PubMatic Earnings: Access to Inventory Continues To Improve, While Prices Remain Weak

We are maintaining our $22 fair value estimate for PubMatic PUBM. The stock was down more than 12% in afterhours trading, approaching 4-star territory and becoming attractive.

While PubMatic reported better-than-expected second-quarter results, guidance for the third quarter was disappointing due to the ongoing weakness in ad pricing and the bankruptcy of demand-side-platform provider MediaMath, both of which we believe will be resolved by the end of this year.

As we mentioned in our July 25, 2023 Alphabet earnings note, less economic uncertainty has begun to benefit the large walled-garden platforms such as Google and Meta, displayed by the acceleration in their ad revenue, but we think it will take a bit longer for ad spending to pick up more widely across the internet or on open internet properties, which PubMatic and Magnite service. We look for some improvement beginning in the fourth quarter.

MediaMath, which represented many advertisers and agencies, was one of PubMatic’s top 10 buyers. It will take a couple of quarters for the advertisers and agencies to replace MediaMath with new demand-side-platform providers and to restart their programmatic ad buying.

In the meantime, we are pleased with PubMatic’s access to more ad inventory through CTV, bringing onboard more publishers, and tapping into the retail media channel.

Total revenue came in at $63.3 million, up only 0.5% from last year as weaker pricing due to the current economic environment offset a 35% increase in ad impressions. Growth in CTV revenue (up 30%) was offset by a decline in online video (down 10%) and display (down 1%). Adjusted EBITDA margin of 19% was below last year’s 37% due to lack of revenue growth, more investments in research and development, and the bad debt expense associated with MediaMath’s bankruptcy.