, 2021. A shift in one percentage point over the course of the year is quite significant, given the large and growing total addressable market and reflects the increasing value we are delivering to our customers.

Over the long term, our objective is to grow our market share to 20% plus. Our key growth drivers Supply Path Optimization, omnichannel formats and channels, audience addressability and global expansion are driving increased usage of our platform and long-term growth opportunities. We pioneered Supply Path Optimization several years ago. Buyers are continuously looking for ways to optimize that spend through robust targeting, direct technology integrations and workflows, and premium ad inventory across channels and formats. The investments we make in these areas create a long-term strategic partnership that aligns buyer success with our success.

The outcome is increased utilization of our platform with more predictable, sticky revenues. At the end of 2021, we grew the number of SPO partners by 44% over the prior year. In fact, over a quarter of activity on our platform is now via SPO agreements up from approximately 10% at the beginning of 2020. Our omnichannel approach enables us to match buyer needs to publisher inventory at scale, regardless of device or content type in use by the consumer. This has proven particularly resilient during the pandemic, and as COVID becomes endemic.

Further, high-growth channels such as CTV, OTT have expanded our addressable market opportunity and contributed to market share gains. Although just launched in Q3 of 2020, we're seeing tremendous growth in our CTV business with over 6x growth over Q4 of 2020. We continue to invest aggressively in scaling a transparent, programmatic marketplace for CTV, OTT while also expanding our capabilities in online video, mobile app, and mobile web. A long-term strategic area that we continue to invest in is audience addressability.

We have facilitated a growing and robust partner ecosystem on our platform that includes first-party data owners, identity solution providers, and contextual data providers to deliver best-in-class solutions that increase addressability and privacy safe ways. Identity Hub is a software solution that allows publishers to seamlessly manage, integrate, and configure a multitude of identity solutions, simplifying their workflows and allowing them to connect their valuable audiences with advertiser demand in a privacy compliant way to drive increased ad revenue. Identity Hub is now broadly deployed across our publisher base.

We recently partnered with Live Ramp to measure the impact of Identity Hub and Live Ramp 's authenticated traffic solution and found that publishers were able to more than double CPM s and triple fill rates in cookie less browsers like Safari and Firefox. Audience Encore allows any first-party data owner, whether it's a publisher, advertiser, agency, or data provider to monetize and scale their audience data across our billions of daily ad impressions and generate an incremental high-value revenue stream. We recently announced an extended partnership with Samba TV in Australia to bring first-party connected TV data to media buyers across our platform.

The partnership helped media agency, IPG Matterkind find and engage relevant audiences for a global streaming client's programmatic ad campaign. We also recently enhanced our platform for contextual targeting with greater access to and usage of contextual data across CTV, video, mobile app, and web. As the use of contextual targeting increases, we are well-positioned to support publishers and buyers' needs to package and monetize contextually targeted impressions, both in the open market and private marketplace deals.

We are starting to see momentum build as third-party cookies are deprecating, and we believe that growth in these areas will accelerate. Existing customers are already starting to expand use of our platform through our audience addressability solutions and we're also seeing these solutions attract new customers to PubMatic. It's worth noting that Google's recent announcement of the deprecation of Android advertising ID in two years is expected to have minimal if any impact to our business.

We know from prior experience that ad dollar shifts to channels where buyers find success in high ROI. Because we're an omnichannel platform, we are able to fulfill ad buyers needs with other channels such as CTV or mobile web. We saw this dynamic on our platform when Apple eliminated IDFA with no impact. Second, we expect that our addressability solutions, such as first-party data, contextual targeting in our ongoing work with Google on topics and privacy Sandbox, will continue to make Android advertising ROI positive for certain buyers. We also continue to expand our platform into new geographies.

Last year we entered South Korea and opened offices in Madrid, Paris, and Shanghai. Within China, we are focused on the non-Chinese audiences and inventory from Chinese app developers. Based on our experience and success internationally, we believe our international investments will develop into significant long-term growth opportunities.

Further expanding our addressable market is a large opportunity for retail media solutions, which represents over a $140 billion in global media retail ad spend by 2024, which is comprised of onsite and offsite advertise. We already work with several dozen e-commerce companies as publishers, such as eBay and GAAP advertising, to monetize impressions across their properties. Additionally, e-commerce ad spending is a top-five buyer vertical for us. As retailers increasingly prioritized media as a growth driver for their businesses, we see significant opportunity for PubMatic and we intend to investify in this opportunity.

Retail media place to many of our strengths as an SSP, we are close to the publisher or e-retailer and consumer. We have an omnichannel and global platform complete with a portfolio of the addresability solutions, including identity, first-party data, and contextual solutions, and we have strong buyer relationships from SPO. Our focus is on helping retailers monetize their own media, extend their data off-site to monetize impressions from non-retail publishers, and to optimize ROI for buyers. As a provider of centralized cloud infrastructure for digital advertising, innovation and efficiency are key differentiators that enable us to deliver customer value and expand platform usage. This year, we intend to make substantial new investments based on where we see long-term growth potential.

These areas include our machine learning and data processing consistent with the evolving nature of addressability towards first-party data, Identity and contextual targeting, tools for buyers to expand their Supply Path Optimization implementation on our platform, private marketplace and programmatic guaranteed capabilities for connected TV and online video transactions, and retail media capabilities. These are long-term investments that we believe will pay off an increased customer value and market share gains over the next several years.

At the same time, we intend to improve efficiency across the company, driving additional infrastructure cost reductions and automation, which will allow us to shift software faster and increase the pace of innovation. Given our decade-plus track record of profitable innovation, we plan to accelerate the growth of our engineering team in order to take advantage of the enormous number of growth opportunities in front of us. Our hiring plans call for doubling our engineering team over the next 12 months to 18 months, and we anticipate a record number of software releases as we expand the breadth and depth of our platform.

And lastly, we are expanding our sales and customer success teams around the globe on both the publisher focused and buyer focused teams. In summary, our omnichannel and global platform prove significant share gains in a rapidly growing market. We were able to drive increased customer value through a combination of our infrastructure-driven approach to digital advertising, our usage base software model, and aggressive investment in innovation. I'm incredibly proud of the entire team at PubMatic as we overachieve virtually every goal we set for ourselves in 2021, and we entered 2022 in a strong position with many growth opportunities in front of us. Let me now turn it over to our Chief Financial Officer, Steve Pantelick, to provide additional detail.

Steve Pantelick

Thank you, Rajeev, and welcome everyone. The fourth quarter cap a superb year for PubMatic. In our first full year as a public company, we achieved a powerful combination of standout financial results and organic market share gains on investing significantly in the future of our business. As a result of our omnichannel platform, global scale, well-established usage-based model, and outstanding team, we built a highly productive and resilient company. These factors set us up well for strong results in 2022 and beyond. In 2021, we delivered $227 million in revenue or year-over-year growth of 53%, almost double market growth.

Looking at our fourth quarter, revenue was a record $76 million, an increase of 34% year-over-year. This achievement is particularly impressive considering last year's Q4 growth of 64%. Excluding Q4 2020 political spend, Q4 2021 revenue was up 40%. For the sixth straight year, we delivered positive GAAP net income, which was $57 million, a company record. Adjusted EBITDA was $96 million or 42% margin, also both company records. In Q4, our revenue growth combined with the significant leverage embedded in our platform, helped us achieve net income of $28 million or 37% net margin. Adjusted EBITDA was outstanding and $39 million or 51% margin, an increase of 44% over last year's Q4. Q4 revenue was strong across every region, format and channel. Omnia in particular grew strongly with 55% year-over-year growth.

Overall, we built a truly global business with Americas at 63% of full-year 2021 revenue, Omnia at 28%, and APAC at 9%. Ad spend on our platform is well diversified across more than 20 verticals. While we saw some headwinds related to Omnicom in December, which dampened peak ad spending related to in-person activities such as food and drink. Strength across other verticals, more than compensated. For example, shopping grew 78% and technology grew 65%. The top 10 ad verticals in aggregate grew over 50% year-over-year. What's the case for our 2021, we saw minimal impact from the elimination of Apple IDFA as advertisers shifted ad dollars to other high ROI formats and channels on our platform.

There's also worth noting with respect to Google's recent announcement of the deprecation of Android advertising ID in two years, we expect the impact to be negligible for the same reason. During Q4 more than 60,000 advertisers placed ads programmatically via our platform. This scale, combined with our real-time bided marketplace filler, was multiple bids per impression for our publishers’ ad inventory, powering a robust resilient platform. Revenues for our mobile and omnichannel video businesses grew 41% year-over-year and accounted for 67% of our total revenues in Q4. This growth was on top of the prior year's growth of more than a 100%. Our CTV business, inclusive of OTT, grew more than six times over last year Q4.

In the quarter, 167 publishers programmatically monetized CTV inventory up from 154 publishers in Q3. Our total desktop business comprised of display and online video also performed well with revenue up 26% year-over-year on top of the prior year's 28% growth. Favorable mix trends contributed to higher overall CPMs on our platform for Q4 and the full year on a year-over-year basis, which is similar to what we saw in 2020. Revenues related to Yahoo, formerly Verizon Media Group across all formats and channels, grew more than 30% year-over-year and represented approximately 60% of our total revenues in the fourth quarter down from 25% of revenue in Q4 2019.

Supply path optimization relationships play an important role in terms of growth and revenue stickiness, as advertisers and agencies expand usage of our platform. In Q4, we continued to sign new SPO deals, renew existing agreements, and grow ad spending via these deals. Our multiyear success with SPO supports further investment behind this opportunity and we are building more tools to allow buyers to interact with us to find the right audiences and media on our platform. Q4 SPO represented over 25% of total ad spending in the quarter.

As SPO activity becomes a larger share of our overall spend, we're anticipate trends will increasingly exhibit seasonal patterns. All else being equal, SPO share of total activity will generally be lowest in Q1 and then sequentially ramp up over the course of the year, as agencies and advertisers execute their annual investment plans. Our land and expand strategy drove incremental impressions from existing publishers. In addition to our core platform offerings, products like OpenWrap, Identity Hub, and Audience Encore provide upsell opportunities. As we expand our product footprint, customers increasingly rely on us for more innovation.

We plan to expand our investments in these market-leading products to further develop our data and monetization advantages. An important indicator of publisher satisfaction and usage of our platform is net dollar-based retention. For full-year 2021, this metric was outstanding at a 149% compared to a 122% for 2020. It will naturally normalize and come down from this level once Q2 2020 results are no longer in the comparison set. Our long-term strategy of owning and operating our infrastructure enables us to reduce our unit costs while improving customer outcomes.

For the full-year 2021, we processed over 90 trillion impressions, nearly double the prior year. Since Q1 2020, we've reduced our cost of revenue per million impressions a process by nearly 50%. Our ability to drive operational efficiencies has translated into significant competitive advantage to us, which compounds over time. To give you a sense of the magnitude of these savings, if our cost reduction had been 25% or half the rate that we actually achieved, our 2021 cost of revenue would have been $20 million higher.

We've reinvested these savings into growth initiatives and increased our profit and cash flow. With the bent over scale, increased usage of our platform, and our long-term focus on efficiency, we achieved a 78% gross margin in the fourth quarter and 74% for the full year. As has been the case historically, there will be some quarter-to-quarter variability of our gross margins due to the timing of investments and seasonal aspect. We anticipate continuing our full-year gross margins well ahead of pre -pandemic levels.

Moving on to operating expenses, in support of our growth goals, we successfully increased our global team by 30% in 2021 with the vast majority of hires in technology development. As a mission-driven company with an employee - centric culture, we added an outstanding new team members despite the challenges presented by the pandemic. In Q4, the combination of increased head count for growth, incremental public company costs, and stock-based compensation resulted in operating expenses of 31 million up 36% year-over-year Excluding stock-based compensation.

Q4, operating expenses increased 27% On a full-year basis operating expenses increased 45% or a 110 million excluding stock-based compensation 2020 once operating expenses were 96 million up 33% year-over-year. Rapid revenue growth, operational efficiencies, and ongoing benefits from investments in our business resulted in GAAP net income in the fourth quarter of $28 million and $57 million for the full-year, more than double of 2020's net income. Now Q4 in full year 2021 included an unrealized gain on equity investments for approximately $5 million. Q4 and full year 2021 GAAP diluted EPS was $0.5 and $1 respectively.

Non-GAAP net income, which adjusts for stock-based compensation, the unrealized gain on equity investments, and related income tax effects, was $27 million in Q4 and $65 million for full-year 2021. Non-GAAP diluted EPS for Q4 in full year 2021 was $0.48 and $1.14 respectively. With respect to our cash generation, we stand out as one of the few technology companies that have demonstrated that we can both grow and produce cash. For the full year 2021, net cash provided by operating activities was $89 million and free cash flow was $49 million.

We achieved these exceptional results after funding significant investments for future growth comprised of $40 million in capex, a capitalized software development cost, and a 30% increase in our global team. We ended the year in a very strong cash and liquidity position with cash, cash equivalents, and marketable securities of $160 million, an increase of approximately 60% from year-end 2020. We have no debt on our balance sheet.

Turning to our outlook. As Rajeev outlined, we have newer pass in 2022 to achieve our 25% revenue growth target while delivering strong profits and cash flow. Over the past few years, we have bolstered our financial strength and increased our market share. In addition, the addressable market opportunity is growing due to permanent consumer behavior changes towards more online activity. These factors contribute to our growing confidence in our business. For the full-year 2022, we expect revenue between $282 and $286 million, representing 25% year-over-year growth at the midpoint. Based on the latest market growth projections, we also anticipate continued market share gains.

For Q1, 2022, we anticipate revenue to be in the range of $53 to $55 million or 25% year-over-year growth at the midpoint. As a reminder, we had a very strong one last year with 54% growth. On a two-year stack basis. This translates to 79% growth for the two-year period. No, we're taking a slightly cautious stance in our guidance as the December Omicron over hanging on selected ad verticals extended into early Q1. Looking ahead, we are excited about the number of magnitude of growth opportunities in front of us. Accordingly, we are accelerating our investments in a number of areas.

Our track record demonstrates that we are adept and identifying new investment areas and bringing them to fruition. At the top of our list is stepped up investment in our innovation growth engine. Over the next 12-18 months, we plan on doubling our technology organization with a majority of new hires to be added in our India Technology Center. For frame of reference over the last two years, we increased our India head count by 80% and have already seen a terrific return on investment from these efforts. We also plan to add key go-to-market team members across low to continue driving new product adoption and new market expansion.

Our EMEA and APAC businesses are growing rapidly and are still in the early days of their growth, and therefore warrant investment now for long-term market share gains. On a full-year basis, we anticipate that operating expenses will increase at roughly a similar rate to the 2021 increase with some quarter-to-quarter variability as the year progresses based on timing of hiring and investments. Included in our estimate of expense growth, our incremental operating costs related to new offices, we are adding office re-openings and significantly higher travel and entertainment expenses as our team reengages in-person with customers around the globe.

We estimate these incremental costs in the range of six million to eight million for the full-year. Overall, what is clear is that our business is emerging from the pandemic with structurally higher levels of profitability than prior to the pandemic. We anticipate our full-year gross margin to remain above its pre -pandemic level and our 2022 adjusted EBITDA margin to be nearly double its pre -pandemic level. Given our revenue guidance, our planned level of investment, and the incremental costs for reopening, we expect a full-year adjusted EBITDA between $101 million and $106 million, or approximately 36% to 37% margin.

In line with earlier comments on expense phasing and typical seasonal ad spending levels, we expect adjusted EBITDA in the first quarter between $14 million and $16 million, or approximately 27% to 29% margin. We anticipate capex to be in the range of $30 million to $33 million for the full year. In 2022, the nature of our capex investments are changing from primarily capacity-driven to an even mix of both capacity and capability-driven investment so we can process more data, execute more private marketplace deals, process more CTV and online video transactions, and continue to lead the market with respect to Supply Path Optimization.

In terms of projected impressions process, we anticipate an increase of more than 50% versus 2021. In closing, we are very proud of what we've accomplished in our first year as a public company, but we are even more excited about the opportunities ahead of us.

The sell side of the digital advertising ecosystem is rapidly consolidating as evidenced by the recent announcement that GroupM has selected us as a partner to support the supply chain of the future and the GroupM premium marketplace. PubMatic is well-positioned to capitalize on these trends with our global omnichannel scale and our owned and operated infrastructure. Today, we are in outstanding financial shape, with our business engine delivery both significant profit and cash flow.

The critical building blocks of our business are all favorable: net dollar-based retention, format and channel mix, and CPM increases. We will use these strengths to capture numerous growth opportunities with our existing customers, new customers, new markets, and new products. We believe these factors together will help us drive market share gains in the years to come. With that, I will turn the call over to Stacie.

Stacie Clements

Thanks, Steve. While I take a minute to compile the queue, Rajeev has a few words he'd like add.

Rajeev Goel

Thank you, Stacie. These remarks were prerecorded a few days ago. I would like to acknowledge the escalating war in Ukraine right now. We have employees, customers, and partners who have been personally impacted by the invasion or who have family and friends in Ukraine and Eastern Europe, and our hearts go out to them. So while we are reporting our results today, our thoughts remain with those affected by these terrible events. I will turn the call back over to you, Stacie.

Question-and-Answer Session

A - Stacie Clements

Thank you Rajeev. We'll get going on Q&A. Our first question comes from Shweta Khajuria at Evercore. Go ahead Shweta.

Q - Shweta Khajuria

Okay. Thanks, Stacie. Let me try a couple of questions, please. So Rajeev, any comments on Trade Desk's announcement around Open Path and the potential impact that may have on PubMatic? And then for Steve, a couple of questions for you, please. How should we think about cadence of topline growth through the year, given your Q1 guidance? And then the follow-up to that would be, could you spell out what Omicron related headwinds you saw? You've called out CPG, I think, but any other verticals and what the others have called out, perhaps a couple of other verticals like travel, did you see anything around that? Any color there would be great. Thank you.

Rajeev Goel

Thanks, Shweta. Good to connect with you. So on the first part of your question around Trade Desk, we see puts and takes. So they announced two things. One is that they are stopping buying via Google’s Open bidding and we view this as an opportunity to gain share of spend as they move to more transparent and direct paths. We have a multi-integration approach with each publisher that we work with, and so we typically have multiple paths into each publisher until we anticipate we'll be able to shift existing TTD spend and then grow, given that many SSPs don't have these direct integrations, have not invested in direct integrations with publishers.

The other part is their open path announcement, which is a direct connection between Trade Desk and the publisher in situations where the publisher once it has their own technology for yield management. So we view it as pretty limited in nature. And frankly likely competitive with the agencies as a disintermediate to key value proposition of the agency, which is buying scale and controlling the flow of ad spend. I think it's important to keep in mind that we have a pretty broad set of solutions for publishers, not only yield but also our OpenWrap header bidding solution, Identity Hub, Audience Encore, etc.

So unless publishers plan to build these solutions in-house, which we know from experience is very challenging even for large publishers given the expertise that's required, we think publishers will still need additional technology to power their inventory.

Steve Pantelick

On Europe follow-up questions, Shweta. A couple of things. First, the performance that we had in the fourth quarter obviously was really outstanding when you factor in there was growth of 34% on top of the prior year's quarter of 64%. So the starting point is quite high. And typically, what we see as a progression through course of the year is due to timing of ad spending. The first quarter has a drop on a relative basis versus the fourth quarter, and looking back in time that's anywhere from 20% to 30% drop. We are actually guiding a little bit above average for our first quarter guidance.

And then in Q2, Q3, of course, recovery as agencies and advertisers start to ramp up their investment plans and Q2 is typically around let's call it 10-ish percent versus Q1, the same as the case with Q3. And then clearly a big uptick anywhere from 25% to 40% in the fourth quarter. So I see a return to some level of normalcy in '22 and we're -- obviously had significant growth as others have called out.

Last year, we were well above the rule of 40 and our guidance continues, in fact, above the rule 60 in '22. Now, on the point regarding the -- what I call the dampening effects for a couple of ad verticals that we saw in December, it was very much isolated to what I'll describe as in-person type activities. So food and drink was affected, health and fitness was affected, and a couple of other areas that are in-person centric.

But our other ad verticals, because we are an omnichannel platform, global scale, more than compensated for that. In total, the top ten ad verticals grew over 50%. So we're feeling really good that the platform we've built and the focus on creating a robust omnichannel focus allows us to be resilient and to grow through these blips. And the good news is we are feeling really good about the way the year is progressing.

Shweta Khajuria

Thanks, Rajeev. Thanks, Steve.

Steve Pantelick

Thank you.

Stacie Clements

Thank you. Our next question comes from Brent Thill, Jefferies. Please go ahead Brent.

Brent Thill

Good afternoon. Steve. Just back on the comments in the quarter. Q3, you beat by about 11%, you were inside your guidance range, and it would seem, just going back to the factors you just described were the primary reasons why you were inside the range and didn't show upside, is that -- or was there something else that we need to consider as it relates to that?

Steve Pantelick

No. Very much isolated and really temporary from my perspective, when I look at what happened October, November, very strong. December couple of those ad verticals because I called out in the prior response, put a dampening effect, it still grew year-over-year, but typically at the end of the year, you see very nice peaks. And so all else being equal, the numbers would have been even higher. But when I compare our results versus others who have reported, I am feeling very good about our comparisons to the peer set. Almost across-the-board, we performed more strongly in the fourth quarter.

Brent Thill

That's great. Thanks for the color. And Rajeev, just on connected TV, maybe give us your 40,000 foot aspirations for the year. And how big could this be for the business? What's remaining, the pieces of the bridge that you're laying, if you will, to get in place to where you want to be? Thanks.

Rajeev Goel

We're really excited about our growth in CTV and how far we've come in a really short period of time. As we mentioned, we grew over six X year-over-year and in the fourth quarter grew the number of publishers to167. And I would say broadly what I see happening is that the vision that we have, which is the bidded marketplace whether it's private market transactions or it's open auction transactions that bidded marketplace is resonating very strongly with agencies, advertisers, and publishers. And the reason for that is pretty straightforward. There's a huge amount of growth, obviously, in consumption.

But there's also a lot of growth in both the number of advertisers that want to participate in CTV as well as the number of content producers, or shows, or channels showing up on the sell side. And really the only way to scale for linear TV, hundreds of channels to now thousands in CTV, maybe tens of thousands eventually. And then on the advertiser side, hundreds or thousands of advertisers to tens of thousands to over a 100,000 buyers is to have a bidded marketplace. And so our vision we're finding is unique in that regard.

And we're finding that more and more agencies and publishers are leaning into that vision. And I think a great example of that is the expansion of the Supply Path Optimization deal that we announced with GroupM. So we announced version one of that about a year ago of our GroupM relationship and now they just announced last week that they'll be partnering with us closely to create a premium supply marketplace primarily focused on CTV and online video.

So to the other part of your question, Brent, if I look at where we want to be at the end of the year, we want to continue to grow the number of publishers, we see a lot of runway there, and then we see a lot of opportunity to continue to bring more demand onto our platform. Again, whether it's in private marketplace, I think that will be the primary transaction method still through the end of this year, but we do see signs of open auction transaction starting to grow as well.

Brent Thill

Thank you.

Operator

Our next question comes from Justin Patterson, from KeyBanc. Go head Justin.

Justin Patterson

Good afternoon. And thank you very much. Rajeev, could you talk more about the retail media opportunity? How much revenue do you have from that today? And what are the steps to add more partners? And then Steve, I was hoping you talk a little bit more about just what you've seen from Omicron so far. Obviously, we've seen some improvements in terms of just cases in recent weeks. I'm curious if you've seen any pickup as cases have started to dwindle. Thank you.

Rajeev Goel

Hey, Justin. So let me start with the retail media question and then I'll turn it over to Steve. So look, we're really excited. I'm really excited about the retail media opportunity. I think it's a long-term growth opportunity for us and really a natural extension of our platform. So 2024 - ish estimate is around a $140 billion of ad spend within retail media, so clearly a huge opportunity. And I think we have a lot of assets that are in place and we've been building a lot of capabilities around that.

So first of all, we're close to the retailers, we've worked with dozens of retailers as publishers like eBay and Gap, and then shopping, Steve has talked about as a top five advertiser vertical for us. We know that retailers are increasingly looking to monetize on-site inventory and then leverage their valuable data to monetize inventory off-site and we have a lot of solutions to help them do this. For instance, our identity solution with Identity Hub, first-party data with Audience Encore, our contextual turning growth. And we've got, of course, strong relationships with the largest advertisers and agencies.

So I think it's a very large market and a natural opportunity for us to extend our platform to create more value across the ecosystem. In terms of revenue, we're not breaking that out specifically, it's still quite early. But we're really focused on continuing to build out the capabilities and bring more retail partners on the sell side and on the buy-side to our platform. And that's going to be a key part of our engineering focus. We talked about doubling the size of our engineering team over the next 12 months to 18 months, Investing in infrastructure and data processing capabilities. A lot of that is related to the retail media opportunity.

Steve Pantelick

Hey, Justin. With respect to your question on Omicron, we definitely have seen a decelerating impact through the quarter of this year, first quarter of this year, and it's really a function of what everybody sees around them. Everything is reopening and there is much more of a level of comfort as we move into the endemic phase. So I very much look at the -- what occurred in December early Q1 as temporary, and the proof point for us as a business, we are able to grow through it and we have.

So I -- of course, COVID has been incredibly unpredictable, and I may be too much of an optimist, but right now, what we anticipate is more of a natural endemic phase and the normal strengths of our business will continue to drive us forward. You may recall last earnings we were one of the few companies, if any at all, who had gone out and said that based on our core fundamentals, net dollar retention, the fact that we have SPO deals that make our business stickier led us to guide to 25% revenue growth. Couple of months forward, we are still highly confident of doing that.

So really speaks to the business that we've created. And of course the omnichannel nature. But the diversity of it, and the fact that we have consistently invested throughout the pandemic in terms of people and capabilities where many other companies took their foot off the pedal. So when you factor all those elements and we're feeling really good about where we are today. And we're going to keep on accelerating our investment to deliver long-term growth.

Operator

And our next question comes from Matthew Swanson at RBC. Go ahead, Matthew.

Matthew Swanson

Perfect. Thank you guys for taking my questions. First one, I guess for Steve, we talked about this a lot, price volume equation, looking out to guidance. And you obviously gave us some color on the volume being over 50%. When we're thinking about the price, and maybe now we've got enough history, maybe look at some early SPO partners. Could you talk to us a little bit about how those partners are expanding? And obviously Rajeev, you talked a lot about the upsell portions, and how we can make those SPO partners more valuable on a dollar-per-dollar basis over time.

Rajeev Goel

Maybe. Yea, Steve, you want me to start on the second part and then I'll turn it over to you. We're continuing to sign new deals and we're expanding existing ones, right in Group M is a perfect example of that. And so I think it was that a lot of great momentum in SPO and it's a key long-term growth driver. And I think what we're seeing is that more and more of what advertisers and agencies want to do they are finding that they can auction through sell-side platform, through PubMatic.

Broadly speaking, I think the industry is looking to become more transparency and more efficient and that's exactly what we are endeavoring to do, which is to build a digital advertising supply chain that works great for buyers and publishers that is both transparent and efficient. And whether buyers are looking to find the right consumer and verify the content than an ad maybe place next to understanding how to value an ad impression. A lot of that can best be accomplished with technology on the sell side. And that demonstrates the expanded value that our platform and our position in the market can create.

And I think we're sitting at this interesting time with, due to the advent of header bidding, we've reached very significant scale in terms of the volume of impressions and reach of consumers we have on our platform. But also with cookies and other forms of anonymous targeting going away. A lot of that activation is moving to the sell side. So this is technology we've been building for a number of years. And we're going to continue to invest year to key part of our road-map and engineering expansion to continue to create value for buyers and thereby deliver on our mission. And what we're trying to do for publishers. Let me turn it over to Steve for the other half of that.

Steve Pantelick

Well, Matthew, the really important part of SPR's pipe path optimization deals are ultimately when those grow and expand, it increases the utilization of our platform. And so when we process and production over 90 trillion last year. We have to process that, whether or not we actually monetize it, and we do that because it's a strategic way for us to get competitive advantage, build our moat, and we've demonstrated over many years that we can do it efficiently and still deliver very high gross margin.

So when these SPO deals ramp, in effect, the utilization grows and we don't have to necessarily increase our capacity as much because we've already created that capacity. Think of it as a light switch going on. When GroupM decides they're going to be our partner of the supply chain of the future, this allows us to leverage the existing capacity that we already built. So net-net, the implications for our businesses are very positive as these deals ramp up.

Matthew Swanson

If I'm allowed to count that as one question which Rajeev, when we talk about the 1% market share gain, can you just any color on where do you see that coming from? And then when we look to the 16-17% gain, you talked about in the future, where that comes from in terms of who currently owns that market share.

Rajeev Goel

Sure. Yes. So we're really excited about that market share gain 1% in the span of a year is I think great progress. And so I think where we're capturing that market share -- I think we're capturing it clearly from across-the-board. Steve mentioned, we'll get other companies that have reported, and I think it's clear that we've been growing quite a bit faster than most, if not all of them, on an organic basis. So look, there's Smaller Point Solution, SSPs, they're single ad format, or they're single geography.

But clearly taking market share from them, given our omnichannel and global platform supply path optimization is a key part of that, as well as our investment in focus on the high-growth ad formats. I think we're also taking share from SSPs that are larger than us because of the level of profitability that we have in our business and our ability to invest in innovation and bringing new solutions to market. Our growth rate for our entire business, that's display mobile web, online video, CTV, that's larger than purely the CTV growth rate of some of the larger SSPs that are out there.

So I think we're taking market share across the board. And then the third thing I'd comment on, is that the industry, from our point of view, buyers and sellers are increasingly looking for independent solutions as opposed to walled gardens. There has been a lot of anti-trust, anti-competitive sentiment out there. There's been a lot of regulatory review. And so we find that both buyers and sellers of media believe that they can only get a fair and equitable results from an independent platform like ours. So I think we're really taking share across the board.

And when I look forward to our long-term ambition of 20% plus market share growth I think it's going to be more of the same. So I think there's still some of the smaller sell-side platforms to be consolidated out of the ecosystem. And then I think we're going to continue to see sharing gains from some of the bigger ones as well.

Matthew Swanson

Thank you.

Operator

Question comes from Andrew Boone at JMP. Please go ahead Andrew.

Andrew Boone

Hi, guys. Good afternoon and thanks for taking my questions. There's actually piggybacks from the line of questions. But given the disclosures that came out around Google's project for [Indiscernible], can you actually talk about how advertisers and publishers responded to that? What does that mean for you guys? Is there any sort of Jurassic crack in of Google's positioning? And then, as we think about SPO, I was looking at the advertiser perception report and they were saying that publishers still use an average of 5.4 SSPs. Where are we in that process? Is it so early days? Help us understand where we are in terms of [Indiscernible]? Where are we? Thanks.

Rajeev Goel

In terms of the first part of your question, I think it was around Project Bernanke and disclosure from the State Attorney General's lawsuit against Google, that's a perfect example that obviously made big news in the industry. A lot of buyers saw that, buyers meaning advertisers and agencies, a lot of publishers, of course, saw that. And so a common reaction for them is to say, I knew I was not getting a fair shake out of that walled garden and now I have data points to substantiate that. And so regardless I think of what happens from a legal perspective, that case could take years to play out and I think nobody knows in how it will get decided.

The sentiment in the fueling amongst our customer base and prospects is very clear, which is that they increasingly value independent technology providers, transparent technology providers, and people like us that are creating a more direct connection between the buyer and the seller. And so you see our ability to grow based on that through all of the things that we've been talking about, overall growth in our business, growth in Supply Path Optimization, growth with GroupM, for instance.

So I think that sentiment creates a very significant tailwind and opportunity for us, and of course, we have to go execute against it and deliver for our customers. But I think we're doing a great job of exactly that as evidenced by the market share gains.

Now in terms of the ad perception study, I think an important thing to keep in mind as it relates to Supply Path Optimization is that the incentive to consolidate is really on the buy-side more so than there has been the sell side. So I think publishers will continue to work with five, six, some cases, more sell-side platforms as the technology with header bidding and our rapid solution.

Others in the market makes it relatively easy for the publisher to do exactly that. Where the consolidation is happening, those on the buy-side, where buyers are consolidating down to fewer and fewer sell-side platforms because of their desire to have automation efficiency, transparency, high-quality inventory, and all the things that we've been talking about for quite a while with SPO.

And I think the GroupM example is a great example of that where they, version one of CFO from maybe dozens of SSPs down to a single-digit number, or maybe a dozen or so. And now in their latest announcement with the premium supply products, the partnering with two assets SSP. So just I think further continuation of that consolidation that's happening across the ecosystem.

Operator

Our next question comes from Jason Helfstein and Oppenheimer, please go ahead, Jason.

Jason Helfstein

Thanks. Rajeev, first I'll ask you just about the GroupM deal. From the press reports, it sounded like they used CTV as a -- one of the grading factors and Magnite won the U.S. business. You won, I guess the international, the -- the EMEA business. Maybe just talk about, in your roadmap, what you're working on so that the next time one of these comes up, you also win the North American business.

And then second on Steve, we saw gross margins down year-over-year in the fourth quarter off of what was a record level last year. Maybe just give us some perspective how you're thinking about gross margins for '22. And clearly you guys are choosing to focus more on internally developed features and acquisitions which should, over time, get you more significant gross margin leverage. And so maybe help us think about that relative to a long-term EBITDA to free cash flow conversion. Thanks.

Rajeev Goel

Hey, Jason. On the first part of your question around CTV, I think the U.S. and then I'd say broadly non-U.S., but let’s use a mere here, CTV markets are evolving in different ways and different paces or different speeds. So CTV in the U.S. has obviously been going on now for a little while, but it's primarily insertion order based or IO drip. And that's really not the focus of our business or of our platform. Insertion orders are great, but we think there's a different future in terms of where CTV will be a couple of years from now and where it will be biggest and that's really what we're going after.

And so it takes a little bit more time, but we think ultimately it's going to be the right way to build out really large business. And so our focus, again, is on that bided marketplace. Private marketplace deals, programmatic guaranteed deals, and eventually open market transactions as well. And what we're seeing is that vision is coming to fruition.

I think our competitor here in the U.S. does have bigger CTV business, no doubt. A lot of that is, as we understand it, is built on an insertion order base. And so we're excited to partner with GroupM and EMEA, but we can see, as I commented on earlier, we can see great signs of growth against our vision of a bided CTV future.

Steve Pantelick

Jason, with respect to gross margins, great question. And let me give you a quick progression. And so in the course of the pandemic last year, our gross margins in the fourth quarter were obviously outstanding at 80%. So one of the things that we concluded through the course of '21, is that there is a risk of hardware chip shortages, and so we decided to pull forward investment into '21, probably what you're seeing in the Q4 margin down to 78%. Again, bear in mind, these are very high gross margins and either best-of-class or one of the best in terms of a usage-based model. So we ended the year with 78% gross margin.

When I take a look at the impact of this acceleration, we added about 1.5 percentage points hit to that gross margin because of that acceleration. And it's proven to be exactly the right decision because after we place the purchase orders, we've learned that many of the deliveries that had been made after six months delayed. So we made it for strategic reasons are very comfortable doing so. Now when I look ahead to the future, very positive on our gross margin trends for several reasons. Number 1, I commented on briefly, SPO is a long-term catalyst for increased margin.

As we expand these deals on our platform, the usage or the optimization of our platform grows. And that will definitely be a benefit to gross margin. We are also two-thirds of our business is mobile and video. Video, very high CPMs, and that mix has been growing over time. So that will be a net positive to our gross margin.

At the same time, as I mentioned, we're taking a very strategic view in terms of capacity investments. It is a competitive moat because we can go out and we can process more pressures more cost effectively. So we're going to continue to do that. So when I look ahead to '22, I'm very comfortable with the trajectory of our gross margins, let's call it the -- in the low 70% range. Still well ahead of where we were in the pandemic. As a reminder, Q4, two years ago, our gross margin was 66%.

So I'm feeling very good about the trajectory of gross margins and of course as we've talked about in the past, the leverage we get in our operating expenses. As you noted in our guidance, we have lifted our full-year guidance of EBITDA margins 36% to 37%. That is a significant uptick based upon structurally, we are stronger company, more scale, and we are very confident in our ability to now operate with growth at higher margin levels.

Operator

Thank you, Steve. We are at the top of the hour. We have time for one more question. Andrew Marok from Raymond James, please go ahead.

Andrew Marok

Thanks for taking my question. One last one on the GroupM and partnerships. I guess to the extent that you can talk about how much of that engineering work is really kind of done to spoke for GroupM. And how much can be maybe lifted to other partners. And I guess was there anything in terms of the relationships that you that have a GroupM in particular, that made them one of the first to take on one of these advanced level deals. And what might be some of the gating factors to expansion of those. Thank you.

Rajeev Goel

Thanks Andrew. So on the first part of your question, no, I would say it's a combination of some custom capabilities, but also capabilities that could be applicable elsewhere. Maybe part of what I think GroupM and is trying to do is achieved some significant benefits for their clients when they buy to a GroupM. And so we absolutely respect that and want to help them achieve that. But their business model is a little bit different than other agencies, so they have some unique things in terms of data assets, in terms of capabilities, in terms of how they serve clients that are different from other agencies.

So again, I would say it's a combination of some things that are custom to GroupM and some that are applicable to others. Keep in mind this is part of the reason why we are expanding our engineering team to the extent that we are, as Steve mentioned we plan to double engineering in the next 12 months to 18 months. We think we have a proven, really strong, proven track record and ability to build products and innovate on behalf of our customers, and we are actively looking for opportunities to build customer unique solutions for the largest customers or prospects that are out there, so that we can help them. And then Andrew, what was the -- remind me the second half of your question.

Andrew Marok

Just what made GroupM unique as a leader in this advanced form of partnership? And what are some of the gating factors that might be in place to see more of these advanced partnerships with other agencies?

Rajeev Goel

Look, I think every agency is at a different place in their supply path optimization journey. And I commented earlier that I think the ecosystem generally is focused on more transparency, more efficiency, more direct paths to supply. And every agency, again, is in a different position in terms of how they organize themselves, what are the capabilities that they're delivering the clients, and how much they're engaging in digital media activation and buying versus in creative, or in data science, or in other areas. So I think in the case of GroupM, they were very early in supply path optimization. Initially have seen many benefits from that and wanted to take another step forward. And so I think that's just specific to their evolution in the industry, and we're excited to partner with them on that.

Stacie Clements

Thank you, Rajeev. That concludes our question and answer session. Rajeev, I'm going to hand it back to you for closing remarks.

Rajeev Goel

Thank you, Stacie. It's clear that our business and the opportunity is fundamentally different now as compared to prior to the pandemic. Our revenue is now double the pre -pandemic level, and our profitability is nearly double as well. The size of the opportunity is hundreds of billions of dollars larger as people rely on the Internet for more of their day-to-day activities, content consumption, and entertainment. We have delivered our fifth consecutive quarter of double the rule of 40 metrics with strong revenue growth and profitability which affords us the ability to continue to be agile and invest in the incredible number of growth opportunities in front of us. Thank you all for your time today, and I look forward to seeing many of you at upcoming conferences.