Shares of advertising-technology company PubMatic (PUBM -0.70%) fell 23.9% in March, according to data provided by S&P Global Market Intelligence. The entire drop came early in the month, when Alphabet's Google made an announcement that sent shockwaves throughout the entire ad-tech industry. However, PubMatic started April with an important announcement of its own that helped it rebound.
Google is eliminating third-party browser cookies, something that ad-tech companies use to deliver targeted advertising for their clients. Ad-tech stocks like The Trade Desk, Magnite, and PubMatic plummeted on the news, as investors presume this is categorically bad news for the industry. However, executives at these companies (notably Jeff Green, CEO of The Trade Desk) have downplayed the risk and some even believe it's good news in the long run. Then again, you'd expect them to say that.
However, PubMatic investors have more to support a long-term thesis than just blind optimism. On April 1, the company announced that its OpenWrap product is performing quite well, which sent the stock soaring. OpenWrap is a bidding wrapper -- a service that allows publishers to fill an ad slot by receiving bids from multiple demand-side advertising players.
The key takeaway here for investors is that OpenWrap has recently been updated to better track digital identities without cookies. The fact that it's performing well suggests that PubMatic can adapt and thrive in a cookie-less world.
There's another element to PubMatic's story that investors should keep in mind. The company only had its initial public offering (IPO) in December. IPOs frequently trade in a volatile way in the early months, as the market tries to decide what the stock is worth. Therefore, shareholders should somewhat expect a wild ride with PubMatic stock for now, regardless of what's happening in the ad-tech world.
That said, I see plenty of reasons to stay in the saddle with this bucking bronco. PubMatic grew revenue 31% year over year in 2020, with growth accelerating in the back half of the year as more and more advertisers redirected spending toward digital channels -- a trend that should continue long term. Existing customers appear to love the company, as evidenced by their increased spending last year. And employees seem to love working there and are behind the CEO, as evidenced by stellar ratings on third-party review platform GlassDoor.
If you own PubMatic stock, you can take solace in knowing its drop in March wasn't due to a company-specific problem but rather an industry-related concern. But if you don't own PubMatic stock, now is a good time to add it to your watch list and learn more about it.