Highlights
PubMatic reported its second-quarter 2024 earnings on Thursday, August 8th, a quarter marked by steady growth and strategic advancements in key areas like omnichannel video and mobile app advertising. However, the company also faced significant challenges, particularly with a key demand-side platform (DSP) buyer changing its bidding method, which impacted revenue growth, income from operations, and the stock price.
Revenue
PubMatic reported revenue of $67 million for Q2 2024, reflecting a 6% year-over-year increase. This was less than could have been expected – PubMatic went through the same boom and bust cycle as did several other AdTech vendors: It had shown fantastic growth rates during the Covid online boom in 2021, thanks to their strong video/CTV product. In 2022, it had shown less, but decent growth, and in 2023, it experienced a slump. But then in 1Q24, again like other vendors, revenue growth recovered, and they expanded by a whopping 20% – only to be followed by the much weaker 6% growth in the last quarter. (See below chart.)
A key factor behind the lower growth rate was an unexpected and unannounced change in bidding method by one of PubMatic’s top DSP buyers, who switched from second-price auctions to first-price auctions (rumored to be Yahoo). This change led to fewer buys, reducing PubMatic’s growth rate by 4 percentage points. Without the impact of this DSP client’s fewer purchases, the growth rate would have been 10%.
The late timing of the DSP’s bidding method change in the quarter —only in May—was both good and bad news for PubMatic. The good news was that it only partially affected the quarter, while the bad news was that it left the company little time to counteract the effect.
It’s important to note that the decline in sales caused by the DSP will continue to affect PubMatic’s top line. However, there are positives as well. This DSP was the last of PubMatic’s major partners to make the switch to first-price auctions, meaning the company can now operate on firmer ground. Additionally, PubMatic now has time to adjust to this revenue loss.
Overall, the company’s revenue growth is being driven primarily by its focus on high-value formats and channels such as omnichannel video (including CTV) and mobile app advertising. These areas grew 19% and 20% year-over-year, respectively, and now represent a substantial portion of total revenue.
Revenue by Geography
PubMatic reports its revenue across various regions, with North America being its largest market at 59%. EMEA has become an increasingly strong contributor, with its share growing from just 19% in early 2019 to 30% today. The Asia-Pacific region contributes 9%, and the rest of the world 2%.
PubMatic’s international diversification is an advantage over its main competitor Magnite. This diversification insulates the company against regional economic or regulatory shocks and, with a sales infrastructure already in place, offers growth opportunities that competitors cannot match.
Operating Income
The sudden drop of purchases by one of their top DSPs also affected income. PubMatic reported an operating loss of $4 million, translating to a margin of approximately -6%. Expenses stayed the same, but revenue suddenly and unexpectedly shrank, which immediately reduces profitability. Although the revenue loss was slight—only about $2 million for the second quarter—the small size of PubMatic’s income from operations meant that even minor revenue losses could turn income negative.
PubMatic has been profitable on an annual basis ever since the company went public (unlike Magnite, which has never shown an annual profit). Given management’s focus on profitability, it is likely that PubMatic will take steps to return to positive income from operations. This could involve faster growth in other areas and possibly cost-saving measures.
Performance Vs. Company Guidance
PubMatic’s Q2 revenue of $67 million came in slightly below expectations, primarily due to the DSP bidding change that affected desktop display revenues. As a result, the company had to adjust its full-year revenue outlook downwards by $10 million, accounting for a $2 million shortfall in Q2 and an expected $8 million impact in the second half of the year. This forecast already includes measures to mitigate the revenue loss from the DSP bidding change.
Despite these setbacks, PubMatic’s strong performance in omnichannel video and mobile apps provided some offsetting growth. The company’s ability to maintain a high adjusted EBITDA of $21 million, a margin of 31%, despite revenue pressures, is a positive sign. However, this figure includes non-product income from interest, foreign exchange gains, and a hefty $7.5 million accounts receivable write-off due to a client DSP bankruptcy (MediaMath).
Stock Price
Following the earnings announcement, PubMatic’s stock was penalized, dropping 28% the next day and remaining at that level after the slower-than-expected revenue growth and loss from operations due to the DSP buyer’s changes. The fact that this happened despite the relatively small miss and the absence of fault on PubMatic’s part highlights just how closely investors are watching the company’s ability to navigate the evolving programmatic landscape. The stock’s future performance will depend on PubMatic’s ability to demonstrate continued growth in its high-value segments and achieve cost savings.
Historically, PubMatic’s stock has performed well, slightly better than its main competitor Magnite. This outperformance was due to the company’s international diversification and profitability—neither of which Magnite can claim. Note that the stock chart below does not yet reflect PubMatic’s post-earnings decline, which would bring the total stock price loss to 50%, now almost even with Magnite.
PubMatic’s better stock performance, despite slower relative revenue growth compared to Magnite, demonstrates the market’s emphasis on international expansion and profitability. However, PubMatic did outperform the broader U.S. programmatic advertising market.
Cash Reserve and Strategic Flexibility
As of Q2 2024, PubMatic reported a strong balance sheet with $166 million in cash and marketable securities and no debt. This financial strength provides the company with significant flexibility to invest in growth initiatives, pursue strategic acquisitions, and weather potential market downturns. The company’s recent $100 million share repurchase program, with another $75 million authorized, also reflects confidence in its long-term prospects.
Looking Ahead
PubMatic’s Q2 2024 earnings report highlighted several key developments that will shape the company’s future. The ongoing expansion of its omnichannel video and mobile app businesses, coupled with new partnerships with major players like Roku and India’s Disney+ Hotstar, positions the company well for continued growth. Additionally, the launch of new products like Activate, which streamlines access to premium CTV supply, shows that PubMatic is innovating to meet the evolving needs of advertisers.
However, the company also faces challenges. The recent DSP bidding changes underscore the volatility inherent in the programmatic advertising market, and macroeconomic uncertainties could further impact growth. PubMatic will need to continue investing in its technology and expanding its customer base to navigate these challenges effectively.
Conclusion
PubMatic’s second quarter of 2024 was marked by both opportunities and challenges. The company’s strong performance in omnichannel video and mobile app advertising highlights its ability to capture growth in high-value segments, while its robust profitability underscores the efficiency of its business model. However, the impact of changes by a major DSP buyer and broader macroeconomic uncertainties suggest that PubMatic will need to remain agile and innovative to sustain its growth trajectory.
Looking ahead, PubMatic’s focus on expanding its product offerings and deepening its relationships with major advertisers and publishers will be key to its success. With a strong financial foundation and a clear strategic vision, PubMatic appears well-equipped to navigate the complexities of the programmatic advertising landscape.
About PubMatic
PubMatic is a leading digital advertising technology company that provides a cloud infrastructure platform for publishers to maximize their digital advertising revenue. The company’s platform enables real-time programmatic advertising transactions across a variety of formats and devices. To learn more, visit PubMatic.
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