MediaAlpha Q3 2026 Earnings Call Transcript

MediaAlpha (NYSE:MAX) reported third-quarter financial results on Wednesday. The transcript from the company’s third-quarter earnings call has been provided below.

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Summary

MediaAlpha Inc. reported its best quarter in history, with revenue reaching $376 million, up 23% year-over-year, and record home insurance revenue of $66 million.

Auto insurance revenue increased 17% year-over-year, while the agent business grew strongly, with revenue reaching $21 million, up 46% from the previous year.

MediaAlpha’s platform powered over $2.5 billion of annualized P&C advertising spend, highlighting its scale advantage and the effectiveness of its predictive algorithms.

The company executed share repurchases totaling $27 million and reduced long-term obligations under the Tax Receivable Agreement (TRA) at a discount, generating an $11 million gain.

Future guidance calls for Q4 revenue of $355 million to $375 million, with sustained double-digit growth expected through 2027, driven by increased carrier budgets and a shift toward digital marketing.

Management remains confident about the impact of AI on consumer shopping behavior and predicts that major carriers will maintain control over advertising and distribution channels.

Full Transcript

OPERATOR

At this time, I would like to welcome everyone to the MediaAlpha, Inc. Third Quarter 2026 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Alex.

Please go ahead.

Alex (Investor Relations)

Thanks, Lacey. Good afternoon, and thank you for joining us. With me are Co‑Founder and CEO Steve Yi and CFO Tigran Sinanyan. On today’s call, we’ll make forward‑looking statements relating to our business and outlook for future financial results, including our financial guidance for the fourth quarter and full year of 2026. These forward‑looking statements are subject to risks and uncertainties that could cause actual results to differ materially. Please refer to our SEC filings, including our annual report on Form 10‑K and quarterly reports on Form 10‑Q, for a fuller explanation of those risks and uncertainties and limits applicable to forward‑looking statements.

All the forward‑looking statements we make on this call reflect our assumptions and beliefs as of today, and we disclaim any obligation to update such statements except as required by law. Today’s discussion will include non‑GAAP financial measures, which are not a substitute for GAAP results. Reconciliations of these non‑GAAP financial measures to the corresponding GAAP measures can be found in our press release and investor supplement issued today, which are available on the Investor Relations section of our website. I’ll now turn the call over to Steve.

Steve Yi (Co-Founder & CEO)

Hey, thanks, Alex. Hi, everyone, thank you for joining us. The third quarter was the best quarter in MediaAlpha’s history across all of our key metrics. During the quarter, our revenue base continued to broaden as multiple carriers stepped up their budgets meaningfully, driven by intensifying competition for policy growth. This resulted in strong volume for our supply partners who delivered more high‑quality consumer referrals into our marketplace.

We continue to execute very well in these favorable market conditions, which we expect to continue for the foreseeable future. Auto insurance revenue grew 17% year over year and remains the largest driver of growth in our property and casualty insurance vertical. We’re also seeing more carriers put real ad dollars behind home insurance, where we’ve historically had a much smaller footprint in home and renters. Revenue hit a record $66 million in the third quarter, up 116% year over year. That growth was driven by strengthening market conditions and wallet share gains as both traditional and natively online, direct‑to‑consumer digital carriers allocated more of their budgets to us in pursuit of efficient growth.

As carriers evolve towards more multichannel distribution, we’re uniquely positioned to help them acquire customers effectively across both their direct‑to‑consumer and agent‑based channels. As a reminder, we started our agent business from scratch in Q1 of 2021 to help captive and independent insurance agents acquire customers efficiently and directly on our platform using the same programmatic capabilities we offer to our carrier partners. We invested in automation to serve a growing number of agents with a much smaller, leaner team, which enables us to scale efficiently. Today, we work directly with over 3,000 active agents, up from approximately 2,000 a year ago.

In the third quarter alone, agent revenue was $21 million, up approximately 46% from $14 million a year ago. Agents continue to represent a significant share of insurance distribution and an attractive growth driver for MediaAlpha. Our platform powered over $2.5 billion of annualized P&C advertising spend in the third quarter. We believe this scale, which is the largest in our industry, makes our predictive algorithms more effective at delivering unique insights and superior value to carriers. For example, in a recent test, a carrier that opted into our proprietary optimization models saw conversion rates improve by roughly 80%, which drove far greater sales at a lower cost per policy.

We love these kinds of tests because they demonstrate to carriers the value of our data scale advantage through real, measurable efficiency gains. As we keep delivering such results, we expect carriers to shift more budget into our higher‑margin open marketplace. This drives the flywheel of our two‑sided marketplace by further increasing our scale advantage, which allows us to deliver even more differentiated insights and greater efficiencies over time.

As we look ahead, we expect consumers to increasingly leverage AI to help them shop for insurance. While no one can predict exactly how this will unfold, we remain confident that major carriers will retain a high level of control over how their policies are advertised, distributed, and sold. We’re also confident that advertising will emerge as the dominant monetization paradigm for consumer AI companies, creating a new acquisition channel for our supply partners.

We’ve seen ChatGPT aggressively roll out advertising to free‑tier subscribers in September. According to Similarweb, 43% of free‑tier ChatGPT users in the United States were shown ads. While the impact of agentic commerce, as enabled by personal AI agents like Muse, will vary widely across consumer products and services, large brands and merchants are already signaling that they intend to retain control over how AI agents access their systems and interact with customers on their behalf.

Earlier this month, Meta and Sierra, with partners including Shopify, Stripe, and Walmart, announced a Personal Agent Protocol, an emerging standard designed to let businesses verify who an AI agent represents and set rules for what an agent is allowed and not allowed to do. That reflects a simple reality: companies want to control how third parties access and interact with their website systems and customer‑facing experiences. Insurance carriers are no different, and we expect quoting and binding to largely stay in carrier‑controlled systems, whether the shopper is a person or an AI agent.

As we look ahead to 2027, we’re confident in the momentum we’re seeing as broader carrier mix reflects the wider demand in the market. We’re continuing to operate in a growth‑oriented auto insurance market cycle, and our marketplace delivers the scale and efficiency that carriers need to compete. That competition is driving higher carrier budgets, and more of those dollars are flowing through our marketplace. Longer term, the shift towards direct distribution will continue, with carriers expected to shift a growing portion of their $35 billion of spend in insurance agent commissions into digital marketing over time.

As we wrap up 2026, we believe our business has years of durable double‑digit growth to come, and that will translate into real value for our shareholders. With that, I’m excited to welcome Tigran back as our CFO. Tigran, I’ll hand it over to you to take us through our numbers.

Tigran Sinanyan (Chief Financial Officer)

Thanks, Steve. It’s great to be back, and I’m proud to share these results with you and the team. Our record results exceeded the high end of our guidance ranges for revenue, contribution, and adjusted EBITDA. I’ll cover what drove our results, then cover capital allocation and our fourth quarter outlook. Revenue for the third quarter was $376 million, up 23% year over year, reflecting broader carrier participation and increased spend in our marketplace. That broadening also showed up in our customer mix, and we’re pleased with our progress in diversifying demand. Three carriers each represented more than 10% of third quarter revenue, and our fourth‑largest carrier was just under that mark at 9.6%.

Contribution was $57 million, up 26% year over year and outpacing revenue. That reflects a mix shift toward our open marketplace, led by carriers that rely on us as a trusted partner for optimization and account management. Adjusted EBITDA was $39 million, up 36% year over year. Excluding under‑65 health, revenue and adjusted EBITDA grew 26% and 42% year over year, respectively, reflecting very strong performance in our core business. Growth accelerated as we moved down the P&L: revenue grew 23%, contribution grew 26%, and adjusted EBITDA grew 36% year over year, reflecting the operating leverage in our model.

As contribution grew, a higher share of each incremental dollar flowed through to adjusted EBITDA. Contribution margin, by contrast, can fluctuate from quarter to quarter with deployment mix, product mix, and partnership dynamics. This quarter, we converted 69% of contribution into adjusted EBITDA, our highest since 2024. That operating leverage drives strong cash generation and enables us to deploy capital aggressively to create shareholder value. Cash generation continues to be strong. In the third quarter, we deployed $21 million of capital across share repurchases and reductions to our obligations under the Tax Receivable Agreement, or TRA. We repurchased approximately 800,000 shares for $9 million, representing an average price per share of $11.25. We also continued to reduce our long‑term obligations under the TRA.

In September, we repurchased $23 million of our total TRA liability for $12 million, representing a 47% discount, which generated an $11 million gain that we recorded in the third quarter. We funded this transaction with cash on hand. Since quarter‑end, and as of October 26th, we have repurchased an additional 1.8 million shares for $18 million, an average price of $10.38 per share, utilizing $82 million of our $100 million authorization. This brings our total repurchases since September of 2025 to approximately $115 million, a reduction of approximately 11.2 million shares, or 16% of our shares outstanding.

We ended the quarter with $18.7 million in cash and $30 million undrawn on the revolver to support the pace of repurchases. Early in the fourth quarter, we drew $10 million on our revolving credit facility after quarter‑end, which we view as an attractive use of capital. Turning to guidance, our philosophy and approach remain unchanged. For the fourth quarter, we expect revenue of $355 million to $375 million, up approximately 25% year over year at the midpoint; contribution of $54 million to $57 million, up approximately 18% year over year at the midpoint; and adjusted EBITDA of $36 million to $39 million, up approximately 22% year over year at the midpoint. For Q4, we expect the health vertical to be approximately 4% of total revenue.

Our adjusted EBITDA guidance includes a decline in contribution from under‑65 health of approximately $900,000 year over year. Excluding under‑65 health, we expect contribution to increase 21% and adjusted EBITDA to increase by 26% year over year. At the midpoints, for the full year 2026, we continue to expect to generate $90 to $100 million in free cash flow. We’re proud of the progress the team has made this year, and we’re excited about what’s ahead. Overall, we remain confident in the strength of our position and the opportunity ahead of us. With that, operator, we are ready to take the first question.

OPERATOR

At this time, I would like to remind everyone, in order to ask a question, please press star one on your telephone keypad. Your first question comes from the line of Maria Ripps with Canaccord Genuity. Please go ahead.

Maria Ripps (Analyst at Canaccord Genuity)

Great. Good afternoon and congrats on the strong results. And Tigran, welcome back as CFO. It’s great to hear your voice on the call again. Thanks for taking my questions. First, I just wanted to ask about your expectations for double-digit growth in 2027 and beyond. Just can you maybe talk about whether that’s for revenue or contribution? And then can you maybe help us bridge that between industry growth and share gains from carriers beyond the top two?

And does that assume that your top two carriers hold their 2026 spend levels?

Tigran Sinanyan (Chief Financial Officer)

Thanks for the question. It’s good to be back. I think. When it comes to bridging the double-digit growth, I’ll say that first our top two carrier partners, the leaders in direct-to-consumer customer acquisition, continue to invest in the platform and continue to invest in our marketplace. And so what we’re seeing is a continuation of what we saw in Q3, which is an acceleration in the velocity of spend from carriers 3 to 5. I’d say that we expect that double-digit growth to carry across all of the metrics, particularly because a lot of the growth is coming from our open marketplace where we have higher contribution margin.

So just kind of stepping through the industry dynamics as a starting point, you know, premium CAGR in P&C over a long period of time has been roughly 6%. Digital advertising remains underpenetrated in P&C. You know, our latest stats show about 40% online digital ad penetration relative to other industries which are at 80%. We’re starting to see that catch up. And of course there’s a secular shift to direct to consumer. And that along with that broadening that we’ve seen in Q3 and we’re seeing into Q4, you know, it’s not hard to bridge from that to a double-digit CAGR, an expectation for us going forward.

Maria Ripps (Analyst at Canaccord Genuity)

Got it. That’s very helpful. And then just in terms of AI agents and what’s going on in the industry, it feels like AI agents like Muse can now fill out forms and complete purchases on behalf of users. Are you seeing any agent-driven shopping already happening in the marketplace? And then if your shopper becomes an agent rather than a person, how does your pay-per-click model change as a result?

Steve Yi (Co-Founder & CEO)

Yeah, Maria, I can handle that question. No, we haven’t seen any impact of that, of personal AI agent shopping on behalf of consumers. Certainly we’ve seen some of the demos that people have been talking about. I think that this is, I think, something that’s going to foreseeably shape the early part of the consumer shopping experience. But I think ultimately when it comes to quoting and binding that the carriers are going to retain control of those aspects of the consumer experience.

First of all, carriers have invested tens if not hundreds of billions of dollars in building brand awareness and getting consumers to interact with them directly, be it one of their agents or through their website. The carriers aren’t going to relinquish that control easily or lightly by allowing a personal AI agent to dictate and control how a consumer is going to access their site and systems. That’s not a position that’s inconsistent with a lot of other brands in the space.

I mean, you saw companies like Amazon and Delta Air Lines, Charles Schwab, J.P. Morgan all block attempts by personal AI agents like Muse to actually crawl their sites. And I think for good reason. A lot of these companies are incumbents who have a lot more to lose than to gain by allowing for personal AI agents to access their systems without their permission. In addition to that, these are highly regulated industries, so they want to control exactly what the user sees and what’s disclosed to the user before a purchase is made. And certainly that applies to insurance carriers. And so historically there have been other attempts to try to use an agent or a crawler to go and shop on behalf of a consumer and aggregate a bunch of rates. Those types of business models have been attempted for the past 10 to 15 years.

I will say that they were very unsuccessful in this regard. And certainly AI technology makes this a little easier, but it doesn’t really change the reasons why it didn’t work the first time, which is really largely because the carriers have a lot vested in controlling the consumer experience. And so what we expect to have happen is protocols like the personal agent protocol to really allow brands and companies to be able to control exactly how personal AI agents can interact with their websites and systems.

And once they do that, we think that the dynamics will remain largely similar where the large branded carriers again will really want to have the quoting and the binding happen on their sites and not through a third-party personal AI agent or through an LLM.

Maria Ripps (Analyst at Canaccord Genuity)

Got it. That’s very helpful. Thank you both.

OPERATOR

Your next question comes from the line of Andrew Kliegerman with TD Cowen. Please go ahead.

Andrew Kliegerman (Analyst at TD Cowen)

Hey, good afternoon. So I was interested in the part about the $21 million in agent revenue, and perhaps you could share with us what you see as your share of that market right now and how big that market can be for you. Just what are the KPIs around that, and how do you see that five years down the road?

Steve Yi (Co-Founder & CEO)

Sure, I’ll start with that answer. Which is, I mean, the agent business. Keep in mind, close to 50% of all policies are still written through agents. And so when you break down the market opportunity, although we expect to see a continuing secular shift to direct-to-consumer sales versus agent-based sales, agent-based sales are still going to remain a huge part of the overall distribution channel for this industry. And these agents, I think, still need to be connected to the online shopping ecosystem.

And so what we see is the long opportunity here being comparable to what the market share is for agents in general. And so it’s an enormous market opportunity. In terms of where our market share is compared to others, we started this business, the agent business, from scratch in 2021 and we’re growing this business. And so our footprint here is smaller than that of some of our other competitors who’ve been in this business for 10-plus years. And so what we expect is that we can gain market share because one of the things that we’ve been able to do is bring a lot of programmatic efficiencies to how agents buy leads.

We’re seeing that in just better ROI that they’re getting from the lead and call purchases that they’re making through our ecosystem and using our platform. We’re seeing that lead to these partnerships like the Farmers Lead Marketplace where we’re powering programmatic lead purchasing for all Farmers agents. And so the ability to really support that on behalf of carriers like Farmers is really leading to us having a lot of momentum behind our agent business.

And so we expect this business to be a very large one for us going forward and one where we have a lot of market share gains that we can expect in the upcoming years.

Andrew Kliegerman (Analyst at TD Cowen)

That’s awesome. And just as we think about shopping and the pricing cycle, Stephen, where are we in terms of that, the level of shopping right now? And you know, how do you see that playing out over the next year or two? Have we kind of peaked out in terms of this activity and what MediaAlpha will see or do we still have a few more years of it?

Steve Yi (Co-Founder & CEO)

Yeah, I mean, I think in terms of, I think you’re asking about just maybe where we are in the underwriting cycle and how that may impact shopping. And they’re slightly different. And so let me just try to answer. You know, so I think shopping remains at elevated levels now. Shopping spikes when carriers raise rates, and they raise rates during these hard market cycles when we emerged from, you know, back in 2024, 2025. And so I think what you’re seeing is that the rates of shopping have come down since that period when people’s prices were getting increased by 30–40% and that led to increased shopping.

But I think because insurance has seen overall inflation of 40–50% over the last few years, I do think that you’re going to see heightened levels of shopping persist over the next several years. Now, we’ve always said that ambient shopping behavior does have an impact on the volume in our marketplace. But what has a far greater impact is carrier demand and carrier growth appetites. And really where we are in the insurance underwriting cycle is still in the very early stages of what is a growth-oriented soft market cycle. The second quarter of this year was the most profitable period by some measures within the P&C industry in 25 years. And what that’s doing is it’s really fueling a market share growth competition between all the major carriers.

You see a lot of the carriers talking about how competitive the market is. And during these competitive market cycles, what happens is that carriers tend to lower rates to have their policies be more competitive, and they spend a lot more in advertising. This has the effect of actually lowering their overall profitability from peak levels. But obviously all of this competition and increasing ad spend has a strongly beneficial effect for our marketplace.

And you’re really seeing that play out with the broadening of demand in our marketplace. And I think that you can continue to expect these tailwinds to persist for the foreseeable future just because the industry remains at a very, very strong profitability position.

Andrew Kliegerman (Analyst at TD Cowen)

Super helpful, thank you.

OPERATOR

Your next question comes from the line of Brian Smilek with J.P. Morgan. Please go ahead.

Brian Smilek (Analyst at J.P. Morgan)

Great, thanks for taking the questions. Look, Steve, great to see the execution. I believe the 4Q guide does imply, you know, solid P&C acceleration. Can you just help me parse out the drivers there? And just like more specifically by vertical as well, I thought home and renters is growing quite nicely in triple digits. Can you just elaborate a bit on what’s going on there? Is it really more macro driven or share-of-wallet driven? Thank you.

Steve Yi (Co-Founder & CEO)

Yeah. So on the home insurance side, I think it is a lot more macro driven. I think what you’re seeing is recovery of the homeowner market, which is a lot more state-driven than auto tends to be. And so what you’re seeing is in part because we just haven’t had a lot of catastrophic events happen like in Florida or in California over the past year and a half to two years. I think what that’s leading to is a lot of carriers going back into those large states that had in the past been problematic states, and so states like Florida, California, and Texas.

And so as you see these carriers going back into those states and increasing capacity there, you’re obviously seeing them now starting to advertise in those states. And so as those budgets go up, advertising budgets go up, you’re seeing our supply partners really reacting to that by expanding the amount of volume that they can make available to these carriers. And so I think that a lot of the growth there is based on just increasing capacity for homeowners insurance and the growth appetites that you’re starting to see among homeowner insurers, and just seeing that demand reflected in the overall volume in our marketplace. I think overall in Q4 you’re going to continue to see growth being driven by just the increased growth appetites of our auto insurance carriers. Again, that marketplace is in a very, very good position, profitability-wise.

That’s really resulting in carriers investing a lot into direct distribution and direct advertising. Again, you’re seeing that being reflected with how much broader the demand is within our marketplace versus two to three years ago. I think you’re just going to continue to see those trends in Q4.

Brian Smilek (Analyst at J.P. Morgan)

Great, thank you. Steve,

OPERATOR

Your next question comes from the line of Tommy McJoint with KBW. Please go ahead.

Tommy McJoint (Analyst at KBW)

Hey, good evening. Thanks for taking our questions. Going back to the subject of personal AI agents, is that a risk? Steve, when you talked a little bit about your response to one of the earlier questions, is there a risk that MediaAlpha worries about, that the largest direct consumer carriers do establish formal personal AI agent protocols with popular personal AI agents and that cuts out MediaAlpha, or do you view your marketplace as still having a solution to provide in those types of arrangements to the extent they do become somewhat commonplace?

Steve Yi (Co-Founder & CEO)

No, it’s a good question. I think that. Well, I mean, first of all, I think that it’s, I mean, I guess my position is that it’s. That what you would have to expect is that then what the carriers really don’t want, right? They don’t want an environment where their rates are displayed, you know, outside of their own websites or through someone other than their own agents. And that’s, you know, not true for independent agent carriers who don’t have control of the consumer experience as it is, they sell their products primarily through agents and brokers.

But that’s certainly the case for direct-to-consumer carriers and the captive agent carriers. And it’s really those carriers who represent the vast majority of the overall industry that we expect to really be resistant to efforts by personal AI agents to pull in their rates into an environment so that it can be easily matched against rates from other smaller carriers. That level of transparency isn’t something that the big carriers want for a variety of reasons.

And so I think the premise that you think that a carrier would do a deal directly with the personal AI agent to show their rates in those, I mean, that’s the premise I would question. You know, certainly I think that you can, I think it’s foreseeable that a user will start their shopping experience on a personal AI agent through a personal AI agent or through an LLM, but ultimately they’re going to have to go over to the carrier site to complete that process. And that type of a direct referral is something that you see through Google, et cetera. But keep in mind just the ecosystem that’s going to arise around these personal AI agents and LLMs, they’re going to be advertising.

And so just like Google, you can go on Google, search for insurance, go directly to GEICO to buy a policy, right? Or you can, or you can go directly to a price comparison site or lead generation site to shop for insurance. And then that’s where we have to make that referral, that connection between one of our publishers and the carriers. And I think that, number one, our supply base is going to really tap into the advertising ecosystem that a ChatGPT is creating and that you’re likely to see with something like amuse.

And then in addition to that, even if people do end up searching for insurance and starting their experience at LLM or through a personal AI agent, we fully expect our publisher base to remain resilient, tap into other media channels to really generate a lot of strong shopping volume for the foreseeable future that we can then help to direct to the right carriers.

Tommy McJoint (Analyst at KBW)

Got it. Thanks for all those comments. And then switching over, it’s good to see you on track to hitting your buyback goals for this year. And as you think about heading into next year, talking about double-digit increases across the various financial metrics, can you talk about your expectations for free cash flow conversion into next year and specifically how the recent tax receivable transactions will impact that going forward? And then with that strong free cash flow generation, what are your plans in terms of buybacks and other forms of capital deployment next year?

Tigran Sinanyan (Chief Financial Officer)

Thanks, Tommy. I’ll handle that. With respect to the TRA acquisitions, the effect of that on cash flow is that we’ll be retaining around $5 million a year of incremental cash flow that would have gone out to the TRA holders. But now that we’ve retired that liability, that money stays in the company and we continue to benefit from the cash tax shield. Right. In 2026, cash taxes will be approximately 1% going forward. In ’27, you can expect that to be in the mid-single digits and then in the mid-teens thereafter.

And so there’s a lot of cash savings and return that we’re generating from those TRA acquisitions. I’d say roughly mid-teens in terms of an IRR. And the cash flow conversion for us will remain high. We remain a low capex business. And so as we continue to generate contribution growth, which flows down to adjusted EBITDA at the midpoint of our guidance at 68%, really the major kind of outflows on cash are net working capital and a little bit on debt service. Right. So we’ll have plenty of opportunity to deploy capital efficiently. And I’ll say that the bar remains high for us. You know, we’re trading at, effectively, mid-teens free cash flow yield.

And so that’s kind of where we’re going to measure ourselves in terms of the returns we can generate at current prices. I think we’ve demonstrated over the last five quarters that we are bullish on the stock and believe that it’s an attractive investment. And we’ve deployed capital fairly consistently quarter to quarter between TRA acquisition and share repurchases. Last quarter we deployed $21 million. The quarter prior was $20 million. On share repurchases, again, the quarter prior was $20 million.

And so you can expect us to continue to look at, you know, the opportunities ahead of us in terms of generating return and making the most prudent decision.

Tommy McJoint (Analyst at KBW)

Thank you.

OPERATOR

Our next question comes from the line of Eric Sheridan with Goldman Sachs. Please go ahead.

Eric Sheridan (Analyst at Goldman Sachs)

Thanks so much for taking the question. During the prepared remarks, you talked about one partner running an optimization test that saw much higher conversion. I’m curious if we could maybe pull on that thread a little bit. When you think about your platform and the potential for evolution of it, how are you thinking about conversion improvements, greater scale optimization, and how that may result in either a higher return profile from the spend that’s already on the platform, or the means to possibly attract more net advertising dollars to the platform as you prove out a scaling ROI on the back of some of those initiatives.

Steve Yi (Co-Founder & CEO)

Yeah. Hey Eric, it’s a good question. I mean, I think. Yeah, I mean, I think you summarized kind of how we think about it, which is that as we have the scale advantage, we’re the largest marketplace within the industry, in some ways several times that of some of our competitors. That data scale advantage is really translating itself into the ability to leverage predictive AI to deliver better outcomes, better matching for our advertisers, and then higher yield for our publishers.

And so ultimately, because we can leverage the data and apply AI against the data to provide better outcomes for both the participants in that marketplace, as you can imagine, what that results in is just the attraction of more budget and more advertisers and then more supply because publishers understand that the yield that they can get and the money that they can make by exposing their advertising inventory through our marketplace is better than what they can get anywhere else.

And so it’s a virtuous cycle. It is a flywheel effect that you really see taking effect here. And it really has to do with our scale and the data advantage that that’s giving us and our AI capabilities and the data science capabilities that we have internally and then doing just an outstanding job of optimizing campaigns on behalf of our advertisers and doing that in a way that’s better than any of our competitors can do and better than any carriers can do directly for themselves.

Eric Sheridan (Analyst at Goldman Sachs)

Great, thank you.

OPERATOR

Your final question comes from the line of Mike Zarmeski with BMO. Please go ahead.

Mike Zarmeski (Analyst at BMO Capital Markets)

Thanks. Maybe I’ll start with just a bigger picture question. Sticking with the conversation about the evolution of AI and shopping experiences and obviously a lot of still directions things can settle out. But I guess, is it reasonable? Is there a reasonable scenario, I guess, in which shopping habits push the industry to either your industry and/or the carriers to consolidate in a much bigger way to the extent shopping habits do meaningfully change towards increased shopping or Internet?

Steve Yi (Co-Founder & CEO)

Let’s see. Yeah, I’m not sure how shopping habits—and feel free to elaborate, Mike; I might be missing the question—but I’m not sure how shopping habits and increased shopping habits by insurance consumers particularly and the evolution of shopping habits to an AI platform or an ecosystem could lead to consolidation within the industry. I would say that certainly I think, as I mentioned, I think you’re going to continue to see elevated shopping patterns among consumers just because the price of auto insurance is so much higher than it was before.

And so there’s a built-in incentive by consumers to really try to get the best price. Now in terms of the AI’s impact on the insurance shopping experience, you know, what we talked about is really that having an impact and potentially disruptive impact on the upper funnel of that shopping experience where instead of going to Google and searching for auto insurance, they start off in ChatGPT or with a personal AI agent and try to get some information through one of those sources leveraging AI to become better informed about shopping.

But that ultimately the shopping experience is going to have to be, you know, the quoting process at least and then certainly the binding process will have to be hosted by the carriers themselves. And so, and so I’m not sure whether or not those trends will lead to consolidation, you know, within the space. If there’s some aspect of that question I was missing, feel free to clarify that.

Mike Zarmeski (Analyst at BMO Capital Markets)

No, you got it. That’s helpful. No, I guess the premise was just there’s a number of carriers, and you know the universe well, that are just kind of watching and don’t really play much in direct-to-consumer and aren’t low-cost providers, et cetera. So it’s going to just accelerate the longer-term shift towards D2C.

Steve Yi (Co-Founder & CEO)

Absolutely. And so what you’ve seen is 15 or 20 years after auto insurance was shoppable online, you still have roughly half of consumers buying auto insurance through an agent. And that’s just because insurance is a more complicated product. Things like homeowners, small business, commercial insurance, slightly more complicated like life insurance. Those are products that are smaller within our ecosystem and within the online advertising ecosystem, but because they’re more complicated products that really require human intervention and human explanation.

And now one exciting thing that we foresee is that when people start off their shopping experience in an AI environment or they leverage AI capabilities that are offered by a carrier themselves in an online interface, that they’re going to become much better informed about these complicated purchasing decisions and will have less of a need to actually have a human intervene in the shopping process for them before they’re ready to make a purchasing decision.

And so it certainly I think will have an impact in the auto space. I think it’s going to have a pretty big impact in the homeowner and small business commercial space. And what I’m trying to say is that AI does have the potential to actually have a far beneficial impact to unassisted direct-to-consumer enrollment channels where a consumer can just go and start the process and finish the process really without having to resort to turning to an agent for assistance—again with the more complicated insurance products.

And so we do see AI as a potential strong tailwind for these non-auto insurance verticals which again right now primarily are closed by offline agents and call centers.

Mike Zarmeski (Analyst at BMO Capital Markets)

Got it. That’s a good perspective. And I guess just lastly, in terms of the contribution margin trend line, we can kind of see the guidance. You know, I think historically there’s a little bit of 4Q seasonality from health, but health is just much smaller. Right. So it looks like we should continue to kind of think about the contribution margin trending down a bit, unless you did make some remarks earlier that might contradict that in the future.

Tigran Sinanyan (Chief Financial Officer)

Thanks, Mike. No, I think with respect to contribution margin percentage, you can expect that to be relatively stable. And what we’ve guided to is a good indication of where that is. Now, that could move about depending on, you know, partnership dynamics, mix. But you’re right to point out that, you know, in Q4 there’s a little bit of seasonality with P&C seeing a little bit less supply in a normal kind of seasonal period and health seeing an uptick.

Overall, I’d say our open marketplace take rates across those two verticals are steady, seeing some growth, and stable. And so, you know, something that could impact the contribution margin percentage would be movements in private marketplace, which would lift contribution margin percentage. But overall I think what you’re seeing in the guide is indicative of what you should be modeling.

Mike Zarmeski (Analyst at BMO Capital Markets)

Okay, thanks for the clarification. Thanks.

Tigran Sinanyan (Chief Financial Officer)

Thanks, Mike.

OPERATOR

There are no further questions at this time. Ladies and gentlemen, this concludes today’s conference call. You may now disconnect.

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