PubMatic (NASDAQ:PUBM) Reports Q3 Results

Full Report / December 14, 2021
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Programmatic Advertising platform Pubmatic (NASDAQ: PUBM) reported Q3 FY2021 results topping analyst expectations, with revenue up 53.6% year on year to $58 million. Guidance for next quarter's revenue was surprisingly good, being $75 million at the midpoint, 20.6% above what analysts were expecting. PubMatic made a GAAP profit of $13.5 million, improving on its profit of $6.23 million, in the same quarter last year.

PubMatic (PUBM) Q3 FY2021 Highlights:

  • Revenue: $58 million vs analyst estimates of $52.4 million (10.7% beat)
  • EPS (GAAP): $0.24
  • Revenue guidance for Q4 2021 is $75 million at the midpoint, above analyst estimates of $62.1 million
  • Free cash flow of $15.4 million, up 61.6% from previous quarter
  • Net Revenue Retention Rate: 157%, up from 150% previous quarter
  • Gross Margin (GAAP): 72.4%, in line with same quarter last year

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 advertising industry continues to shift from traditional mediums to an expanding array of digital channels and platforms, which has created a convoluted ecosystem of ad buyers and sellers that includes header bidding, which involves putting software code on a website which allows different advertisers to bid in real time for each ad impression. Ever increasing ad impressions from ever rising digital adoption by consumers has resulted in an explosion of data around online advertising (e.g. who bid what when and who won each bid) that requires data mining to allow advertisers to more efficiently place bids.

Pubmatic’s platform plays the role of an intermediary between ad sellers and ad buyers. Publishers and app developers are the “ad-slot sellers'' that plug into Pubmatic’s platform, which in turn interfaces with “ad-slots buyers” and ad-slots buying platforms such as Google and The Trade Desk, along with individual advertisers and ad agencies. As an independent intermediary, Pubmatic’s platform provides transparency for advertisers to know who they are buying and selling from, along with data analytics to help improve buyers and sellers’ purchasing decisions.

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.

Pubmatic’s competitors include the big three ad platforms: Google (NASDAQ:GOOG), Facebook (NASDAQ: FB) and Amazon (NASDAQ: AMZN) along with specialized programmatic players like The Trade Desk (NASDAQ: TTD) and Integral Ad Science (NASDAQ: IAS).

Sales Growth

As you can see below, PubMatic's revenue growth has been incredible over the last year, growing from quarterly revenue of $37.7 million, to $58 million.

PubMatic Total Revenue

This was another standout quarter with the revenue up a splendid 53.6% year on year. On top of that, revenue increased $8.42 million quarter on quarter, a very strong improvement on the $6.05 million increase in Q2 2021, and a sign of re-acceleration of growth, which is very nice to see indeed.

Analysts covering the company are expecting the revenues to grow 18.6% over the next twelve months.

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 157% in Q3. That means even if they didn't win any new customers, PubMatic would have grown its revenue 57% year on year. Significantly up from the last quarter, this is 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.


What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. PubMatic's gross profit margin, an important metric measuring how much money there is left after paying for servers, licenses, technical support and other necessary running expenses was at 72.4% in Q3.

PubMatic Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.72 left to spend on developing new products, marketing & sales and the general administrative overhead. Despite the recent drop this is still around the lower average of what we typically see in SaaS businesses. Gross margin has a major impact on a company’s ability to invest in developing new products and sales & marketing, which may ultimately determine the winner in a competitive market so it is important to track.

Key Takeaways from PubMatic's Q3 Results

With a market capitalization of $1.98 billion PubMatic is among smaller companies, but its more than $136.7 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. Zooming out, we think this impressive quarter should have shareholders feeling very positive. The company currently trades at $36.03 per share.

Is Now The Time?

When considering PubMatic, investors should take into account its valuation and business qualities, as well as what happened in the latest quarter. We think PubMatic is a solid business. We would expect growth rates to moderate from here, but its revenue growth has been exceptional, over the last two years. On top of that, its very efficient customer acquisition hints at the potential for strong profitability, and its strong free cash flow generation gives it re-investment options.

PubMatic's price to sales ratio based on the next twelve months is 8.2x, suggesting that the market is expecting more steady growth, relative to the hottest tech stocks. There are definitely things to like about PubMatic and looking at the tech landscape right now, it seems that the company trades at a pretty interesting price point.

The Wall St analysts covering the company had a one year price target of $46.3 per share right before these results, implying that they saw upside in buying PubMatic even in the short term.

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