PubMatic (NASDAQ:PUBM) Reports Q4 In Line With Expectations But Stock Drops 15% On Weak Guidance

Kayode Omotosho /
2022/02/28 4:14 pm EST

Programmatic Advertising platform Pubmatic (NASDAQ: PUBM) reported results in line with analyst expectations in Q4 FY2021 quarter, with revenue up 34.3% year on year to $75.5 million. Guidance for the full year also exceeded estimates, however the guidance for the next quarter was less impressive, coming in at $54 million, 4.69% below analyst estimates. PubMatic made a GAAP profit of $28.2 million, improving on its profit of $18.8 million, in the same quarter last year.

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PubMatic (PUBM) Q4 FY2021 Highlights:

  • Revenue: $75.5 million vs analyst estimates of $75.5 million (small beat)
  • EPS (non-GAAP): $0.48 vs analyst estimates of $0.29 ($0.19 beat)
  • Revenue guidance for Q1 2022 is $54 million at the midpoint, below analyst estimates of $56.6 million
  • Management's revenue guidance for upcoming financial year 2022 is $284 million at the midpoint, in line with analyst expectations and predicting 25.1% growth (vs 57.5% in FY2021)
  • Free cash flow of $18.7 million, up 21.5% from previous quarter
  • Net Revenue Retention Rate: 149%, down from 157% previous quarter
  • Gross Margin (GAAP): 77.6%, down from 79.6% same quarter last year

“For the second consecutive year, we delivered an incredible combination of revenue growth and profitability. Organic revenue growth in 2021 was 53% over last year, reflecting significant market share gains in a large and rapidly growing market,” 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 exceptional over the last year, growing from quarterly revenue of $56.2 million, to $75.5 million.

PubMatic Total Revenue

And unsurprisingly, this was another great quarter for PubMatic with revenue up 34.3% year on year. On top of that, revenue increased $17.4 million quarter on quarter, a very strong improvement on the $8.42 million increase in Q3 2021, and a sign of re-acceleration of growth.

Guidance for the next quarter indicates PubMatic is expecting revenue to grow 23.8% year on year to $54 million, slowing down from the 53.8% year-over-year increase in revenue the company had recorded in the same quarter last year. For the upcoming financial year management expects revenue to be $284 million at the midpoint, growing 25.1% compared to 57.5% increase in FY2021.

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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 149% in Q4. That means even if they didn't win any new customers, PubMatic would have grown its revenue 49% year on year. Despite the recent drop that is still an absolutely exceptional retention rate, meaning PubMatic's software is extremely successful with their customers who are rapidly expanding the use of it across their organizations.

Key Takeaways from PubMatic's Q4 Results

With a market capitalization of $1.49 billion PubMatic is among smaller companies, but its more than $159.6 million in cash and positive free cash flow over the last twelve months put it in a very strong position to invest in growth.

It was good to see PubMatic deliver strong revenue growth this quarter. That feature of these results really stood out as a positive. On the other hand, the revenue guidance for next year indicates a significant slowdown and the revenue guidance for the next quarter missed analysts' expectations. Overall, it seems to us that this was a complicated quarter for PubMatic. The company is down 15.1% on the results and currently trades at $25.96 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.

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