James Heaney: Great, thanks for taking my questions. Can you just walk through just what this DSP bidding change really is? I just don’t fully understand at a granular level, how it impacts the business. So if there’s any more detail you could provide on that that would be super helpful. Thanks.
Rajeev Goel: Yes. Hey James, I can take that. Happy to. So the DSP in question, they’re converting all of their auctions to first price auctions. And historically they’ve used a combination of first price and second price auctions. And these changes will make their methodology consistent with what the rest of the industry does. And the rest of the industry has made this transition really over the last several years. So after this change from this DSP, nearly 100% of auctions on our platform will be first price auctions using a consistent methodology. Now, as Steve called out, we operate a real time auction. And so based on our experience in managing this kind of a transition with other DSPs in the past, we anticipate that the bid prices from this particular DSP will be lower given their changes.
But those lower bid prices will be partially offset by other DSPs who should see an increase in impression wins because they already had already moved to this methodology. And then further, we anticipate that given the strong underlying growth across ad formats, channels and regions, as well as the growth of our emerging revenue streams, that we will offset this headwind throughout the course of the year.
James Heaney: Great, that’s helpful. Just one more on Activate. Would love to hear just the momentum you’re seeing on that business. And I’m also curious like where you feel we are in that transition from direct insertion order into biddable. Curious kind of where you see that journey.
Rajeev Goel: Sure. Yes. I’ll just briefly comment on that second part and then get more broadly into Activate. I think we’re still quite early, so that journey is definitely underway, but I think still a lot of runway ahead of us. So in general, with Activate, we’re really excited about the progress that we’re making. And so there’s a clear progression of steps. When you roll out a new product like Activate, we’ve trained our sales team to talk about it at scale. So that’s in every region, across multiple customer types, agencies and advertisers. We’ve gotten very strong and positive feedback in terms of our vision and the initial capabilities. Our vision is definitely resonating with the problems or challenges that buyers have, that prospects have, and they do trust us to solve these challenges for them given our track record of success with supply path optimization.
I think the commercial and contractual process is also resonating. And as a result, we’re signing up advertisers and agencies at a pretty good pace and we’ve completed deals in every region around the world. Now what we’re also learning is that inside of large agencies and large advertisers, this is very much an enterprise initiative. And so who we are pitching the value prop of the product into can be different from who are the hands on people on the keyboards that are setting up deals and managing the actual campaign spend. And so it takes time to get all of the teams on board fully up to speed, fully educated on how to use the product. And so there are things that we are looking into to try to accelerate that which we are in the process of working through.
But at the same time, what I would also add is just that we see business acceleration around SPO even if Activate isn’t in place. And that’s because customers know that they can do more with us over time, right? And so as a result, they tend to pull supply path optimization levers to move more business to us and grow the mutual relationship, even if they’re not using Activate today and they plan to in the future, or if they don’t have any current plans to use Activate, but it’s something that creates optionality down the road.
James Heaney: Great, thank you.
Rajeev Goel: Thank you.
Stacie Clements: Our next question comes from Mauricio Munoz at Raymond James. Please go ahead. Mauricio, if you are on mute, please go ahead and unmute yourself. You now have permission to speak. Okay, Mauricio, we’ll come back to you. Our next question comes from Mark Hagen at Lake Street. Please go ahead, Mark. Mark, please go ahead with your question. If you’ll go ahead and come off mute for us, Mark.
Mark Hagen: You got me now?
Rajeev Goel: Yes, we can.
Mark Hagen: Oh, perfect. Sorry about that. So, just a lot of the stuff I had has already been addressed, but just wondering if there’s any promising verticals that you’re seeing, whether new or existing. The next, call it six months year.
Rajeev Goel: Steve, you want to take that from the ad vertical perspective? Any perspective?
Steve Pantelick: Sure. I’m happy to. Let me just sort of preface to the comments. I mean, we’ve seen a pretty sizable shift over the last year in terms of just a more constructive ad environment. We saw that in the fourth quarter that has continued into the first quarter and April. And the good news from our perspective is, it’s across the diverse group of ad verticals that we have. We compted [ph] on overall the top 10 and the first quarter grew 20% year-over-year. Within that significant majority of that group, grew close to 30%. So strong recovery across the board. And the call outs that just from a relative basis year-over-year shopping continues to perform well. It was definitely under duress in 2023, and that’s recovered, business strongly performing personal finance, food and drink, et cetera.
So we have a diverse set of verticals that help us propel our revenue growth. Now, another component to think about is, as we go into these new areas that Rajeev called out in terms of Roblox, Instacart, et cetera, we are exposing ourselves to more and more advertising types. And that is going to be very helpful to us in terms of our diversity of our business, but also just the long term tailwind of opening up new markets for us.
Stacie Clements: Great. Thanks, Steve.
Mark Hagen: Oh, thank you. Sorry, I got mute again.
Stacie Clements: That’s okay. Mark. Do you have a follow up?
Mark Hagen: Nope, nope, I’m all good. Thanks.
Stacie Clements: Okay, great. Our next question comes from Zach Cummins with B. Riley.
Zach Cummins: Yes, hi. Thanks for taking my questions. I really appreciate it. Can you potentially dive a little bit into the investments you’re making on the SPO side, specifically expanding the sales efforts there? Can you talk about the progress you’ve made on hiring on that side and when you expect those investments to really start translating into improvements in the P&L?
Rajeev Goel: Sure, I’ll take the first part of that. So far, we’ve increased our SPO focused team by 20% on a year-over-year basis in the first quarter. So, absolutely making headway in terms of bringing on new team members. It is a process where we are bringing on highly skilled, experienced salespeople. So there’s not what I would call a long lead time to get them up and running. And also it reflects the nature of the sale. We have a lot of connectivity into the major agencies, large brands, and so it’s really about getting more coverage. And so we have a clear roadmap, a team focused on it. And so we continue to be right on track with our expectations. When we went into the year, we thought, based upon the opportunity and the momentum that we really wanted to put our foot on the accelerator.
And so overall, our game plan is to increase this team focus on Supply Path Optimization by 50%. And so we’re executing that plan and our expectation is that, there’ll be a quarter or two of ramp up, but we should start to see some of the incremental benefit from these investments later this year. And of course, as the quarters to come 2025 and beyond.
Zach Cummins: Understood. And just my one follow up is really around product development. Maybe most of the new solutions over your history have really been through organic development. So just curious of how you’re thinking of allocating ongoing investments into the organic development side versus maybe potentially looking at M&A to further expand your platform.
Rajeev Goel: Yes, I can take that. And then, Steve, obviously, feel free to chime in. So, I mean, for sure, our primary focus is on organic innovation and organic growth. So, we have done, as you noted, a couple of acquisitions, maybe over the last eight to 10 years. But while we remain open to the opportunity. Right. And constantly on the lookout for things that might be a good good fit for us. As I mentioned, we’re at now 500 people just crossing that mark in product management and engineering. So we are really built to focus on understanding from our customers what are the needs and opportunities, and then building organically at a very rapid pace in order to deliver those needs. So I think that’s where we’ll see the vast majority of innovation come from. Steve, anything to add?
Steve Pantelick: I would say that from our perspective and when we think about how we utilize our balance sheet, and we have a very targeted capital allocation strategy to ensure that we have investment dollars for organic growth. But we also have incremental dollars for M&A if it makes sense. Our typical strategy has been, if it can accelerate our roadmap development, we’ll definitely take a hard look at it. And then the final tranche of our capital allocation strategy is to share buybacks, which we’ve been very successful over the last year plus. So overall, we feel like we’re in a excellent position to make these choices in a very considered data-driven way. But as Rajeev called out, we’ve been very successful in organic innovation, certainly leveraging AI in the last year. And so we anticipate new, that becoming the main engine going forward. But we won’t necessarily say no to an appropriate M&A opportunity.
