PubMatic (NASDAQ:PUBM) Reports Strong Q3, Stock Jumps 12.2%

Max Juang /
2023/11/08 4:19 pm EST

Programmatic advertising platform Pubmatic (NASDAQ: PUBM) announced better-than-expected results in Q3 FY2023, with revenue down 1.3% year on year to $63.68 million. On top of that, next quarter's revenue guidance ($78 million at the midpoint) was surprisingly good and 5% above what analysts were expecting. Turning to EPS, PubMatic made a GAAP profit of $0.03 per share, down from its profit of $0.06 per share in the same quarter last year.

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PubMatic (PUBM) Q3 FY2023 Highlights:

  • Revenue: $63.68 million vs analyst estimates of $59.48 million (7.1% beat)
  • EPS (non-GAAP): $0.14 vs analyst estimates of $0.01 ($0.13 beat)
  • Revenue Guidance for Q4 2023 is $78 million at the midpoint, above analyst estimates of $74.3 million (Adjusted EBITDA guidance for Q4 also beat)
  • Free Cash Flow of $17.17 million, up 16.7% from the previous quarter (beat)
  • Net Revenue Retention Rate: 97%, down from 100% in the previous quarter
  • Gross Margin (GAAP): 59%, down from 66.5% in the same quarter last year

“This quarter highlights an inflection point for PubMatic and the sell side technology category. Our innovation investments are driving momentum in the business and fueling our growth expectations for the fourth quarter. In the third quarter, we added new logos, strengthened publisher and buyer relationships and expanded our offerings. Supply Path Optimization (SPO) share of activity climbed to 45%, showcasing the upside growth potential inherent in our business,” 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 $58.09 million in Q3 FY2021 to $63.68 million this quarter.

PubMatic Total Revenue

This quarter, PubMatic's revenue was down 1.3% year on year, which might disappointment some shareholders.

Next quarter's guidance suggests that PubMatic is expecting revenue to grow 5% year on year to $78 million, improving on the 1.7% year-on-year decline it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 5.7% over the next 12 months before the earnings results announcement.

The pandemic fundamentally changed several consumer habits. There is a founder-led company that is massively benefiting from this shift. The business has grown astonishingly fast, with 40%+ free cash flow margins. Its fundamentals are undoubtedly best-in-class. Still, the total addressable market is so big that the company has room to grow many times in size. You can find it on our platform for free.

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 Net Revenue Retention Rate

PubMatic's net revenue retention rate, a key performance metric measuring how much money existing customers from a year ago are spending today, was 97% in Q3. This means PubMatic's revenue would've decreased by 3% over the last 12 months if it didn't win any new customers.

PubMatic's already weak net retention rate has been dropping the last year, signaling that some customers aren't satisfied with its products, leading to lost contracts and revenue streams.

Key Takeaways from PubMatic's Q3 Results

With a market capitalization of $623.5 million, PubMatic is among smaller companies, but its $171.4 million cash balance and positive free cash flow over the last 12 months give us confidence that it has the resources needed to pursue a high-growth business strategy.

We were impressed by PubMatic's revenue and Adjusted EBITDA guidance for next quarter, both of which blew past analysts' expectations. We were also excited its revenue outperformed Wall Street's estimates. On the other hand, its net revenue retention fell and its gross margin decreased. While not a perfect quarter, we still think this was still a strong one that should satisfy most shareholders. The stock is up 12.2% after reporting and currently trades at $13.58 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.

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