PubMatic is a newer stock for us here at Concinnus Financial. The software company helps publishers manage and sell their digital ad inventory to marketers. PubMatic is a small firm in this massive niche (some half a trillion dollars a year globally on digital advertising spend, dominated by the likes of Google and Facebook), but the tiny company is off to a great start.
Simply put, the third quarter 2021 earnings report was far better than anticipated. Despite growing worries over digital ad spending impact due to Apple’s user privacy changes this year, PubMatic didn’t skip a beat.
Q3 revenue was $58.1 Million, up 54% year-over-year, well above management’s forecast for as much as $53 million.
Management also said its connected TV (CTV, digital ads delivered to an internet-connected TV service like Hulu or Paramount+) grew “seven times over the third quarter of 2020.”
Adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) was $24.3 million, an adjusted EBITDA profit margin of 42%.
In spite of the user information tracking shut down from Apple’s privacy updates, PubMatic was able to score new customers. For instance, the number of publishers it helped monetize ad inventory for increased to 154 during the third quarter, compared to just 114 this same time in 2020.
Potential for more
In a growing digital ad industry worth hundreds of billions of dollars in spending every year, PubMatic said it only brings in about 2% to 3% of its addressable market. Clearly, this small outfit has plenty of potential left ahead of it.
The Q4 outlook is for revenue to be 32% higher year-over-year. This is on top of a busy 2020 season that benefited from e-commerce holiday shopping and political advertising related to elections.
With free cash flow of $30.6 million through the first nine months of 2021 compared to slightly negative in 2020, PubMatic is growing it’s bottom line quite well. We’re still early on in our journey as PubMatic shareholders, but we’re happy with the company’s business growth execution so far.
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