PubMatic, Inc. (PUBM) provides a cloud infrastructure platform that enables real-time programmatic advertising transactions for internet content creators and advertisers, allowing developers and publishers to maximize returns on advertising investments. This writer is bullish on PUBM stock.
Publishers and app developers use PubMatic's infrastructure to connect with advertisers and advertising agencies to facilitate transactions. PubMatic operates on the sell-side of this transaction by working with the publishers. A company like The Trade Desk (NASDAQ:TTD) operates on the buy side. (See PubMatic, Inc. stock charts on TipRanks)
Changes in the Advertising Market
The steady demise of cable and satellite television and the rise of mobile apps and connected television (CTV) has changed the way advertising agencies conduct business. They are no longer looking to run short network television spots with the goal of reaching as many eyes as possible regardless of demographics. Now, they need highly targeted, omnichannel, programmatic campaigns to maximize returns.
What is "programmatic" exactly? For example, perhaps a consumer is watching a video on "how to get started investing" through a popular digital platform. Instead of showing a one-size-fits-all advertisement for a random product, the advertisements for this video would likely be for a brokerage service or similar financial product. This is exactly what the video watcher is looking for and the advertisement would be highly targeted. PubMatic's platform facilitates this transaction, of which there are billions daily throughout the world.
Growth and Profitability
The advertising space is generally cyclical. The holiday shopping season in Q4 provides for greater revenues than other times during the year. For this reason, it is helpful to look at revenue metrics on a trailing-twelve-month (TTM) basis. PUBM has consistently increased both revenue and EBITDA over the last several periods.
PubMatic has generated $187M in revenue for the twelve months ended June 30, 2021. The company has generated nearly $60M in EBITDA over that period, which is a compelling 30% EBITDA margin.
There is a limited amount of data available as PUBM went public recently, in December 2020. PubMatic also has a squeaky clean balance sheet. The company has $331M in current assets with only $181M in current liabilities. PUBM is long-term debt free.
Not everyone is buying into PubMatic's bull case, however. The stock has a large short interest with nearly 15% of the float sold short. This is likely due to the value metrics. The stock trades at a price-to-earnings (PE) ratio of 55.1 on a forward basis. The company also released tempered guidance for Q3 2021. The guidance calls for less than 5% revenue growth from the prior quarter.
Analysts Very Optimistic
Wall Street is increasingly bullish on PUBM stock. All seven analysts reported by TipRanks have a "buy" rating on the stock. The average analyst PubMatic price target is $47.14. This implies more than 66% upside from the stock's September 8, 2021 closing price of $28.31. Even the lowest analyst target of $37 implies significant upside potential.
Summary on PubMatic
PubMatic has become a respected player in the programmatic advertising space on the sell-side. The secular trends are extremely positive for this sector as the switch from traditional advertising to digital, targeted advertising accelerates.
PUBM is also profitable, growing, and has no long-term debt. There are valuation concerns, however if management continues to execute, the stock should provide substantial returns for long-term investors.
Disclosure: At the time of publication, Bradley Guichard did not have a position in any of the securities mentioned in this article.
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