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PubMatic (NASDAQ:PUBM) Misses Q3 Revenue Estimates, Stock Drops


Kayode Omotosho /
2022/11/08 4:13 pm EST
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Programmatic advertising platform Pubmatic (NASDAQ: PUBM) missed analyst expectations in Q3 FY2022 quarter, with revenue up 11% year on year to $64.5 million. Guidance for the next quarter also missed analyst expectations with revenues guided to $76.5 million at the midpoint, or 18.7% below analyst estimates. PubMatic made a GAAP profit of $3.32 million, down on its profit of $13.5 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) Q3 FY2022 Highlights:

  • Revenue: $64.5 million vs analyst estimates of $67.0 million (3.71% miss)
  • EPS (non-GAAP): $0.22 vs analyst estimates of $0.20 (9.2% beat)
  • Revenue guidance for Q4 2022 is $76.5 million at the midpoint, below analyst estimates of $94.1 million
  • Free cash flow of $10.6 million, up 29.6% from previous quarter
  • Net Revenue Retention Rate: 120%, down from 130% previous quarter
  • Gross Margin (GAAP): 66.5%, down from 72.4% same quarter last year

“Our role in the ecosystem is only getting stronger, providing publishers with the critical tools and levers they need to control how their inventory and audiences are accessed,” 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 impressive over the last two years, growing from quarterly revenue of $37.7 million in Q3 FY2020, to $64.5 million.

PubMatic Total Revenue

Even though PubMatic fell short of revenue estimates, its quarterly revenue growth was still up 11% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $1.46 million in Q3, compared to $8.48 million in Q2 2022. We'd like to see revenue increase by a greater amount each quarter, but a one-off fluctuation is usually not concerning.

Guidance for the next quarter indicates PubMatic is expecting revenue to grow 1.24% year on year to $76.5 million, slowing down from the 34.3% year-over-year increase 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 21.2% 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 120% in Q3. That means even if they didn't win any new customers, PubMatic would have grown its revenue 20% year on year. Despite it going down over the last year this is still a good retention rate and a proof that PubMatic's customers are satisfied with their software and are getting more value from it over time. That is good to see.

Key Takeaways from PubMatic's Q3 Results

With a market capitalization of $843.8 million PubMatic is among smaller companies, but its more than $166 million in cash and positive free cash flow over the last twelve months put it in a very strong position to invest in growth.

PubMatic produced positive cash flow this quarter, that is good to see in the environment. On the other hand, it was unfortunate to see that its revenue guidance missed analysts' expectations. Overall, this quarter's results were not the best we've seen from PubMatic. The company is down 6.17% on the results and currently trades at $15.2 per share.

PubMatic may have had a tough quarter, but does that actually create an opportunity to 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.

One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 70% year on year and best-in-class SaaS metrics it should definitely be on your radar.

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