PubMatic (NASDAQ:PUBM) Delivers Impressive Q1, Guides For Strong Sales Next Quarter

Anthony Lee /
2023/05/09 4:27 pm EDT
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Programmatic advertising platform Pubmatic (NASDAQ: PUBM) reported Q1 FY2023 results topping analyst expectations, with revenue up 1.57% year on year to $55.4 million. On top of that, guidance for next quarter's revenue was surprisingly good, being $59.5 million at the midpoint, 4.66% above what analysts were expecting. PubMatic made a GAAP loss of $5.87 million, down on its profit of $4.78 million, in the same quarter last year.

Is now the time to buy PubMatic? Access our full analysis of the earnings results here, it's free.

PubMatic (PUBM) Q1 FY2023 Highlights:

  • Revenue: $55.4 million vs analyst estimates of $51 million (8.57% beat)
  • EPS (non-GAAP): $0.02 vs analyst estimates of -$0.13 ($0.15 beat)
  • Revenue guidance for Q2 2023 is $59.5 million at the midpoint, above analyst estimates of $56.9 million
  • Free cash flow of $5.34 million, down 48.9% from previous quarter
  • Net Revenue Retention Rate: 105%, down from 108% previous quarter
  • Gross Margin (GAAP): 56.9%, down from 67% same quarter last year

“Our focused strategy, strong execution, and deep customer relationships drove our performance and market share gains in the quarter. Our results reinforce the value of our platform with innovative solutions that drive increased stickiness and superior outcomes for publishers and buyers,” said Rajeev Goel, co-founder and CEO at PubMatic.

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

The digital advertising market is large, growing and becoming more diverse, both in terms of audiences and media. This as a result drives a growing need for a 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 strong over the last two years, growing from quarterly revenue of $43.6 million in Q1 FY2021, to $55.4 million.

PubMatic Total Revenue

PubMatic's quarterly revenue was only up 1.57% year on year, which might disappoint some shareholders. But the revenue actually decreased by $18.9 million in Q1, compared to $9.8 million increase in Q4 2022. However, PubMatic's sales do seem to have a seasonal pattern to them, and considering management is guiding for revenue to rebound in the coming quarter we wouldn't be too concerned.

PubMatic is guiding for revenue to decline next quarter 5.6% year on year to $59.5 million, a further deceleration on the 26.9% year-over-year decrease in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 5.13% over the next twelve months.

In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.

Product Success

One of the best things about software as a service businesses (and a reason why they trade at such high multiples) is that customers tend to spend more with the company over time.

PubMatic Net Revenue Retention Rate

PubMatic's net revenue retention rate, an important measure of how much customers from a year ago were spending at the end of the quarter, was at 105% in Q1. That means even if they didn't win any new customers, PubMatic would have grown its revenue 5% year on year. Despite it going down over the last year this is still a fair retention rate and it shows us that customers stick around. But PubMatic is lagging a little behind the best SaaS businesses that achieve net dollar retention rates of over 120%.

Key Takeaways from PubMatic's Q1 Results

With a market capitalization of $658.4 million PubMatic is among smaller companies, but its more than $173.2 million in cash and positive free cash flow over the last twelve months give us confidence that PubMatic has the resources it needs to pursue a high growth business strategy.

We were impressed by how strongly PubMatic outperformed analysts’ revenue expectations this quarter. And we were also glad that the revenue guidance for the next quarter exceeded analysts' expectations. On the other hand, it was less good to see the pretty significant deterioration in gross margin and the revenue retention rate deteriorated. Overall, we think this was an ok quarter. But the market was likely expecting more and the company is down 2.54% on the results and currently trades at $12.3 per share.

PubMatic may have had a good quarter, so should you invest right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

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The author has no position in any of the stocks mentioned.