What we think about PubMatic (PUBM)
PubMatic in Three Words: Innovative, Customer-Focused, CTV
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Background
Similar to Magnite, PubMatic is one of America’s fastest-growing programmatic advertising supply-side platforms (SSPs).
It helps publishers get the highest rates possible in placing advertisements on their websites, podcasts, or Connected TV (CTV) stations. PubMatic participates in trillions of digital auctions every day to place the right ad in front of the right person at the right time. The entire process takes one-sixth of a second, and PubMatic takes 10-20% of the gross ad spend (based on the format) for winning the transaction for the publisher.
Rather than growing through acquisitions, PubMatic prefers to own its own infrastructure and develop its products internally. Its laser focus on supply path optimization has been a boon to business, with sales from SPO agreements now accounting for around 45% of its platforms’ total activity.
PubMatic appears to be turning the corner in 2024. After a difficult few years in for digital advertising at large that were due to rapidly-rising interest rates constricting ad budgets, the supply-side platform reported a respectable 20% revenue growth and a 36% operating cash flow margin in its most recent Q1'24. That's much better than the negative revenues it was reporting during late 2022 and early 2023.
"Supply path optimization" continue to be the most important three words in PubMatic's vocabulary, referring to how advertisers and publishers are both consolidating vendors as they seek to find the most direct and least expensive way to convert traffic into paying customers. PubMatic's SPO customers now make up over 50% of total revenue -- up from 27% two years ago -- which is a good sign that its customers still see value in it and it's on the right side of the industry's consolidation.
Founder and CEO Rajeev Goel’s "move fast and adapt" mentality has served PubMatic well in this fast-moving digital ad industry. Now processing nearly 60 trillion impressions per quarter, it has a front-row view as a bellwether of where the American economy is heading.
The Trade Desk's OpenPath continues to pose a disruptive threat, yet PubMatic is somewhat insulated from this due to its focus on smaller businesses. Now selling at less than 4x sales and 17x free cash flow, I don't think the market's giving this under-the-radar innovator enough credit for its cyclical revenue rebound and its consistently excellent margins.
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