PubMatic (NASDAQ:PUBM) Beats Expectations in Strong Q4, Stock Jumps 25.8%

Programmatic advertising platform Pubmatic (NASDAQ: PUBM) reported Q4 FY2023 results beating Wall Street analysts' expectations, with revenue up 13.9% year on year to $84.6 million. On top of that, next quarter's revenue guidance ($62 million at the midpoint) was surprisingly good and 6.3% above what analysts were expecting. It made a non-GAAP profit of $0.45 per share, improving from its loss of $0.08 per share in the same quarter last year.

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“We ended 2023 on an incredibly high note, marking an inflection point in revenue growth as we accelerated to 14% year-over-year growth and strong profitability in the fourth quarter. These results highlight the strength of our platform, the value we deliver to publishers and buyers, our focused investments in key areas of the business over the last 18 months, and the increasing importance of sell-side technology across the ecosystem,” said Rajeev Goel, co-founder and CEO at PubMatic.

Founded in 2006 as an online ad platform helping ad sellers, Pubmatic (NASDAQ: PUBM) is a fully integrated cloud-based programmatic advertising platform.

Advertising Software

The digital advertising market is large, growing, and becoming more diverse, both in terms of audiences and media. As a result, there is a growing need for software that enables advertisers to use data to automate and optimize ad placements.

Sales Growth

As you can see below, PubMatic's revenue growth has been unremarkable over the last two years, growing from $75.56 million in Q4 FY2021 to $84.6 million this quarter.

This quarter, PubMatic's quarterly revenue was up 13.9% year on year, above the company's historical trend. We can see that PubMatic's revenue increased by $20.92 million quarter on quarter, which is a solid improvement from the $347,000 increase in Q3 2023. Shareholders should applaud the acceleration of growth.

Next quarter's guidance suggests that PubMatic is expecting revenue to grow 11.9% year on year to $62 million, improving on the 1.6% year-on-year increase it recorded in the same quarter last year.

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Product Success

One of the best parts about the software-as-a-service business model (and a reason why SaaS companies trade at such high valuation multiples) is that customers typically spend more on a company's products and services over time.

PubMatic's net revenue retention rate, a key performance metric measuring how much money existing customers from a year ago are spending today, was 101% in Q4. This means that even if PubMatic didn't win any new customers over the last 12 months, it would've grown its revenue by 1%.

Significantly up from the last quarter, PubMatic has an adequate net retention rate, showing us that it generally keeps customers but lags behind the best SaaS businesses, which routinely post net retention rates of 120%+.

Key Takeaways from PubMatic's Q4 Results

We were impressed by PubMatic's strong free cash flow margin improvement this quarter. We were also glad next quarter's revenue guidance came in higher than Wall Street's estimates. Zooming out, we think this was a fantastic beat and raise quarter that should have shareholders cheering. The stock is up 25.8% after reporting and currently trades at $20.85 per share.

PubMatic may have had a good quarter, but does that mean you should invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.