Shares of programmatic promoting platform PubMatic (PUBM 3.70%) have been pummeled over the previous few years. The inventory surged within the early days of the pandemic, nevertheless it’s misplaced greater than 80% of its worth since peaking in 2021.
On the floor, PubMatic’s first-quarter report wasn’t something to jot down dwelling about. Income sank 4% yr over yr, the corporate reported a GAAP web loss, and the outlook for the second quarter wasn’t notably spectacular. However there’s so much to love concerning the firm, and the inventory seems like a strong discount.
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Progress is best than it seems
PubMatic’s income development was affected by two issues within the first quarter. A requirement-side platform purchaser modified its public sale methodology in 2024, lowering income from that purchaser. That change will not be lapped till mid-2025. The decline in political promoting from an election yr in 2024 knocked down income as properly. The 70% of PubMatic’s income that wasn’t touched by these two elements jumped by 21% yr over yr within the first quarter. That compares to 16% development within the fourth quarter of 2024.
The variety of advert impressions processed by PubMatic’s platforms continues to develop at a wholesome fee. Within the 12-month interval ending with Q1 2025, PubMatic processed 280 trillion advert impressions, up 27% yr over yr. Sure areas are additionally performing properly for the corporate. Omnichannel video income rose by 20% in Q1, linked TV income soared by 50%, and income from rising classes greater than doubled.
Whereas PubMatic’s total income might not develop a lot in 2025, income excluding these two short-term headwinds is anticipated to develop by at the least 15%, with total income development accelerating within the second half of the yr. Serving to the trigger is the corporate’s new AI-powered media shopping for platform, which was launched final week. The brand new platform helps make the advert shopping for course of easier and extra environment friendly, and it has proven good outcomes for consumers in beta testing.
Maintaining prices in examine
PubMatic owns and operates its personal infrastructure. As a substitute of paying a third-party cloud computing supplier based mostly on utilization, the corporate can tune capital spending to match anticipated demand and unlock efficiencies that drive down per-impression prices. Over the previous two years, PubMatic’s price of income has risen simply 16% regardless of a 60% leap in advert impressions. Over the previous 12 months, the corporate’s price of income per million impressions has dropped by 20%.
PubMatic plans to spend round $15 million on capital expenditures in 2025, a 15% discount in comparison with its earlier outlook. Pulling again on capital spending frees up money for different customers, together with a further $100 million for share buybacks, and it could possibly assist push up infrastructure utilization charges and drive down per-impression prices additional.
Whereas PubMatic posted a GAAP web loss for Q1, free money stream remained constructive. Over the five-year interval ending within the first quarter of 2025, the corporate has averaged about $37 million in free money stream yearly.
A lovely valuation
Whereas PubMatic’s profitability metrics are below strain proper now, the inventory seems like a strong purchase based mostly on the common annual free money stream era over the previous 5 years. With a market capitalization of round $580 million, the inventory trades for roughly 16 instances that free money stream determine.
Given PubMatic’s long-term development prospects and its underlying income development proper now, that valuation seems cheap. In case you think about a cash-rich and debt-free steadiness sheet, the state of affairs seems even higher. The corporate ended Q1 with $144.1 million in money and securities, giving it loads of ammunition for share buybacks and adaptability to make development investments or ramp up capital spending as wanted to satisfy demand.
Whereas an financial slowdown might hit the promoting business and damage PubMatic’s income this yr, the corporate’s outcomes are higher than they seem, and the inventory seems like an amazing purchase.
