Operator: Our next question comes from Jason Helfstein, Oppenheimer.
Jason Helfstein: So just — can you just clarify on CTV. So did you see pricing stabilize, I guess, as we’re like in October? Or is it basically volume has stabilized. Maybe comment, Steve, on how the trends you show on CTV impact of the gross margin in the quarter? And then Rajeev, just like a longer-term question, with the bifurcation of IDs, making it kind of more confusing for advertisers, it seems like it makes them more aligned upon their DSPs. Just how does that kind of play into your strategy?
Steve Pantelick: Sure. So with respect to CTV pricing, the statement that I made was relative to stability to July. As I called out last earnings that the overall macro pressure has — macro environment has put pressure on CPMs over the last year. But the deposit base from our perspective, it’s been relatively stable since the end of July. And so the benefits that we’re seeing is really our monetized impression. So more impressions that we are selling across all formats, CTV being an important one. And we saw a very strong growth in the third quarter, monetized impressions for both video and display, as I referenced. And we expect, for example, in the fourth quarter, video to have double-digit monetized present growth on a year-over-year basis.
So what you’re seeing is the foundation of our business which is volume really is quite healthy and we’re just navigating through sort of the current environment. Now from a gross margin perspective, there are many things that we do to grow and support that, not the least of which, of course, is the optimization we’ve done on infrastructure. On a year-over-year basis, we are going to be — have reduced our CapEx by 70%. The majority of that goes into the cost of revenue line. So my expectation going into the future is that our gross margin will continue to tick up. And then we’ll have the incremental benefit as CTV revenues grow and only video revenues grow because the marginal profitability for those formats are quite high. Overall, we reached 33% of overall revenues coming from video in the third quarter and I anticipate some share gains in the fourth quarter as well.
Rajeev Goel: So Jason, on your ID question, I commented on 29 IDs now integrated into our platform. So that, I think, speaks to the level of complexity and choice or optionality that buyers have. The key focus for us is really on interoperability. So making sure that whatever idea, a particular buyer chooses, they can find a maximum amount of inventory or impressions on our platform relative to those ideas. But I think the broader trend here is really the increasing relevance for sell-side technology in the ecosystem. So the technology that sits close to the consumer and the publisher which, of course, is where we sit is increasingly important because typically IDs are only one part of an advertiser’s audience targeting strategy post cookie.
They’re also looking at first-party data. They’re looking at contextual data. They’re looking at maybe cohorts or segments of users. And many of those things, all of those things are better when they’re done on the sell side because that’s where the consent is coming from the consumer. There’s no incremental hop. There’s more efficiency from a carbon perspective. So there’s a lot of benefits that come from moving targeting to the sell side and that seems to be in line with what privacy regulators are looking for where they want to see less bidstream data flowing across the ecosystem. And so that’s really represented in our Connect platform. And as we talked about in the prepared remarks, we’re seeing increasing traction with that as the potential for the Google Chrome cookie deprecation draws near.
Thank you.
Operator: Our next question comes from James Heaney at Jefferies.
James Heaney: Rajeev, can you talk about the partnership that you now have with FreeWheel? Clearly, FreeWheel [ph] is one of the most important players in the CTV ad market. So just curious about how that partnership works.
Rajeev Goel: So yes, we announced an integration — advanced integration with FreeWheel, I guess, about a month or so back which really opens up opportunity for customers — our customers that are using ACTIVATE to be able to access significantly more CTV inventory, inventory that’s sitting on the FreeWheel platform. And so for us, as you mentioned, James, FreeWheel is a leading ad server for CTV, — many traditional broadcasters use FreeWheel both in the U.S. and within Europe. We’ve had a long-standing partnership with FreeWheel and so this just really expands our partnership into our latest supply path optimization product offering of ACTIVATE. It should give us significantly more impression or inventory opportunity which we think will make activate more attractive to buyers and should lead to higher revenue flowing through ACTIVATE over time.
James Heaney: And then, just a follow-up. Maybe for Steve, can you explain why CTV was down 3% year-on-year in the quarter. You’re clearly comping over 150% but I’m just assuming that’s off a small base. So anything about the decline would be helpful.
Steve Pantelick: Sure. You’re right. We grew sequentially from the third quarter — from the second quarter which is obviously important from the momentum of the business. As I commented on earlier, what you’re seeing broadly speaking but I’ll comment specifically on C2B is over the course of the last 3 or 4 quarters, there has been gradual declines in CPMs for CTV. So when you look at a point in time, the cumulative effect of that is more significant. So the positive news is that we’ve been growing our monetizing pressures significantly double digits. And we anticipate that to continue into the fourth quarter. So overall, we feel that the business is in quite healthy shape. And for the various points we raised regarding our initiatives around SPO, the progress that we commented on in our prepared comments regarding the private marketplace and programmatic guarantee all support the long-term vitality of our CTV business.
Operator: And our next question comes from Mauricio Munoz at Raymond James.
Mauricio Munoz: Rajeev and please. You previously talked about areas of investment that should position the company to capitalize on opportunities coming out of the downturn. You obviously unveiled and made significant traction with Activate and convert. How should we think about the investment cadence going into 2024? And then maybe as a follow-up, can you please talk about the pace and traction on some of these ongoing initiatives, particularly as they relate to CTV and how could they position you for 2024?
Rajeev Goel: So I’ll take the investment, nice to connect with you. So from our perspective, something that we’ve learned over many years is that we have taken the opportunity in challenging macro environments to get more traction, gain market share. And we’ve been able to do that through investment in innovation, people and infrastructure. And so the last 1.5 years have been exactly that environment and we’ve continued to invest — we’ve had some of the most rapid development cycles than we’ve had in the history of our company. And the reason we can do that is because we have such a strong financial base. We have a terrific business in terms of the core fundamentals. We have strong margins. We generate significant free cash flow.
And we know that when we’ve invested in the business, we’re able to generate significant upside. So we’re not going to change that. And so the only decision that we need to work through which is what we’re doing right now is the rate of investment looking ahead into the future. And so we fully anticipate to keep our foot on the accelerator because of the significant opportunity out there for us. The regive called out the importance of the sell-side platform, that’s just getting more important. We’re going to be a significant beneficiary as consolidation continues. And so we’re going to reinvest some amount of our incremental profitability back into the business and we fully expect to continue to grow the top line and our market share over time.
